AllRail: Sweden’s night train subsidy for Stockholm – Berlin is unfair competition
The alliance of independent passenger rail companies AllRail says plans by Swedish state-owned operator SJ to extend its night train Stockholm-Hamburg to Berlin will cause unfair competition, as operator Snälltåget runs night trains on that same route on a commercial basis. This while SJ is receiving PSO funding from the state, “Illegal cross-subsidy”, says AllRail, which SJ refutes.
AllRail, the alliance of independent passenger rail companies in Europe, is calling on the Swedish transport administration Trafikverket and the new Swedish government to “take responsibility for the damage that this illegal cross-subsidy will have on the level-playing field in the international night train market”. SJ will extend the night train Stockholm-Hamburg to Berlin from April.
SJ runs procured traffic between Stockholm and the Danish-German border and commercial traffic between Padborg and Hamburg, and starting in April will run commercial traffic between the Danish-German border and Berlin.
Government tendered night train vs open access operator
SJ thus receives Public Service Obligation (PSO) subsidies from Trafikverket for the Swedish and Danish part of the route. It won the tender for the service in 2021, after the Swedish government commissioned the Swedish Transport Administration Trafikverket to directly procure two night-train lines Stockholm-Hamburg and Malmö-Brussels the year before.
According to SJ, there is no possibility of cross-subsidisation however, as Dan Olofsson, responsible for procured traffic at SJ, told a Swedish magazine and confirmed to RailTech. “The night train traffic is carefully regulated. SJ regularly reports information on costs and revenues to the Swedish Transport Administration. We must not transfer funds from the procured traffic to the commercial traffic. If we were to do that, we would be forced to repay significant amounts to the Swedish Transport Administration.”
The tender for the night train is based on an agreement of Sweden’s previous government between the Centre Party and the Liberal Party. One of Trafikverket’s reasons for a direct procurement is that would be the fastest way to realise the night train. ‘The easiest way to a quick start of the traffic would be to procure an operator, which provides the rolling stock themselves’, said Trafikverket then in a concluding document.
Back then, private operator Snälltåget already voiced critique. “We believe in the future of night trains and we welcome the government’s interest in them, but believe that direct procurement is the wrong way to go if you are really serious about developing night train traffic”, said Carl Adam Holmberg, Managing Director of Snälltåget.
Same route, different conditions
Now that SJ will not only run to Hamburg but on to Berlin, the routes of the two night trains will be exactly the same, but not the financial conditions. The SJ night train will receive government subsidy for part of exactly the same route that the commercially driven Snälltåget night train also operates, while Snälltåget can only rely on ticket income. Snälltåget runs trains on the route during parts of the year, between March and November.
Because it receives subsidy, SJ can offer lower fares to passengers, as they have a lower risk and can sustain losses due to the subsidy, says AllRail, referring to a recent example of SJ undercutting Snälltåget’s fares between Sweden and Germany, offering a seat for more than half the price, and a berth for 27 euros less. According to AllRail, the transport administration Trafikverket is violating the European regulatory framework on PSO subsidies for train services.
Linda Thulin, responsible at Trafikverket for the international development and relations on railway, points out the current agreement is for 4 years and covers traffic for 244 days per year, and that it can only be evaluated after it expires, as stable conditions are necessary also for a PSO contract. After this period, there is a chance there will be no longer a PSO contract. “It is very positive that the market has developed in a short time. It benefits the passengers who get a range to choose from and it drives the development so that more people choose to travel with the railway. The Swedish Transport Administration follows this with great interest. If there is an interest from the market or a market is established, it is probably not likely that the PSO will be renewed”.
Partly subsidised ‘not the way forward’ for international rail
According to AllRail, this whole case proves these “Hybrid PSOs” where international train services are being subsidised for just a part of the route are not the right way forward. “It is impossible to artificially split an international train service into a subsidised (“PSO”) part in one country and a commercial (“open access”) part in another country, as the profit on the PSO part will allow compensation of losses on the commercial part”, notes the alliance. “PSOs lead to market distortion and to an unnecessary dependency upon subsidy.”
So how can international (night) trains be supported instead? AllRail calls for reducing the cost level for operators, by reducing or waiving infrastructure charges, helping with the procurement of rolling stock or other measures such as reduced VAT and fair pricing of other modalities.
“In the end, we have to see if this is something we can do profitably” a spokesperson of SJ said to Swedish daily Dagens Nyheter when the plans to go to Berlin were still in the making. AllRail notes that even SJ itself admitted just a few weeks ago that there is “huge interest in journeys between Sweden and Germany” in the Berliner Zeitung.
AllRail’s legal expert Arthur Kamminga: ”If SJ is admitting this, then why does it need subsidy for its night trains? This is a complete contradiction. Trafikverket and other EU transport authorities must finally acknowledge the importance of fair competition and refrain from jeopardising successful commercial driven train services with subsidised competition.”
This article was updated with a response from SJ and Trafikverket