Restructuring of Railways in France: a Pending Process François Batisse

Feature Railway Reforms in Europe

Restructuring of Railways in France: A Pending Process François Batisse

Railways around the world have been responsibility for planning and financing infrastructure, the CSSPF gave a rather undergoing different styles of reform at passenger local rail transport. SNCF critical assessment of the reform in different speeds for the last few decades. President Louis Gallois drew up a December 2001, commenting that the American private railway companies Corporate Plan known as ‘the Industrial debt problem remained unsolved have concentrated on freight transport Project’ including action programmes because the cumulative debts of SNCF and customer-oriented management and aiming at a strategy of consolidation and RFF had stood at total of nearly €40 demonstrated their commercial viability instead of the sort of massive investment billion since 1997. Institutional without any financial support from seen in previous years. The objective was separation had brought into question the government. In Japan, most railway to reduce losses by increasing business system’s strategy. Moreover, issues not companies only carry passengers. Fifteen volume within existing resources with addressed within the framework of the years after the division and privatization emphasis on organization based on reform concerned transport policy itself of the former Japanese National Railways different custom-oriented activities, such in France and Europe, including (JNR), the three JR companies (JR East, JR as main-line passenger services, regional harmonizing modes, internalizing Central and JR West) on the main island passenger services, Ile-de-France external costs, multimodality, choosing of Honshu are now profitable without any passenger services and freight. investment, etc. For SNCF itself, in 2000, government subsidies for operations. In However, following worries voiced by all the company’s accounts had been in most of Europe, neither passenger nor railway labour unions that the split of the black for the first time in many years freight transport generates sufficient SNCF was a prelude to privatization, in due to falling losses. However, less income to operate national railways at a March 1999, the French government favourable economic and social profit and the current solution has been created the High Council on Railway circumstances in 2001 plunged SNCF to separate railway operations from Public Service (CSSPF). Its remit is to €134 million back into the red. An even infrastructure and use public funds to control the development and balanced more serious deterioration of the financial contribute to infrastructure costs. The evolution of the rail sector and to situation is expected in 2002 because British privatization model included maintain integration of the public service. losses in the first half had already reached infrastructure costs in the track access As required by the government, after 3 €186 million. charges to the Train Operating years of separation of rail operations and Another problem is the attitude of the Companies (TOCs) and freight operators. France adopted a very different solution € when railway reform was decided in SNCF Group Financial Results for 2000 and 2001 ( million) 1996. It was more of a ‘salvage 2000 2001 operation’ with two main planks: Group Result splitting-off of infrastructure Sales ex-VAT 19,839 20,129 management, and transfer of rail transport Income before interest, depreciation and tax 1,605 1,155 responsibility to regional authorities (see Operating income 407 20 Income before exceptional items of consolidated companies 74 -310 JRTR 8, pp. 31–39). Consequently, after Net income, group share 177 -140 1997, French National Railways (SNCF) remained in charge of railway operations Result by Branch Passenger transport while a new French Railways Sales 8,562 8,562 Infrastructure Authority (RFF) assumed Income before interest, depreciation and tax 1,130 888 authority for investment in and Operating income 343 230 management and development of the Freight national rail infrastructure. RFF took over Sales 6,512 6,622 SNCF assets valued at FFr168 billion Income before interest, depreciation and tax 184 37 (now €26 billion) which was essentially Operating income -69 -283 tantamount to transferring SNCF’s entire Infrastructure, Assets and Know-how debt to RFF. The other main feature of Sales 4,765 4,945 railway reform in France was the January Income before interest, depreciation and tax 291 230 2002 transfer of organizational powers Operating income 133 73 from state to regional authorities with full

32 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. railway labour unions and staff towards Evolution of Rail Industry Debt in France from 1996 to 2001 the objectives for the next stage of the SNCF Corporate Plan covering 2003–05. Net debt (€ billion) 31 Dec 1996 1 Jan 1997 31 Dec 1997 31 Dec 1998 31 Dec 1999 31 Dec 2000 31 Dec 2001 After initially moving slowly to assign SNCF 31.71 6.89 7.62 7.73 7.30 6.49 7.30 dedicated resources to each ‘activity,’ at RFF 20.46 21.89 22.46 22.56 23.10 23.30 the end of 2000, SNCF decided to take SNCF + RFF 31.71 27.35 29.51 30.18 29.86 29.59 30.60 far-reaching measures to allocate staff SAAD 4.36 8.72 8.54 8.42 8.95 8.93 8.93 more closely to each activity sector. The Total 36.07 36.07 38.05 38.60 38.81 38.52 39.53 plan was called ‘Cap Clients’ to emphasize the need for customer- oriented management, but the unions early as 1990, the government had already will be held until it is paid off. A total feared that the plan was a step towards transferred a substantial part of SNCF debt €10.7 billion has been transferred to the privatization and had the scheme shelved to the national debt through a Special SDA until 1999 as follows: in April 2001. As a result, like Debt Account (SDA) but that soon proved • €5.8 billion at SDA creation on 1 ‘privatization,’ the term ‘activities’ insufficient to solve the problem of January 1991 became taboo, although the 2000 and growing insolvency when the cost of • €4.4 billion on 1 January 1997 when 2001 accounts openly referred to each constructing the high-speed TGV network rail reforms implemented activity and the annual reports showed had to be met. Consequently, in 1996, in • €0.6 billion on 1 January 1999 organization charts clearly separating accordance with EU Directive 91/440/EEC together with amended structure activities. Preparation of the third stage recommending separation of providing for loan substitution of the Corporate Plan for 2003–05 is infrastructure and railway operations and underway using meetings and wiping off existing debt, the government The SDA resources consist of questionnaires designed to get employees decided to strive to allocate the rail debt contributions from the state treasury to express their views on subjects such according to its sources. In addition to amounting to €677 million in 2001 plus as Economics and Management that the amount already assigned to the SDA, SNCF supplementary contributions of cannot be discussed without reference to most of the balance was allocated to the €18 million. On 13 December 2001, the activity-based management project. new RFF with a remit to stabilize and the Special Debt Account liabilities This is especially important because the repay the debt later—a monumental task amounted to €8.9 billion, excluding results of the various activities are more that is still far from complete. SNCF interest. So at the moment, the Special different than ever before. The passenger remained responsible for only 25% of its Debt Account represents about 25% of high-speed business is still growing as are accumulated historic debt, but soon found the total liabilities, although the amount regional passenger services to a lesser the interest burden very detrimental to will grow if SNCF and RFF manage to extent. However, other conventional investment capacity. Therefore, since convince the government that under main-line passenger traffic and freight are 1997 until the end of 2001, instead of existing economic conditions there is no plunging. Activity-based management being stabilized, the total debt has hope of substantial reduction of their seems more necessary than ever to try to increased to €40 billion. Incidentally, liabilities without another massive recapture lost customers. Therefore, there is no immediate prospect of the debt transfer to the national debt comparable France still needs large rail restructuring being wiped-off, which is another good to that in countries like Germany where to achieve the improvements seen in reason for opponents to question the the total rail debt has been transferred. America, Japan and some European SNCF split-up. Moreover, RFF and SNCF countries (see JRTR 26, pp. 4–7). are now suggesting transferring another SNCF Still in debt €15 billion to the SDA in order to halve Nearly 20% of the total rail debt is still their burden. borne by SNCF itself, a stark contrast to Debt Management Under Fire 1 January 1991 saw the setting-up of the the complete write-off of railway debt in Service Annexe d’Amortissement de la some other European countries. SNCF As elsewhere, the French rail reforms Dette (SAAD) with a remit to split off the finds it increasingly difficult to pay interest, aimed to improve or at least stabilize the part of the SNCF debt for which the let alone repay the principal, because financial situation through reduction or government will foot the interest and resources for debt reduction cannot be even elimination of accumulated debt. As capital payments. The transferred debt allocated when investment is needed to

repayment peaks until 2006. RFF has adopted a far more pragmatic approach to infrastructure investment than SNCF and emphasized getting more from the existing network to develop all types of traffic, not just high speed, which has been accused of contributing to accumulated debts equivalent to 4 years of turnover. Concerning costs, RFF has held infrastructure management payments to subcontractor SNCF down at €2.6 billion, while financial costs are still slightly increasing. RFF’s capital endowment from the state is approaching €2 billion a year. Income from track access fees amounted to €1 billion in 2000 and have nearly doubled in 2002. Nevertheless, RFF still advocates transfer Management of and investment in infrastructure is the responsibility of RFF. (Author) of up to €10 billion of its liabilities to the national debt. cope with traffic growth, and improved million loan package was made available service quality as part of a policy aimed in June 2001 and the year ended with a debt Unfair criticism for failing to at increasing volume. Nevertheless, we of €7.3 billion, very close to the €7.5 resolve rail debt and investment must remember that SNCF has not been billion limit that SNCF does not want to problems responsible for financing infrastructure exceed in order to avoid excessive After 5 years of operation since the 1997 since 1997—its commitments are limited charges that could eventually lead to a reforms, RFF believes that stabilization of to investment in other sectors, mainly drastic reduction in investment capacity. rail infrastructure debt is possible but traction and rolling stock, with the latter repayment of the principal remains a burden being shouldered more-and-more RFF Bearing brunt distant target. In turn, the railway labour by regional authorities who have been RFF was set up to manage, develop, and unions point out that splitting up the managing local passenger rail services invest in the national rail infrastructure former SNCF debt has not prevented the since January 2002. with assets valued at FFr168 billion in total rail debt from rising higher than it Initially, the amount of SNCF liabilities 1997, which was the size of the SNCF was 5 years ago and that the resultant in 1996 was FFr70–81 billion, but this debt transferred to RFF for repayment. poor cash flow is hampering investment was limited in early 1997 to FFr45.2 This is why each successive RFF Annual development. Initially, in 1997, the total billion (€6.89 billion) in order to avoid Report since 1997 stresses the need to investment of RFF and SNCF increased adversely impacting SNCF’s cash flow. stabilize rail debt, although no real start very slightly but it has barely approached Actually, the SNCF investment has been made in 5 years. Initially, the €3 billion since 1999 because the split programme was not really hampered by government wanted to make RFF has neither increased investment volume excessive debt servicing. However, 1997 responsible for SNCF debts of FFr134 nor improved investment management ended with a total debt of FFr50 billion billion (€20.46 billion), but the burden owing to lack of self-financing capacity. (€7.62 billion) which increased to increased to FFr143.6 billion (€21.89 At the moment, investment is almost FFr50.7 billion (€7.73 billion) in 1998. billion) at the end of 1997—nearly three equally split between RFF and SNCF and Then, the surge in traffic volumes in 2000 times the amount assigned to SNCF itself. is about 40% financed by RFF’s and allowed SNCF to post positive results and The debt rose to €23.3 billion at the end SNCF’s own resources. However, the two reduce the debt to FFr42.6 billion (€6.49 of 2001 and the present target is to try to companies’ self-financing capacity is billion) at the year end. However, SNCF stabilize it at about €24.5 billion in 2002. expected to grow only if the debt burden could not repeat its 2000 performance A portfolio of assets worth €3 billion has is reduced somehow, which means that in 2001 and reported losses. A €500 been made available to smooth out the declared ambitions of doubling

34 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. investment by 2004 or 2005 are infrastructure in 1997, the left-wing CSSPF’s Criticisms of rail reform completely dependent on increasing state opposition immediately promised to After attacking the failure to resolve the and regional subsidies. ‘reform the reform’ when they were debt problem, the CSSPF report strongly Consequently, wiping-off of the SNCF returned to office. Ironically, although a underlined the drawbacks of the and RFF debt was one of the first policy new left-wing government was elected a institutional separation between statements from the CSSPF. The Council few months after the Rail Reform Law infrastructure managers and rail operators said, ‘The Council recommends that the came into force, it did not go back on the on one hand and between project SNCF and RFF debt problem be wiped- reform but pushed ahead with the split- managers and contractors in the off within a short time-frame in order to up despite pressure from railway unions. infrastructure sector on the other. It felt give the two companies a sound financial The only thing the new government did such drawbacks called into question the basis through reducing their debt at the request of Transport Minister Jean- system’s strategy and action unit, because servicing and allowing them to have the Louis Gayssot and to placate railway separation was frequently blamed for the cash flow they need. Indeed, the debt unions was to create the CSSPF as a serious lack of coordination between RFF currently shared by SNCF and RFF eats consultative body designed to preserve the and SNCF, leading to delays, into the growth potential of the railway unity of rail services through coordinating contradictory views and costly changes system by making it dependent upon the SNCF and RFF policies. The CSSPF was in working rules. will of government as expressed by their given responsibility for the whole rail CSSPF President Filleul’s 13 annual budget decisions.’ industry and is permitted to express an recommendations came straight from the Actually, this CSSPF recommendation came opinion on major changes in rail policy. Council’s report backed up by three main from a Council that is largely composed of Its main mission for 2000 was to assess areas spotlighting priorities to remedy the railway union leaders who staunchly opposed the reform from the perspectives of reform’s shortcomings. The first priority rail reform, describing it as useless because it finances, service unity and industrial was to restore the railway’s unity of has failed to solve the debt problem it was relations. However, publication of its strategy and action within a framework suppose to deal with and because it has report was delayed until November 2000 of new revised contractual relations with introduced a split between SNCF and RFF that due to internal dissent between members the state and social partners. It basically is causing problems. Nevertheless, after 5 from railway unions who wanted a critical proposed creating a more integrated years, there is now little chance that the assessment of the reform and those in overall structure called ‘Etablissement government will backtrack on rail favour of the status quo. A few days later, Public Ferroviaire Français’ to coordinate restructuring. Separation of railway Mr Jean-Jacques Filleul, the CSSPF SNCF and RFF strategy that would infrastructure and operations and debt President, presented his own list of 13 become a main partner for restructuring are now fundamental to reviving recommendations in order to open debate implementation of rail policy with the the rail industry in France and in most on the implementation of the reform. central government and regional European countries (JRTR 29, pp. 19–23). Immediately after the report was authorities. However, no action has been published, RFF President Claude taken so far to superimpose such a third Controversial Evaluation of Martinand openly regretted that CSSPF, body on top of SNCF and RFF. Rail Reform ‘…had not produced a proper evaluation.’ The second recommendation parallelled and soon delivered his own assessment the Council’s own proposal that the state Right from the start of the French rail of the reform that was quite different from quickly draw up top-priority rules to reforms, the railway labour unions have that of CSSPF and quite favourable. These allow more efficient and more never ceased demanding a return to SNCF contradictory views about the rail reform transparent management of infrastructure unity, pointing to the splitting-off of eventually reached a status quo when a capacities. According to European infrastructure as the main cause of the lack right-wing government was elected in Commission (EC) instructions, allocation of improvement in the industry’s financial April 2002. It is sure that the present of train paths is the remit of the position. Currently, the unions are up in government will not renege on its own infrastructure authority (RFF in France), arms, denouncing the separation as 1997 Rail Reform Law, which is in but SNCF has always been reluctant to useless and harmful to the industry and accordance with EU directives on hand over this responsibility to RFF. calling on the government to backtrack transport as well as the views of the Consequently, the CSSPF suggested that on the separation. When the right-wing majority of liberal French MPs. the Ministry of Equipment, Transport and government introduced the separation of Housing should control allocation of train

paths. Eventual harmonization with and almost stabilized rail debt were all Paris in November 2000. European rail European legislation when international thanks to benefits derived from the reform infrastructure authorities have formed an rail freight is liberalized from 15 March and the specific actions of the RFF. The international body of infrastructure 2003 will give RFF responsibility for train long-awaited evolution of the managers known as European path allocation via the Office de institutional and financial context of the Infrastructure Managers (EIM) that is Répartition des Capacités. However, rail industry included higher capital separate from the rail operator group. SNCF will still compile train diagrams, endowments from the state—totalling €2 RFF has always been keen to minimize under the supervision of the state, which billion a year since 2000—as well as a disagreements with SNCF although it is will arbitrate any conflicts. growing total contribution to rail sector no secret that their relationship has not Two other recommendations concern needs from all public authorities of up to always been amicable, particularly conversion of planning agreements €10 billion a year. concerning track access payments to RFF between the state on one hand and SNCF One of the main benefits of the rail reform for use of infrastructure and payments to and RFF on the other into multi-year plans is clarification of the respective SNCF for maintenance and managing as well as for the establishment of a responsibilities of the state, regional network infrastructure work performed by procedure to reduce industrial conflicts. authorities, RFF and SNCF. RFF has been SNCF on behalf of RFF. Another but less However, neither has been followed up able to reorientate investments thanks to important problem is developing at so far. new ‘virtuous’ conditions for financing maintenance and new work sites because CSSPF’s second priority was an initial 5- rail infrastructure projects; RFF is not newly-appointed RFF local managers are year plan to stabilize the railway’s allowed to undertake projects that will intervening in the day-to-day work financial position by transferring €15 have a negative effect on its balance assigned to SNCF. The growing billion of railway debt to the national debt sheet. Consequently, all projects must possibility of awarding new work directly and raising investment to €5 billion a generate returns of about 8%, meaning to private contractors is proving to be a year—70% coming from state and that most if not all require public funding Sword of Damocles for SNCF. regional authorities and 30% from SNCF at regional, national and European levels. According to RFF, overall, the French rail and RFF. There is no such 5-year railway Thus RFF has adopted a more pragmatic reform can stand comparison with other finance plan at the moment. approach to investment in order to get restructuring models implemented in CSSPF’s third priority aimed to address more out of an improved existing network keeping with EU Directive 91/440/EEC fundamental issues regarding transport by developing all types of traffic rather at least regarding the separation of policy in France within a European than concentrating on high speed while infrastructure and operations if not the framework that had been largely forgotten maintaining a high level of safety. introduction of competition in in the 1996 reform. Laying the Investment is split into three categories: operations. Britain’s radical response to foundations for active regulation of the refitting and safety, infrastructure EU Directive 91/440/EEC of splitting transport sector would ensure sustainable improvement, and new lines. British Rail into about 100 different development in transport’s economic, The most specific actions undertaken by companies increased traffic volumes by social and environmental constitutive RFF feature more active debt 30% in the first 5 years but a series of elements. There is little chance that such management leading to debt stabilization fatal accidents raised serious concerns a vast programme will see the light of day in the near future and more transparent about Railtrack’s ability to manage the anytime soon. multi-expert appraisal of projects. RFF is infrastructure (see pp. 16–31 in this issue). also very keen to make track access Germany has also endorsed Europe’s RFF’s Optimistic assessment of charges an instrument of network liberal orientation and transferred the reform development. Current charges are total debt of Deutsche Bahn AG (DB AG) Immediately after publication of CSSPF’s insufficient to allow RFF to fund to the national debt. However, DB AG critical report, RFF President Martinand investment wholly from this source. RFF is still the holding company for the counter-attacked by releasing a well- aims to have a more ‘coherent’ charging infrastructure manager DB Netz AG, and documented statement of the key role structure in France as well as in Europe the various railway operators including that RFF is playing in the railway reform because it is impossible to develop rail DB Reise and Touristik AG, DB Regio AG programme. Martinand noted that the freight in Europe without harmonizing and DB Cargo AG. Consequently, RFF unquestionable recovery of the rail sector access charges. The first conference on views the French rail reform as less since 1996, SNCF’s balanced accounts European rail infrastructure was held in radical and less costly than the reforms

tonnes tonne-km passenger number passenger-km 90 900 90 900

80 800 75 250 70 700

60 200 60 600

50 500 45 150 40 400

30 100 (million) Tonnes 30 300 Tonne-km (million) Tonne-km Passenger-km (million) Passenger-km

20 200 (million) number Passenger 15 50 10 100

0 0 0 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

elsewhere and is going ahead as of Europe. However, pressure for reform entrants have together gained just 4% of expected. Many opponents of the French from the EC had a lukewarm impact in total traffic. To all intents and purposes, reforms admit off the record that there is France because of its adoption of a very the British privatization of BR abandoned no real reason to turn back after 5 years special kind of separation of infrastructure the concept on-track competion between of relative plain sailing. and operations and because of its refusal TOCs right from the planning stages (see to introduce internal competition. pp. 16–31 in this issue). Reluctance to Introduce Although the government proceeded Competition half-heartedly with the separation Liberalization of international rail required by EU Directive 91/440/EEC, the freight in March 2003 Right from the start of European railway actual on-track work is still carried out Reorientation of the French attitude liberalization, the French government has by the SNCF infrastructure division while towards rail liberalization cannot be almost always been at the forefront of RFF deals only with the managerial side. ruled out when on-rail competition in opposition to introduction of on-track EU directives on competition have so far international rail freight starts in France competition. Many of the reasons are not been ignored. On-track competition is in March 2003. This change is due the as relevant today as they were 5 years still only a theoretical possibility because prospect of impending European rail ago and it is not out of the question that there has been no new entrant in the 7 liberalization since January 2002 when a change in attitude might lead to a years since European legislation the EC declared a state of emergency on reappraisal of on-track competition. governing third-party access to tracks was the railways, pointing out that rail market French opposition to on-track competition incorporated into French law. share was continuing to decline, was long justified by rail’s (especially SNCF is still completely satisfied with its particularly for freight, with trains freight’s) higher share of the transport traditional cooperation with carrying only 8% of tonne-km in Europe market than in most other European neighbouring railway undertakings. The in 1998 compared to 21% in 1970. The countries. Another factor was the Thalys high-speed passenger link new EU legislation on open access will undeniable commercial success of the between Paris, Brussels, Amsterdam and cover international rail freight and apply TGV in the passenger market, which Cologne is often quoted as a perfect to the 50,000 route-km of the Trans- actually obscured the continuous decline example of successful cooperation European Freight Network including of conventional traffic as well as SNCF’s between railway companies. Thalys is 10,000 route-km in France. Open access rapidly worsening finances. Despite French in France, Belgian in Belgium, will probably be extended to all freight FFr150 billion of investment in the high- Dutch in the Netherlands and German services across Europe around 2006. speed network between 1980 and 1995, in Germany without any need to resort Not surprisingly, French transport total passenger traffic dropped by nearly to on-track competition. On-track companies have not hesitated to try to 8% and freight dropped by 20% while competition established in Germany reap the benefits of rail liberalization— accumulated debt increased to four times along the lines suggested by the EC has out of reach in France itself—on other annual turnover—revitalizing rail activity proved to be relatively ineffectual networks. Connex, a transport subsidiary was as necessary to France as to the rest because traffic remains stagnant and new of the French Vivendi Environnement

SNCF Activity and Results by Division (€ million)

Passenger Freight Infrastructure, leveraging transport transport of SNCF's assets Group and services and logistics and know-how strike has always been blamed by Division revenues 8,562 6,622 4,945 20,129 shippers, particularly combined transport Gross operating income 888 37 230 1,155 operators, as the cause of the decline in as a % of revenues 10.4% 0.6% 4.6% 5.7% rail freight traffic. After successive drops Net operating income 230 -283 73 20 in traffic volumes, Intercontainer– as a % of revenues 2.7% -4.3% 1.5% 0.1% Interfrigo (ICF), the main European combined transport operator, recently relocated its operations hub from France group is the most successful of several Taboos—privatization, strikes and to Germany, although ICF officials deny French transport operators enjoying open activity-based management any link between their decision and the access to Europe. Connex has 40,000 Privatization has always been held in high rate of rail strikes in France. SNCF employees worldwide and boasts 1 contempt by French railway union President Gallois has put industrial action billion passengers a year with most of its members. Creeping privatization was the on the agenda of the next stage of the business in Britain and Germany. SNCF accusation levelled immediately against Corporate Plan for 2003–05 under the itself benefits from open access to six separation of infrastructure and railway careful wording of ‘conflictuality.’ European countries through its subsidiary operation in 1997 and to an even greater Among the smoothing proposals is a Keolis with 4000 employees and a €500 extent against any attempt at introduction ‘social truce’ meaning a 15-day cooling million international turnover. In Britain, of on-rail competition. French railway off period as opposed to the present 5- Keolis is the franchisee for Thameslink workers have always taken part in days, as well as ‘service prévisible,’ or a Rail and South Central and it has also set demonstrations against rail privatization list of guaranteed train services after a 1- its sights on the Liverpool region. In in front of the EC building in Brussels. day warning. SNCF has also promised Sweden, Keolis operates the Pendeltag Imminent liberalization of international to avoid transferring managerial staff in Stockholm rail network and Busslink rail freight is denounced as a Trojan horse the next 3 years in order to preserve passenger road services. Similarly, SNCF towards total rail liberalization in the confidence between railway managers profited from rail liberalization in the future. Every sale of railway assets is seen and local union leaders. The phrase Netherlands when its regional bus as a prelude to a general sale of everything ‘activity-based management,’ meaning operator subsidiary Cariane took over on offer as occurred in Britain, which is customer-oriented organization is almost running of Syntus rail and road services. held up as the archetypical example of as taboo. SNCF President Gallois Obviously French policymakers are rail reform to avoid. Conversely, the carefully avoids using the term ‘cap finding it increasingly difficult to experience of Japanese rail privatization client’ (the idea of customer as boss) that reconcile the clear involvement of SNCF is either ignored or pointed to as an triggered a 2-week strike in April 2001, in open access abroad with a refusal to example of successful railway integration although he is still in favour of the idea. compete in France. without separation of infrastructure. Thus At the moment, SNCF is divided in five French rail privatization is out of the main business sectors or ‘activities’— Main Pending Rail question at the moment, as recently Long Distance Passengers (GL for Reform Problems reasserted by the Minister of Equipment, Grandes Lignes), Regional Passengers Transport and Housing. (TER for Trains Express Régionaux), Paris Problems of the restructuring French Strikes are another taboo subject in the Region Passengers (TRANSILIEN), railways cannot be solved without French rail industry because the right to Freight, and Infrastructure—each of agreement of railway staff—and unions. strike is enshrined in the French which has its own budget and bottom- Yet some subjects, like strikes, activity- Constitution and because recurrent line responsibility. The five activities based management and above all strikes are a feature of industrial action enjoy separate top management, separate privatization, will not be openly by French railway workers. In 1995, budgets and accounts, and separate discussed during the next stage of the SNCF had the highest strike rate of all rolling stock for GL, TER, TRANSILIEN 2003–05 Corporate Plan because they European railways with more than 1 and Freight. The final stage of activity- are taboo. But solving these problems million days lost. Although the number based management restructuring would help increase traffic and improve of lost days fell to 180,000 in 1998 and concerns actual setting of new financial performance in an increasingly less than 100,000 subsequently, the establishments for each activity at local unfavourable economic climate. propensity of French railway workers to level, which entails major reshuffling of

38 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. SNCF Group Structure staff between the new establishments. This is a major sticking point because a Infrastructure and Leveraging of SNCF's substantial proportion of staff at stations Passenger-Transport and Services Freight-Transport and Logistics Assets and Know-how Infrastructure maintenance and and freight depots—namely everyone TGV, mainline, TRANSILIEN, TER, stations SNCF Rail freight management, project management, except commercial staff—would be engineering International Rail-road Financing Regional and Grain long- Ancillary transport combined Geodis and SNCF Telecom local public transport International SFCI SNEF transferred to the new establishments distance services transport companies Group miscella- International development transport transport companies neous with new managers and new career Distribution Keiolis Fret Eurostar Services and new CNC Logistra France Segi Systra SHEM SICF Eurofima prospects and an unknown impact on the (ex Via-Cariane) services International existing local and regional trade unions. Europe Rail Europe MTI CTC Freight cars (except Sefergie Thalys Ltd. CNC AREP SOCRIF Because the transfer involves 30,000 France employees, the labour unions fear the Bulk France Rail Europe transport Geodis EM Stesimaf Artesia A2C Rouch Wagons unpredictable effects sometime in the Inc. companies future of a potential total separation of Voyages- Rest of Rhealys Effia Froidcombi SGW Ermewa Edifret infrastructure from railway operations, sncf.com the world

GL Parcel especially if RFF was not satisfied with Ecorail Garmatex Final STSI Lyria e-commerce delivery delivery purely managerial jobs and stopped

Euro- Distribution Automobile subcontracting maintenance jobs to Elipsos vacations VFLI Sernam SNCF, which would entail transferring GL Ferry Districhrono STVA thousands of employees from SNCF to transport Expedia Ports RFF. This is exactly what happened in Sweden in 1988 when Banverket was Seafrance Feron completely separated from SJ AB and took more than 7000 employees from SJ AB. French railway unions denounce any process leading to the gradual hiving-off saw a more concrete implementation, Poor 2002 traffic volumes and of different railway activities as in Britain including an attractive passenger fare financial results where the fate of Railtrack is branded the structure, regular interval services, Coming after 1 year in the black in 2000 nightmare scenario to be avoided at all successful experiments in devolving and a sharp return to the red in 2001, 2002 cost. However the activity-based responsibility for transport to regional started with a worsening situation due to management plan has not been ruled out authorities and a commitment to slowing economic growth. SNCF blamed despite of union reluctance. SNCF’s doubling freight volumes within the next these circumstances for the €300 million FY2000 and FY2001 balance sheets refer 10 years. Actually SNCF recorded an shortfall between budgeted traffic receipts to activities and official organization historic rise in traffic volume in 2000, and the actual figures at the end of the charts clearly show the different activities leaving the company in the black for the first half of 2002, while costs rose 2% and and their respective and different results first time in many years. 2001 was 3%. Actually, the shortfall was almost that seem to call for a more customer- somewhat mixed—the successful launch equally distributed between passenger oriented organization. of TGV Méditerranée in June helped receipts, freight receipts and infrastructure passenger traffic grow, but freight fell operating revenue, pointing to a rather Third Stage of SNCF contrary to expectations. SNCF could not alarming trend in all rail sectors. Corporate Plan repeat its performance of 2000 and In 2001, TGV traffic grew by 7% while posted significant net losses amounting other long-distance fast trains lost nearly The first stage of the Corporate Plan to €134 billion for 2001. Much heavier 10% after a short-lived recovery of only launched to implement rail industry losses are expected in 2002 because all 0.8% in 2000. In 2002, passenger traffic reform inside SNCF itself during the the indicators are much less promising was expected to grow by 7.5% boosted 1997–99 period provided a backbone for than in 2001 due to a prolonged world by the TGV-Méditerranée’s first full year the company’s activity with a volume- economic slump and corporate of operation. Actually, during the first oriented strategy that drew more traffic difficulties. As a result, the third stage of semester, traffic volume only grew by and better results. The second stage of the Corporate Plan covering 2003–05 3.5% whilst an encouraging 5.3% rise in the Corporate Plan which began in 2000 could be headed for trouble. receipts was just 1.8% lower than the

Freight is a different activity from passenger transport. (ICF) TGVs are the main Grand Lignes activity. (Author)

forecast—albeit for a shortfall of €90 Reconciling views of SNCF and European rail freight opens to million. A worsening trend developed in railway labour unions competition in March 2003, the unions July 2002 when the TGV reported a 0.7% The protagonists in French rail reform are reasserted their opposition to free access drop in traffic for the first time ever, with the state, regional authorities, RFF, SNCF, when an SNCF subsidiary tried in vain other main-line fast trains down 10%. railway employees, railway labour to run its own trains on a 30-km stretch Even more disturbing is the disastrous unions, and customers. Each group holds of SNCF track. The idea was to carry change in rail freight, which (unlike different views that will have to be coke from a coking plant located on the passenger traffic) lost 8% of its volume reconciled one way or another. SNCF tracks of an SNCF subsidiary to a in 2001. Another drop of 1.8% during and its employees and railway unions steelworks just over the Franco-German the first 6 months of 2002 left volume must come to an agreement about the border. Just three coke trains a week were and receipts 4.8% and 7.2%, third stage of the Corporate Plan for involved, but the unions refused any respectively, below forecasts—a €110 2003–05. 20,000 employees took part concession on free access even to the million shortfall. The situation became in 100 meetings between May and SNCF subsidiary. even worse in July and August 2002 when October 2002 and 45,000 answers were As a consequence, we can only wonder volume was down nearly 3% on 2001 obtained to questionnaires sent to all the how the French railway unions will put figures, revealing a structural problem in staff. The 25% return to the up with foreign railways and rail operators rail freight to be overcome at any cost. questionnaires is not a very good omen after 15 March 2003 because France To make matters worse, operating revenue for the future! cannot escape European rail for SNCF’s Infrastructure division was In October 2002, 6 months before liberalization. On 23 October 2002, €100 million below expectations due to work delays. All-in-all, for the first 6 € months of 2002, SNCF reported €186 2001 Results by Activity ( million) million in net losses—more than the total Operating Operating Internal Gross operating Net income 2001 loss. Consequently, purchases of revenues charges charges income new IT equipment were instantly Passenger mainline services 4657 2840 -1139 540 11.5 cancelled, 1000 new job recruitments TER 1725 644 1016 3.5 -110 were cut, and sell-off of assets was TRANSILIEN 1849 938 579 283 9.3 speeded up. These terrible results have Stations 88 87 42 43 -0.4 confirmed the necessity for activity-based Freight 2055 -1272 -821 -120 -265 management, because the performances Infrastructure 3889 -3677 18 91 -16.5 of the various activities have been quite Traction 7 -1292 1312 5.2 different, requiring different customer Rolling stock 340 -1555 1272 -10 orientation.

40 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. SNCF President Gallois spoke with 4500 of Transport and still favours the same tracks of conventional lines. The railwaymen gathered in Paris. He liberalization, although he is keeping growing discontent of rail freight shippers explained that SNCF’s ambition is to forge quiet on the issue for the present. has led the Minister of Equipment, a public service that is both firmly in line Nevertheless, the liberalization of Transport and Housing to appoint two with Europe and in line with French rail international rail freight market in March members from regional assemblies to seek industry concepts of public service, inter- 2003 occurs at a time when there is a solution to freight problems. railway cooperation, and exclusion of growing turmoil among rail freight Numerous questions about rail social dumping. The meeting was opened customers. Local shippers are angry about restructuring in France remain unsolved, by the Minister of Equipment, Transport the apparent incapacity of SNCF’s Freight although nobody thinks that the process and Housing explaining that railway division to meet their needs, despite a can be stopped or reversed. Rail freight privatization is not on the agenda. 10% fall in traffic volumes in 12 months. liberalization in March 2003 will SNCF and its customers are making quite probably herald a speeding up of more Possible argument with regional contradictory statements. SNCF claims far-reaching measures as required by the authorities improving service reliability with only 70 European Union. The ‘salvage operation’ Another set of disgruntled SNCF partners late freight trains daily compared to as of French railways started in 1997 could could well prove to be the regional many as 140 in 2001 and more than 200 well be completed more quickly than authorities who have been in charge of in 2000. Conversely, combined transport expected and at considerable cost to local passenger rail transport since 1 operators complain that 48% of their some current shibboleths. I January 2002. Recent negotiations of trains are delayed, including 25% by more agreements between the Régions and than 2 hours and some by as much as 24 Further Reading SNCF have spotlighted growing hours. There is a growing RFF-SNCF. Qu’a changé la réforme de 1997? La Vie du Rail et des Transports, No. 198, 19 discontent with train paths, access misunderstanding between SNCF and September 2001. charges, contribution to rolling stock large shippers in the metal and chemical Faut-il réformer la réforme RFF-SNCF? La Vie purchase and refurbishment, station industries who put forward the German du Rail et des Transports, No. 213, 2 January 2002. renewal, costs of adapting regional example and quote the success of BASF’s Contribution à l’évaluation de la réforme services to new TGV services, etc. and IKEA’s private trains running on DB ferroviaire de 1997 par le CSSPF, Transports, No. Regional authorities are gaining more AG tracks. Regional authorities are 412, March 2002. RFF. Contribution à l’évaluation de la réforme knowledge and experience of rail incensed when they are blamed for freight ferroviaire, November 2001. operations and will want to reduce the delays due to the increasing numbers of RFF adopts Pragmatic Approach to growing cost of railway services for local passenger trains having path priority Investment, International Railway Journal, June 2000. which they are now responsible. Such over freight trains. Regional assembly RFF brings fresh thinking on infrastructure views could lead the Régions to ask to members remind SNCF that besides investment, Railway Gazette International, June be released from the obligation to choose financing operations and rolling stock 2000. Kéolis accède à l’international, Rail et SNCF as the sole operator if another renewal, they are currently being asked Transports, No. 249, 25 September 2002. cheaper operator is available. At the to contribute to costs of infrastructure Service continu: l’heure des solutions, Rail et moment, prospects that the European improvement including new high-speed Transports, No. 251, 9 October 2002. SNCF 1997 Annual Report. Union might compel the transport lines under the pretence of releasing SNCF 2000 Annual Report. authorities to put local passenger services capacity on existing conventional lines, SNCF 2001 Annual Report. to tender have receded, because Brussels although at the same time they are told Comment faire pour joindre les deux bouts?, Les Infos SNCF, No. 162, 27 September 2002. has conceded that trains could be there is not enough room for all trains on exempted for safety reasons. However the French right-wing government is very François Batisse favourable to decentralization and might be ready one day to open up the local Mr Batisse is a freelance transport journalist and French Correspondent of the International Railway passenger railway market to competition Journal. He is an SNCF Honorary Chief Engineer and was SNCF General Representative in London from 1967 to 1975. He was Secretary General of the Revue Générale des Chemins de if regional authorities requested it. When Fer in Paris from 1987 to 1989. in opposition, liberal MP Dominique Bussereau kept asking for open access to regional rail services; he is now Secretary