Brexit Britain looks to Europe to help fix its railways

LONDON — Keir Starmer wants to reset Brexit Britain’s dysfunctional rail network. He may be about to turn to Europe for help.

The U.K. prime minister’s government is in the process of taking his country’s rail system back into public ownership — ending the British experiment with privatization that kicked off in the 1990s.

But with money tight, it’s looking for novel ways to finance new trains. Ministers think the answer may lie across the Channel — and are actively looking at plans to take Britain into a major pan-European rail group.

Since privatization, British operators have bought new trains through private “rolling stock companies” or ROSCOs — big private financial institutions which own the vehicles and rent them back to the actual operators.

The ROSCO system has been criticized by industry experts for imposing unnecessary costs on the companies actually running the trains — and in turn passengers, through higher fares.

Leasing costs charged by the companies have been rising fast and now sit at 26 percent of all operators’ costs. According to Britain’s National Audit Office, leasing fees have nearly doubled in five years — and unlike most actual train operators, ROSCOs make very healthy profits, with big margins.

The Rail Working Group, an industry lobby group, says the situation has become “critical” and cheaper rates are needed now.

And yet the government’s rail reforms don’t do anything to move away from ROSCOs — yet.

To an administration wedded to tight fiscal policy, the cheapest approach — the Treasury simply buying billions of pounds of rolling stock up front and putting it on the U.K.’s balance sheet — looks rather unattractive.

The solution might be to go continental.

Basel bound

Ministers are now exploring getting Britain into a supranational organization called Eurofima — the European Company for the Financing of Railroad Rolling Stock.

Headquartered in Basel, Switzerland, Eurofima has been financing trains across the continent since 1956 for everyone from Spain to Sweden. It may represent an alternative to the U.K. using ROSCOs to finance future trains.

Despite its supranational nature, Eurofima isn’t an EU institution, and members include non-EU countries like Norway, Turkey, Montenegro and Serbia. Its biggest shareholders are Germany’s Deutsche Bahn and France’s SNCF, followed by the Italian state railways.

As a “non-profit maximizing” membership organisation, Eurofima’s rates are rather competitive, especially compared to the margins ROSCOs charge. And being a supranational organization, Eurofima’s costs wouldn’t appear on the U.K. government’s balance sheet either.

“My officials have been engaging regularly with Eurofima over the last two years to consider the potential for U.K. membership, and they continue to engage with them on this matter,” U.K. Transport Minister Simon Lightwood said in a written parliamentary answer.

“The government is committed to developing a long-term industrial strategy for rolling stock, which supports British manufacturing and innovation and ultimately improves the offer for passengers. As part of this, my officials have been exploring the best financing structures to support this investment, in partnership with private finance, and this includes considering Eurofima finance.”

‘A better value approach’

Counter-intuitively, Britain’s departure from the EU seems to have made the case for joining the body stronger.

According to the Campaign for Better Transport, U.K. operators previously benefited from preferential financing from the European Investment Bank. Blocked from accessing that money post-Brexit has made rolling stock procurement that bit more expensive.

The idea is popular with many experts in the U.K. “With the imminent transition to Great British Railways, now is a very opportune moment for the U.K. to join Eurofima, whose members largely consist of national rail operators,” said Michael Solomon Williams from the Campaign for Better Transport.

“For years, the U.K. has been suffering from inconsistent rolling stock production, compounded by a loss of EU funding, which if not addressed soon could lead to major job losses in the sector. Accession to Eurofima could help plug the current funding gap, save the government money, and offer a better value approach to delivering new trains on our network.”

Eurofima itself has said the U.K. would be welcome to join. The company’s CEO Christoph Pasternak told Rail Business UK earlier this year: “Everyone we have spoken to in the U.K. thinks this is a good idea and can see a clear benefit in terms of easing the burden on the public purse. But we just need someone in government to pick up the pen.”