Reforms to meet the prospect of competition on the tracks

INTRO: Over the past two years, Norwegian infrastructure authority Jernebaneverket and state railway NSB have been restructuring ready for the advent of competition on the national network. Chris Jackson spoke to the principal players

’I EXPECT to see new operators on the network within the next year.’ As Director General of Norwegian infrastructure manager Jernbaneverket, Steinar Killi believes that Norway’s rail industry is at the point of change. It is nearly seven years since the legal split between JBV and the state railway NSB, and four years since the two organisations ceased to share a common board and chief executive. But the phoney war is now over and competition is knocking on the door.

Killi says JBV has not yet received any formal applications for access to the Norwegian rail network, but ’we are prepared for change’. He expects new freight operators to start running within a year or two, and is ’watching with interest the tendering of passenger operations’.

Apart from the Bratsbergbanen (p646), the government has identified two routes which will be put out to tender next year as pilot projects: the Oslo - Jaren - Gjøvik line which carries both suburban and inter-city services, and the Vossbanen local service between Bergen and Myrdal. Subject to experience with these two schemes, other state-supported routes would be tendered from 2006 onwards.

In fact, limited competition between passenger operators is already in place. With effect from January 1 the Oslo airport express operator Flytoget was transformed from an NSB subsidiary to a separate state-owned company. A new company, Ofotbanen AS, is now responsible for passenger services on the isolated Ofoten line to Narvik, in co-operation with Connex which holds the concession to run the Swedish section of the Malmbanan. Both Connex and Arriva - also active in the Scandinavian rail market - have expressed interest in bidding for Norwegian contracts, but so far only Connex has put a toe in the water.

Meanwhile, both main players are making changes to their structure to be ready for competition. JBV must ensure it can provide infrastructure access on a neutral basis, and according to NSB Communications Manager Audun Tjomsland the railway is facing up to the fact that ’whereas it used to be responsible for everything, in the future it will be just one of several competing operators’.

Although NSB and JBV were legally separated from December 1 1996, they shared a common board and CEO until July 1 1999, when the split was formalised. Tjomsland explains that ’there was no precedent to follow, so we had to negotiate, and find out what was best for the Norwegian conditions. We realise that separation is a logical decision, but it is a very demanding way of doing things.’

In 1997 a new safety and regulatory inspectorate was created under the transport ministry. Statens Jernbanetilsyn assumed the responsibility for the licensing of train operators and the setting and monitoring of national safety standards across the rail industry. It will also act as final adjudicator in the event of disagreement over access rights and charges. Killi says he is very happy with this change. ’JBV is now strictly a producer, providing a service for rail traffic operators.’

As JBV remains a government agency, Killi reports directly to the minister and there is no board of directors. Although privatisation of the infrastructure authority ’is not on the agenda at all’, he would like a more arms-length relationship with the ministry. ’We have proposed to the ministry that JBV should become a not-for-profit public company, although still 100% state-owned; that suggestion is still being debated.’

In 1996 NSB was transformed from a government agency into a state-owned company, known as NSB BA. This BA status was a relatively rare legal form of company structure, shared only with the Norwegian postal service. Tjomsland explains that both businesses received special subsidies to compensate for staff terms and conditions inherited from their former civil service status. The payments were phased out over the next five years, and after a transition period the railway became a conventional company, NSB AS, on July 1 2002.

Helping to smooth the relationships between the different players is a rail industry co-ordinating group, formed when JBV and NSB went their own ways in 1999. Led by the infrastructure manager, it meets six times a year. The group has since been joined by CargoNet and Flytoget, and any other new operators will also be expected to participate.

’The idea is to inform each other’, explains Killi, ’and ensure transparency about plans and policies. We can discuss our budget proposals with the operators, look at issues around traffic management and possessions, and co-ordinate our efforts to improve punctuality, for example.’ However, with the prospect of competitive tendering, Killi feels NSB has become more reluctant to share information.

Trauma triggers transformation

The past three years have seen major changes at NSB. On January 4 2000 a DMU and loco-hauled train met head-on at Åsta on the Hamar - Røros line and burst into flames, killing 19 people. A few weeks later a derailed freight train carrying dangerous goods caught fire, leading to parts of Lillestrøm being evacuated. Problems with a broken axle grounded the then-new Class 73 tilting EMU fleet operating the principal long-distance services. And to cap it all NSB miscalculated its driver rostering during the summer holidays, which led to widespread cancellations.

This catalogue of problems resulted in the sacking of the NSB board and senior management, and since early 2001 the new team headed by Chairman Olav Fjell and CEO Einar Enger has been working hard to turn things round. To help restore NSB’s public image, the former television newsreader Audun Tjomsland, who had been working in the aviation industry, was brought in as Communications Manager. ’The most important task is to improve safety, performance and finance’, explains Enger, ’and there are indications that all three areas are moving in the right direction.’

An NKr33m loss in 2001 became an NKr6m profit in 2002, despite a 3·7 million drop in passenger journeys. NSB has launched a comprehensive Programme for Change (p653), which Enger expects ’to improve the efficiency of passenger operations and bring the long-distance trains into profitability.’ Freight went into profit during 2002, and NSB has expanded its rail and bus operations into Sweden in co-operation with local transport authorities.

From January 1 2002 NSB restructured ready for separation, although Tjomsland admits ’we don’t really know where the competition will come’. In effect the company became a holding group operating through subsidiary companies, although passenger train operations and ownership of the rolling stock remain core business units within the parent (below).

An early step was the separation of train maintenance into a subsidiary company, Mantena AS, which would be able to earn money by servicing trains for other operators in the future. The engineering department was also outsourced and became Mitrans AS. Property arm NSB Eiendom is one of the largest landowners in Norway, but a separate property development business was formed. Celexa is a joint venture with the private sector, of which NSB now holds 35%.

NSB has been operating bus services since 1935, and these were grouped into another subsidiary: Nettbuss AS. This now has 25% of the Norwegian bus market, and also operates in Sweden. There is much debate over whether NSB should be required to spin off Nettbuss, but the railway points out that potential competitors such as Connex and Arriva run both rail and bus operations, and to prevent NSB could be seen as an unfair constraint.

As the NSB name and traditions were closely associated with the passenger business, the freight business was given a new identity as CargoNet. Reflecting the growing internationalisation of the European rail freight market, a 45% stake in CargoNet was sold to the principal Swedish freight operator Green Cargo.

Enger recognises that ’competition is necessary and will come to the Norwegian railways.’ He believes it will ’be an inspiration to get better, less expensive and more efficient railways, which will benefit the customers, the business community and society as a whole.’ However, he does have reservations. ’Norway needs a strong national operator of ground transport - both trains and buses. NSB should have a fair chance to compete with large international operators.’

The NSB board has already adopted a formal strategy for competitive tendering. Enger says that bids ’must be based on NSB’s goals and strategies’, and ’must not go against our safety priorities’. To meet economic objectives, they will be based on real costs, with no marginal pricing. As a warning to the government, Enger insists that the company is not prepared to be seen as an operator of last resort. ’NSB has no obligation to bid, not even if there are no bids from anyone else.’

Sleepers at risk

Given the low population density and long distances, it is hardly surprising that much of the Norwegian rail network is state-supported. In 2003 NSB received NKr1·3bn to support contract passenger operations, compared to NKr1·9bn in ticket revenue. Almost all passenger services are subsidised, except for the three long-distance routes radiating from Oslo to Trondheim (Dovrebanen), Bergen (Bergensbanen) and Kristiansand (Sørlandsbanen), which are deemed to be commercial. Kristiansand - Stavanger is supported, however, although most trains run through to and from Oslo.

With very poor results for the first six months of 2003, NSB announced in June that it wanted to negotiate formal support for the three trunk routes as well. Otherwise it will have to cut services from January 1 2004. The battle is currently being focused on the overnight sleeper services, which are widely regarded as vital to the economy of the provincial cities. They are part of NSB’s ’commercial’ remit, unlike the subsidised sleeper services on the Trondheim - Bodø line. Enger gave six months’ notice that the sleepers will come off unless the government agrees to a wider review.

Despite the reliance on public support, Enger insists that ’we are in principle free of government intervention. The Department of Transport & Communications is very professional, and leaves it to NSB to fulfil the obligations in its contract. They let us do it the way we need to do it.’ But Tjomsland notes wryly that individual MPs in Stortinget fight for local issues affecting their voters. ’Whereas historically we would once have responded to that sort of pressure, now we must look at the impact on our finances.’

In readiness for the introduction of tendering, the contract payments for the rest of the network are split by line. They carry specific obligations regarding the level and quality of service to be provided on each route, although NSB is ’reasonably free’ to adjust the timetable to suit operational limitations. The operator is also free to set its own fares and freight tariffs, but the board has set its own obligation not to raise fares by more than the rate of inflation.

Withdrawal of under-used services would have to be agreed by the transport ministry, but Tjomsland says this would be self-defeating, as any closure would be matched by a corresponding reduction in the support payments.

Infrastructure economics

The rail infrastructure is virtually free-issue to the operators. Access charges of NKr0·11 per gross tonne-km only apply to wagonload freight traffic, and not intermodal or passenger trains. Much of the resulting revenue comes from the heavy iron ore traffic using the Ofotbanen to Narvik in the far north.

JBV’s 2003 budget is NKr4·4bn, of which NKr3·1bn is allocated for operations and maintenance, and NKr1·3bn for renewals and enhancement. Most of this is direct grant; earned income totals just NKr500m, of which NKr50m comes in access charges and the rest from property rents and miscellaneous sources.

A unique exception is the new line serving Oslo’s Gardermoen airport, completed in 1998, where as part of the financing package the operators agreed to fund the cost of routine maintenance. Flytoget and NSB agree the standards required with JBV, and the agreement also gives Flytoget the right to run six clockface services each way every hour. Killi notes that in practice the payments of NKr16·30 per train-km do not cover the actual costs; this year he expects to get NKr75m against a maintenance budget of NKr90m.

On May 1 2003 JBV completed an internal restructuring which clarified the roles of its various functions more clearly, in the light of experience over the past seven years. Out of a total of 3500 staff, around 500 work in administration, 200 in the construction department, 800 in traffic management and 2000 in the various infrastructure units.

In 1996 JBV’s renewals and construction activities were grouped into a separate business unit known as BaneService, which has to tender for all its work against external competition. In 2000 JBV decided that day-to-day preventative and corrective maintenance, which had previously been managed by regional offices, should also be opened up to competition over a four-year transition period, creating a free market in maintenance as well. The maintenance units were grouped into a new business, BaneProduksjon, which would operate on the basis of contracts with the regions.

Killi says that after two years’ experience with tendering out routine maintenance work, ’we have found it is not so easy. You cannot design a contract that will ensure the efficient use of staff. You can draw up long-term plans for inspection and maintenance, but you cannot pre-plan corrective maintenance. And it is very important to keep the people who have the knowledge of the rail industry in-house, so that they have an involvement with their railway. There are motivation and safety issues ... not all jobs are suitable for tendering.’

So there has been a significant change of policy. Preventative and corrective maintenance will once again be handled directly by the regions, although Killi emphasises that heavy renewals amounting to almost half of the maintenance budget will still be put out to tender.

Killi says JBV has done some very good work ’to renew our safety management thinking’ following the Åsta collision. ’Everything we do is based on risk analysis; even the latest organisational changes were assessed so that we were comfortable. It has been a tremendous job to implement, learning about risk analysis, applying it and changing the culture within the company.’

But it has paid off. ’Last year was the best year ever for rail safety in Norway’, Killi notes, although he is cautious to add ’with a very safe system it is easy to relax too much. Changing the way we think means we don’t just learn from accidents.’ But one major decision has been that ’never again will we install CTC signalling without automatic train protection.’ And that will have an impact on future investment schemes (p650).

Stations change hands

Another area where the advent of competition will require changes to the 1996 structure is the ownership and operation of stations. At present the responsibility is split. JBV is responsible for the platforms, waiting rooms, car parks and ’rail’ areas, including the signalling and train control offices, whilst NSB owns the buildings and commercial activities. So JBV must lease the facilities it needs for traffic management back from NSB. JBV also has the responsibility for building new stations and rebuilding existing ones.

Tjomsland says this interaction has led to much confusion, and ’the public is not always aware who does what. For instance it is JBV who informs waiting passengers about late-running trains. This can be difficult to comprehend, as NSB sells them their ticket and operates the trains. But parliament decided that JBV should run the stations and provide passenger information, as it is responsible for train regulation.’

It is now widely agreed that JBV should own and operate all the stations. Killi says the main reasons for the change are to reduce the complexity of the relationship and ’to ensure that the stations remain neutral in the event of future competition’. JBV would also like to develop many smaller stations as good transport interchanges with provision for car, taxi and bus connections.

Killi says ’we have to have an agreement this year’ over the station handover. He believes the terms ’are more or less agreed’, and the NSB board has accepted a letter of understanding from JBV. Final transfer awaits the approval of the minister, and possibly parliament, plus a settlement over the terms of payment.

Another unsettled issue, according to Enger, is that of staff. At present NSB is responsible for all training, and ’there are very few competent personnel outside NSB and JBV’. He is concerned about the risks of new operators poaching skilled personnel, and would like the government to insist that ’educating and training of personnel must be shared by all operators in the market, or become a public responsibility.’

Given that new operators will be looking to cut costs whilst respecting national tariff agreements, Enger is worried that they may seek to cut pay, pensions, and welfare benefits whilst pushing up working hours.

’Competition will be an inspiration to get better, less expensive and more efficient railways, which will benefit the customers, the business community and society as a whole.’

Einar Enger

Chief Executive, NSBGroup

’It is very important to keep the people who have the knowledge of the rail industry, so that they have an involvement with their railway.’

Steinar Killi

Director General, Jernbaneverket

’We realise that separation is a logical decision, but it is a very demanding way of doing things.’

Audun Tjomsland

Communications Manager, NSB AS

Bratsbergbanan bid battle

The first attempt at tendering of passenger services in Norway covered the Bratsbergbanen linking Skien, Nordagutu (above) and Notodden. This 54 km route is part of a former industrial railway built by Norsk Hydro, which was closed in the mid-1990s.

Services were revived about three years ago as a result of a private-sector initiative. Local businessmen acquired three second-hand Y1 Fiat diesel railcars from Sweden to operate the line, even though it is electrified throughout. But the initiative collapsed, and the local authority in Telemark agreed to take over. NSB acquired the railcars, and restored a service of eight trains each way, funded by an annual grant of NKr13m a year.

Earlier this year the county invited competitive bids in an attempt to reduce the cost. NSB declined to bid, but Connex put in an offer which it subsequently withdrew. The county re-invited tenders on the basis of a reduced grant of NKr11m, and reached a four-year agreement with NSB in August covering a modified weekdays-only service timed to suit commuters and students.

The NSB Group

TABLE: NSB Passenger Services OperationsNSB Rolling Stock NSBInternal Services

Subsidiary companies:

Nettbuss AS Bus operations

CargoNet AS (55%) FreightEkspressgods AS Distribution

Mantena AS MaintenanceMiTrans AS EngineeringTrafikkservice AS CleaningTogservice AS (15%) CateringROMReal Estate PropertyCelexa (35%) Property development

NSBInsurance AS Insurance

Flytoget AS Airport express (until 1/1/03)

Freight competition too

CAPTION: In theory, there is already free competition for rail freight in Norway, although no-one has yet challenged CargoNet on the core network. Swedish state-owned freight operator Green Cargo has bought into the market by taking a 45% stake in CargoNet. The company has also formed its own intermodal subsidiary, Rail Combi AS, which works in co-operation with Hupac of Switzerland and Kombiverkehr in Germany. Iron ore operations on the Ofotbanen were transferred several years ago to the MTAB/MTAS consortium of mining company LKAB, Green Cargo and NSB.

However, things are about to change. Given the declining profitability of traditional operations - influenced by the fact that access charges only apply to conventional freight - CargoNet has decided to withdraw from the general wagonload market with effect from December 14 this year. The company will concentrate on its growing intermodal (primarily container) traffic and unit trains of bulk freight.

This will leave an opening for smaller companies to enter the market - perhaps some of the 12 independents who compete with Green Cargo in Sweden’s domestic sector. The largest of these operators, Inlandsgods AB, applied last summer to run wagonload traffic in Norway, although it has since gone bankrupt and was taken over in August by Swedish road haulier Härjelast AB. Inlandsgods had been looking at southern Norway, with a pilot service between Alnabru near Oslo and the Østfold region. It also identified a possible flow between Mo i Rana and Trondheim in the north.

Last year CargoNet leased six General Motors-built Series 66 diesels from HSBCRail to haul intermodal and timber traffic on the Trondheim - Bodø corridor

In theory, there is already free competition for rail freight in Norway, although no-one has yet challenged CargoNet on the core network. Swedish state-owned freight operator Green Cargo has bought into the market by taking a 45% stake in CargoNet. The company has also formed its own intermodal subsidiary, Rail Combi AS, which works in co-operation with Hupac of Switzerland and Kombiverkehr in Germany. Iron ore operations on the Ofotbanen were transferred several years ago to the MTAB/MTAS consortium of mining company LKAB, Green Cargo and NSB.

However, things are about to change. Given the declining profitability of traditional operations - influenced by the fact that access charges only apply to conventional freight - CargoNet has decided to withdraw from the general wagonload market with effect from December 14 this year. The company will concentrate on its growing intermodal (primarily container) traffic and unit trains of bulk freight.

This will leave an opening for smaller companies to enter the market - perhaps some of the 12 independents who compete with Green Cargo in Sweden’s domestic sector. The largest of these operators, Inlandsgods AB, applied last summer to run wagonload traffic in Norway, although it has since gone bankrupt and was taken over in August by Swedish road haulier Härjelast AB. Inlandsgods had been looking at southern Norway, with a pilot service between Alnabru near Oslo and the Østfold region. It also identified a possible flow between Mo i Rana and Trondheim in the north.

Last year CargoNet leased six General Motors-built Series 66 diesels from HSBCRail to haul intermodal and timber traffic on the Trondheim - Bodø corridor

CAPTION: NSB’s Class 73B tilting EMUs are similar to the Class 73 Signatur sets used on long-distance routes, but fitted with higher density seating for medium-distance inter-city services on the Østfoldbanen between Oslo and Hamar

CAPTION: The 16-strong Class 70 EMU fleet used on inter-city services from Oslo to Lillehammer, Gjøvik and Skien is maintained by subsidiary Mantena AS at Nyland depot in Skien

CAPTION: Jernbaneverket’s BaneProduksjon arm is responsible for day-to-day inspection and maintenance of the rail infrastructure; plans to invite tenders for this work have been dropped after two years of trials

CAPTION: Once an NSB subsidiary, Flytoget AS became a free-standing state-owned competitor on January 1 2003, operating a premium service of six trains/h at up to 210 km/h on the Asker - Oslo - Gardermoen Airport corridor

Reforms to meet the prospect of competition

Next year, the Norwegian government plans to call tenders for two pilot contracts to run passenger services, and international competitors are expected to bid. Domestic freight operator CargoNet is abandoning wagonload traffic, and open access players are looking to fill the niche. Over the past two years, infrastructure authority Jernebaneverket and state railway NSB have been restructuring ready for competition, and refining their relationship based on the experience of the past seven years. Infastructure investment is being focused on a major capacity expansion scheme in Oslo’s western suburbs, but further projects are in the pipeline

Des réformes pour affronter les perspectives de concurrence

L’an prochain, le gouvernement norvégien envisage de lancer un appel d’offres pour deux contrats pilotes relatifs à l’exploitation des services voyageurs, et des soumissions émanant de concurrents internationaux sont attendues. CargoNet, l’opérateur de fret intérieur, est en train d’abandonner le trafic par wagons complets et les acteurs du libre accès cherchent à occuper la niche. Durant les deux années écoulées, Jernbaneverket, le gestionnaire d’infrastructure, et les chemins de fer de l’Etat NSB, se sont restructurés afin d’être prêts pour la concurrence, afinant leurs relations basées sur l’expérience des sept dernières années. Les investissements en matière d’infrastructure sont concentrés sur un importante programme d’augmentation de capacité dans la banlieue ouest d’Oslo, et d’autre projets sont sur le gril

Reformen im Vorfeld zur Konkurrenz

Im nächsten Jahr plant die norwegische Regierung, Angebote für zwei Pilotverträgen zum Betrieb von Personenverkehr anzufordern, und es wird erwartet, dass internationale Anbieter bieten werden. Der inländische Güterverkehrsbetreiber CargoNet gibt den Wagenladungsverkehr auf, und Open Access-Mitbewerber planen, die Nische zu füllen. Während der letzten zwei Jahren haben sich die Infrastrukturbeh