Time runs out for the gravy trains

AVESTA Sheffield, the steel maker, saw the opening of the Channel Tunnel three years ago as an opportunity to fulfill a long-held dream. At last the Anglo-Swedish company would be able to transport its goods between its two national headquarters by rail and set up a freight network by which it could shuttle its wares to the rest of the continent. At least, that was what company executives thought. After a six-month trial, the company returned to sending its goods by sea. "It was an ideal project in theory, but in practice the train was delayed all the time, all over the place, for different reasons," said Evert Wijkander, head of corporate logistics at Avesta Sheffield. "We had to return to shipping because rail was just too unreliable."

If Neil Kinnock, the EU's Transport Commissioner, has his way, Mr Wijkander may soon have to rethink his freight plans again. This year, the former Labour leader is to propose a raft of legislation designed to improve international rail connections across Europe and inject a dose of the free market into the continent's train network, the last transport sector still dominated by state-owned monopolies. In doing so, the former Labour leader risks raising the wrath of anti-privatisation activists.

"If you look at different transport modes, the rail sector is the last in Europe that has not been liberalised," said one European Commission official. "Rail is politically sensitive, because it affects vast numbers of people; it is also quite complicated to liberalise, but the time has come to deal with it." Foremost in government minds will be the advent next year of monetary union, which requires them to cut their public spending to squeeze budget deficits to just 3 per cent of national output. "A lot of these railways need vast amounts of money to keep them going. That is going to come under pressure. Users are sick of the quality of services, particularly freight services," said the official.

The Commission says freight networks are the main target of its liberalisation push. Despite a 16 per cent rise in rail freight in Europe over the past four years, rail has lost half its market share to road haulage companies over the last quarter of a century. But any moves towards deregulation would be interpreted as a precursor to privatisation of passenger lines by powerful rail unions in France, Belgium and Italy.

They will draw strength for their arguments from the discredited privatisation of British Rail. This week, leaked figures showed a 17 per cent increase in late trains in Britain compared with last year and there is growing alarm at the level of public subsidies that the privatised companies are still receiving.

Mr Kinnock is heading for a clash with the French government, which will lead the camp of EU nations opposed to any form of deregulation. The French transport minister is a Communist and has vowed not to cede any control of the railways. Still, no one can deny the French state-owned railway network, SNCF, is like most of the rest of the continent's railway companies - in a dire financial state. And as Avesta Sheffield's experience shows, SNCF is awkwardly linked up to other national networks on the continent.

Frustrated rail users in this country often look across the channel to France with envy. But, while the high-speed trains there are a national source of pride, train services in the provinces are no better than our own. Some 20,000km of the 32,000km of track in France are loss-making, and the company is sinking under Fr200bn (pounds 20.4bn) of debt. Government moves to lighten the burden by spinning off Fr134bn of that debt into a new company controlling the railway's network were met with a week-long strike amid fears it was the first step to privatisation.

Italian railways are worse. The state-owned network, Ferrovie dello Stato, is - according to transport minister Claudio Burlando - in a "dramatic condition", losing between 3 trillion lire (pounds 1.2bn) to 4 trillion lire a year. Independent experts say the true losses could be as much as 20 trillion lire a year, enough to provide the cuts for Italy to qualify for the single currency.

"The Italian railways are the largest loss-generating enterprise in Europe," the economic columnist Giuseppe Turani wrote recently. "This is not a company, it is a curse of biblical proportions."

Only 20 per cent of the Italian railway revenue comes from fares - the rest from government subsidies. The government plans to raise fares by 19 per cent over the next four years to boost revenues.The company is due to be split into two components handling track and rolling stock. The tracks will then, in theory, be available to open competition.

In Germany, the government has been trying to put the Deutsche Bahn on an even financial keel. Much of the company's debt was written off by the government after reunification between East and West Germany, and the company is to be split into five units to prepare it for privatisation. The company plans to shed 15,000 jobs from its 264,000-strong workforce.

So what does Mr Kinnock's action plan involve? The programme kicked off on 1 January with the opening of three European Commission-sponsored "rail freight freeways" running from Rotterdam to southern Italy, Hamburg to Brindisi, and Rotterdam to Vienna. The corridors were agreed between the train operators and, in theory, enable a company to carry goods along the whole route without interruption. But no operator has yet taken up the routes. To exploit them, a company would need trains that can cope with different signals and electrics on different networks. These exist but are costly.

Three legislative proposals are in the pipeline that should be tabled by Mr Kinnock before the summer. The first would force companies to split up the management of the track and train services. A number of countries, such as Germany and Holland have gone down this route, although only in Britain is the infrastructure owned by a separate company, Railtrack. "We are not splitting up rail like the Tory government did in the UK. That is way beyond anything considered at EU level," said Jan Gert Koopman, a member of Mr Kinnock's cabinet. Even so, according to David Niven Reed, who is responsible for EU affairs at the Paris-based International Union of Railways: "It is a major departure. Kinnock wants to make it possible for operators to run services and make competition between companies."

The second piece of legislation will lay down rules by which operators are allocated routes to prevent national companies getting preferential access. "If you are a Swedish freight operator that wants a route on a German network, the Germans could say they want to give priority to every single passenger train and can only give you a route that allows trains travelling at no more than 12 miles per hour," said Mr Koopman."We want to avoid this."

Thirdly, Brussels is to make a proposal on how infrastructure managers charge operators. For example, should a high-speed train pay more, as it does more damage to the tracks than a small passenger train?

In the autumn, the Commission will issue a proposal to bring the different technicalities under the same system to make it easier for one train to cross borders. Finally, in an attempt to ensure clarity and fairness on how money is funnelled to companies, the Commission plans to revise its state-aid rules for railways. These plans will take time to become reality, as they need the EU governments' approval. "What the Commission is doing is all well and good, but it'll take years," said Wyn Ellis, transport analyst at SBC Warburg.

Meanwhile, the jury on privatisation of British Rail is still out."You don't know if these kind of experiences [privatisation] are good or bad until you have had 10 years of it," said Mr Niven Reed. Try telling that to an irate UK executive when his train is late.

p Additional reporting by Scott Schnipper