- Last week, the media reported about plans by the German government to increase the equity capital of the state-owned rail incumbent Deutsche Bahn (DB).
- Not only would this distort competition – because equity injections into the DB Group parent company mean that its commercial subsidiaries can also benefit from support intended for its infrastructure subsidiary,
- But also, it comes at a time when the EU Commission’s competition authority is already investigating both DB and French incumbent SNCF for cross-subsidisation of their commercial freight operator subsidiaries.
Despite recent equity increases for DB (2019 Climate Package and an exclusive COVID-19 payment for its commercial long-distance passenger rail operator subsidiary) – both of which were allegedly “one-off” measures, the German government is at it again, with a proposed equity capital increase for DB, this time in order to finance urgently needed upgrades to the German rail infrastructure.
At the same time, DB’s debt levels continue to rise, mainly driven by the losses at some of its commercial subsidiaries – such as the rail freight operator DB Cargo. Thus, an equity increase into the DB holding company would allow it to further increase its de facto state-guaranteed debt that already exceeds € 36 billion.
This way – despite not being profitable for years – some of DB’s commercial subsidiaries still find the funds to pay for large fleets of new rolling stock and often undercut the prices of rival operators.
For privately owned competitors in the same situation, this would effectively be impossible.
Therefore, the EU Commission has rightfully launched investigations into the cross-financing of DB’s commercial freight subsidiary DB Cargo, similar to the investigation into the commercial freight subsidiary of SNCF.
In order to prevent any market distortion, the Commission will have to closely examine the new German plans. Taxpayer money should urgently be invested, but only into upgrading the infrastructure.
How can this be done? This can be solved rapidly with two quick steps:
- Terminate the Profit & Loss Agreements between DB’s infrastructure manager subsidiary DB Netze and its parent company DB Group, meaning that notional ‘profits’ from taxpayer funding for the rail network can no longer be passed up to DB Group which can then, in turn, be used to help its commercial subsidiaries.
- Strengthen the equity position of the new proposed non-profit infrastructure manager InfraGO directly without leading to higher track access fees.
“Unless it can unequivocally be proven otherwise, de-facto state-guaranteed debt is effectively a form of State Aid for commercial subsidiaries within the DB Group. This applies all the more to equity increases for the Group holding company.mofair (the German Association of Independent Passenger Rail Operators) and ALLRAIL (the Alliance of Passenger Rail New Entrants in Europe)
In order to finance the necessary investments into the rail network in a sustainable way, the financial flows from the infrastructure manager to DB’s commercial subsidiaries must be cut once and for all.“