iGreen introduction

The station in Kiel is no advertisement for rail travel: like most buildings that are being refurbished, it is an ordeal for both the eyes and the ears. The trains are more welcoming. Head south to Neumunster, or west to Husum and Bad St Peter-Ording, on the North Sea, and you will sit in new, spruce vehicles. As you gaze through their windows, you can listen to music piped to your seat (but bring your own headphones). If you do not have time to buy a ticket before your journey, never mind: get one from a machine on board.

These trains are owned by Nord-Ostsee-Bahn (NOB), which last November took over services on 177km (110 miles) of track from Deutsche Bahn, Germany’s state-owned railway company. NOB, which has a ten year franchise, is a product of a reform in 1994 that handed responsibility for local trains, plus an annual dollop of federal money, to the 16 Lander (states). Mainly, the Lander buy services through negotiated contracts lasting a few years, although there is a trend towards competitive tenders. DB Regio, part of Deutsche Bahn, still has over 90% of the market. However, some outsiders have fought their way in. Some are owned by the Lander themselves; one is part-owned by SNCF, France’s state rail monopoly.

The biggest private operator, Connex, a subsidiary of Vivendi Universal, a French conglomerate, owns six regional passenger railways, including NOB. Connex also runs a big commuter network in south-east England, where passengers often complain about delays, cancellations and dirty trains. Dubious reputation? Not in Germany, where its subsidiaries are seen as plucky, efficient underdogs snapping at the big, bad Bahn.

Schleswig-Holstein, the state of which Kiel is the capital, is in the vanguard of change. It has already run tenders for 23% of its services (measured by train-kilometres). Deutsche Bahn’s local market share has fallen from 90% to 75% since 1995. The next step, says Bernhard Wewers, head of LVS, the company that oversees local transport in the state, is for local politicians to decide whether to open bigger lines to tender. If they do, and if Deutsche Bahn does badly, its market share could fall below 50%.

The aim, says Mr Wewers, is to cut the state’s costs, while improving services and so coaxing people out of their cars and into trains. When the state first asked Deutsche Bahn for cheaper services, he says, ‘they told us we were silly’. Yet across Germany, he reckons, competition has cut costs by 10-20%. Rolling stock has to meet certain criteria: hence NOB’s smart trains, and similar ones used by DB Regio between Kiel and Flensburg, on the Danish border. New stations have been opened. All this has helped push passenger numbers up by 18% since 1995.

Predictably, Deutsche Bahn and its new rivals do not always get on. Once source of friction is the role of DB Netz, another division of the state giant, which manages the country’s tracks. Bela Bergemann, NOB’s marketing director, complains that on one bridge where repairs are needed, trains can run at only 40KPH, adding several minutes to the Kiel-Husum run. Hans Leister, head of Connex’s passenger-train operations in Germany, accuses Deutsche Bahn of using its control of investment to sway the Lander towards DB Regio. Quite wrong, says Deutsche Bahn. Stefan Garber, a member of DB Netz’s management board, says that the Lander would never allow Deutsche Bahn to tie infrastructure spending to train contracts.

Even-handed or not, DB Netz is also at the heart of a heated political argument. Kurt Bodewig, Germany’s transport minister, thinks that Deutsche Bahn should not own both the track and the trains. Separate ownership, he believes, would foster competition (as in Britain’s Railtrack, though not everybody would see that as a good model). Hartmut Mehdorn, Deutsche Bahn’s pugnacious boss, is adamantly against the idea. The company’s view is that separate ownership would make no difference to competition, and that, for technical reasons, it makes sense to keep the two together.

Deutsche Bahn’s rivals do not necessarily want the company split up. If its market share could be drastically reduced, says Connex’s Mr Leister, that would do just as well: the problem is the combination of track ownership and market dominance. He says that DB Netz’s track-usage charges are now ‘fair’. Until April, charges decreased with volume: fine for Deutsche Bahn, not so good for the rest. After intervention by the Federal Cartel Office, bulk discounts have been ended, in the hope of helping entrants. Not everyone is happy, however. Deutsche Bahn managers call the new system ‘reverse discrimination’.

This leaves one crucial question: how can new entrants provide a better service than cash-strapped Deutsche Bahn and still make money? Lower overheads are a plus, says NOB’s Mr Bergemann; and people are usually better motivated in a small private business than in a big state corporation. In a small operation, he says, problems can be dealt with speedily and by the people in charge. He makes the point, in a small way, when a train pulls into Neumunster: he strolls through the carriage, picking up discarded newspapers.

Reprinted from The Economist 12 June 2001