Germany Rail: Reform Urged for Infrastructure Funding, DB, Competition

Monopolies Commission Urges Radical Reform of German Rail Infrastructure Funding

Berlin, Germany – The German Monopolies Commission, a body tasked with safeguarding competition in the nation’s economy, has issued a stern warning regarding the planned special infrastructure fund designed to modernize the German rail network. The commission’s report, published today, cautions that the fund risks being undermined by existing structures and calls for a fundamental overhaul of the railway system’s financing and management. The commission’s recommendations, which focus on structural reforms and financial transparency, aim to ensure the investment benefits passengers and freight transport through lower prices, increased innovation, and improved service quality. The core issue revolves around preventing funds from being diverted or mismanaged and fostering a truly competitive rail environment. The report highlights concerns that the current structure, with Deutsche Bahn (DB) acting as both infrastructure owner and operator, hinders fair competition and efficient investment.

Separation of Infrastructure Management

Central to the Monopolies Commission’s recommendations is the separation of infrastructure management from Deutsche Bahn. This echoes a proposal already put forth by the federal government. The commission advocates for transferring all responsibilities related to railway infrastructure to DB InfraGO AG, a subsidiary of Deutsche Bahn, as an initial step. The ultimate goal, in the long term, remains the complete separation of the railway network’s ownership and operations. This structural separation, the commission argues, is crucial to ensuring fair competition and preventing conflicts of interest. The dual role of DB, managing infrastructure through DB InfraGO AG while simultaneously operating its own transport companies, is perceived as a fundamental impediment to a level playing field for other rail operators.

Addressing Financial Opacity and Cross-Subsidisation

The Monopolies Commission’s report highlights concerns about the financial flows between DB AG and its subsidiary, DB InfraGO AG, citing a lack of transparency. The commission fears that public funds earmarked for infrastructure improvements may be diverted indirectly to other areas of the DB Group through cross-subsidisation. This lack of financial clarity hampers effective oversight and risks inefficiencies in how funds are used. The commission’s recommendations seek to address this issue by terminating the contracts between DB AG and DB InfraGO AG that regulate profit transfers and control mechanisms. This step aims to improve financial accountability and ensure that investment reaches the intended targets – the modernisation and improvement of the rail network itself.

Tackling Rising Track Access Charges and Promoting Competition

A key concern of the report is the rapid increase in track access charges, the fees charged to railway operators for using the network. Prior to the decision on the special infrastructure fund, the government provided additional funding to DB InfraGO AG through an increase in equity to accelerate the renovation of the rail network. The commission points out that while this addressed a need, this and rising interest rates on that equity capital have contributed to a surge in track access charges, which have risen up to 30% in some segments over the last five years. To mitigate this, the Monopolies Commission recommends a temporary reduction in the return on equity for DB InfraGO AG. This, they believe, will help to slow down the rate of increase in track access charges and make it more viable for other rail competitors to operate. Furthermore, the report urges the federal government to enhance incentives to improve the quality and punctuality of the railway infrastructure, benefitting end users.

Earmarked Funds, Transparency, and Expert Oversight

The commission underscores that the special fund for the railways must be exclusively used for future-oriented measures, notably including modernization and digitalization. Increased efficiency in processes, resulting from digital transformation, will help reduce track access charges for all railway companies. To ensure the efficient and effective use of the funds, the report proposes the establishment of a control and monitoring centre, with the participation of industry experts. This centre will be responsible for verifying that funds are used cost-effectively and that clearly defined federal objectives are being achieved. This mechanism aims to maximize the benefit of investments for the public good.

Conclusion

The Monopolies Commission’s recommendations represent a crucial assessment of the German government’s plans to modernize its rail infrastructure. The report’s central message is clear: without comprehensive structural and financial reforms, the special infrastructure fund risks falling short of its goals. The call for separating infrastructure management from DB, increasing financial transparency, and addressing the issue of rising track access charges sets the stage for a potentially significant shift in the German rail landscape. The commission’s recommendations, if implemented, could pave the way for a more competitive, efficient, and passenger-friendly railway system. The success of the special fund will ultimately hinge on whether the government embraces a competition-oriented approach, leading to lower fares, increased innovation, and improved service quality for both passengers and freight operators. The Commission’s call for expert oversight and a focus on digitalization point toward a future where efficiency and innovation are key drivers of a modernised rail network.