French senate warns against new rail infrastructure funding model
To fund the 300 million euros earmarked for investment in French railway infrastructure by 2027, a new financing contract has been established by the French government, placing the SNCF in a challenging position. The French senate warns this model may lead to higher ticket prices for consumers.
In France, the railway network is showing signs of accelerated ageing. A year ago, SNCF President Jean-Pierre Farandou assessed the investment needs in the railway sector at 100 billion euros over 15 years. In February of this year, a report from the Infrastructure Guidance Council indicated that an additional 2 billion euros per year in investments was necessary to modernise the railway network. That same month, French Prime Minister Élisabeth Borne announced the investment of 100 billion euros in the French railways, aiming to expand and modernise the network.
In this context, the French government has committed to gradually increasing the performance contract with rail infrastructure manager SNCF Réseau to 4.5 billion euros by 2027, including an annual increase of 1 billion euros for track regeneration and 500 million euros for modernisation through the integration of new signalling technologies, according to BFM TV. The new contract is expected to be signed in the fall of 2024, as reported by Le Figaro. This will result in a total annual investment of 1.5 billion euros for the modernisation of railway infrastructure. While this announcement seems positive for French railways, the question remains: where will this funding come from?
The budget boost will be ensured by “an increase in the allocation of profits from SNCF Voyageurs,” as outlined in a finance commission report of the French Senate, which, beyond its legislative functions, also monitors the administration’s actions via the publication of reports. Over the years 2024, 2025, and 2026, SNCF will financially contribute to this initiative. The additional 300 million euros allocated to SNCF Réseau will not be directly sourced from the French government but will instead be drawn from dividends paid by the SNCF group to the state, its sole shareholder.
According to Le Figaro, this approach is expected to persist for the next two years, with a decision pending for 2027. Technically, these financial contributions from the public group to its subsidiary SNCF Réseau pass through a joint fund fueled by 60 per cent of the profits from SNCF Voyageurs and its subsidiaries: Keolis and Geodis, according to the French newspaper.
Criticism of the new funding model
However, the Senate warns against a railway network financing model that could impact ticket prices, reports their in-house media outlet. In the examination of the 2024 budget by the Senate, a finance commission report denounces the state’s choice to rely solely on SNCF for new investments in the railway network. Without knowing if the company can bear these new costs, the commission warns this strategy “could impact ticket prices.”
“The state does not hide its intention to have the entire increase in investments in the railway network by 2027 financed by SNCF itself,” said Senate special rapporteurs Marie-Claire Carrère-Gée and Hervé Maurey to television broadcaster Public Sénat. The senators see this financial option as risky, especially since it is uncertain whether SNCF can bear the financial burden of these new investments alone. While SNCF is currently in good financial standing, it stated to BFM TV that “regarding the coming years, it is too early to estimate its contributory capacity, which will depend on its results.” If SNCF Voyageurs fully finances the rail modernisation for SNCF Réseau, the subsidiary should allocate 50 per cent of its annual expenses to this task, compared to the current 20 per cent, according to Public Sénat.
Senators also reportedly view this funding model as unfair, especially in the context of the liberalisation of railway transport. They emphasise that SNCF Voyageurs could be compelled, by 2027, to finance half of the regeneration and modernisation investments in a network on which it will operate trains in competition with other railway operators who would not contribute to the joint fund, according to Public Sénat.
Challenging position for the SNCF
During this year, fares have already increased by an average of 5 per cent. According to INSEE data, train ticket prices reportedly increased by over 8 per cent on average between June 2022 and June 2023. However, in the context of inflation and to preserve the appeal of train travel, the government is influencing the SNCF to avoid excessive price hikes, as reported by BFM TV. The railway company is benefiting from an unprecedented enthusiasm for train travel, resulting in a significant increase in its revenue. Yet, concurrently, it must contend with significant expenses related to the acquisition of new high-speed trains and absorb rising costs such as electricity needed to power its trains. Traditionally, SNCF adjusts ticket prices as a means to solve this financial equation.
“The state is issuing contradictory injunctions”, said Arnaud Aymé, a transport specialist at the Sia consulting firm, to Le Figaro. “By asking SNCF to contribute more for network improvement, it puts pressure on it to be more profitable. But it also wants to limit the increase in train ticket prices. It’s an unsolvable problem”. Much remains to be seen, and there is still room for evolution before the signing of the new contract as the Regulatory Authority for Transport (ART) must still give its opinion, and the regions first need to be consulted.