How is Finland going to proceed with the privatization of its railways?

train-station-374426_640The Finnish government has just announced that it will proceed with the privatization of the railways, and a train conductors’ strike takes place Monday and Tuesday. Without going into the usual Sipilä’s bashing, we try in this article to explain why Finland needs to change its present system, how it could be done, and what may be the consequences.

Why this privatization?

It comes from a decision taken in the EU, which was approved by Finland. As well as encouraging greater competition within national markets, EU legislation gives rail operators the ability to run services in and between other EU countries, opening up cross-border competition. Rail freight transport has been completely liberalized in the EU since the start of 2007, for both national and international services. This means that any licensed EU railway company with the necessary safety certification can apply for capacity and offer national and international freight services by rail throughout the EU.

The liberalization of passenger rail services within the European Union has developed much more slowly than for freight. As set up by Directive 2012/34/EU   recasting something called the First Railway Package, open access for passenger services is only required today for international services. An agreement on further liberalization  now appears to have been reached, but it will still be 2020 before open access for commercial services is required, and 2023 for competitive tendering in the case of public service contracts.

So, even if the present government is pushing for the liberalization of Finland’s internal railways, there is no need to rush into it. There are some doubts that the Finns Party (Perussuomalaiset) will agree on a rapid reform, but the government will have the support of the ghost party called New Alternative, which is a group of Ministers and members of Parliament who separated from the Finns Party in June to save Sipilä’s government and their ministerial positions. So they may try to proceed in their usual unprepared way.

How could the privatization be done?

Even with the EU decisions, it will be possible to restrict open access to protect the financial position of services operated under public service contracts. It will also be possible to make direct awards of public service contracts, subject to the monitoring of performance by an independent body to ensure that direct award is appropriate. That explains why there are different models which have emerged in different EU countries.

According to a recent report from the CERRE (Centre on Regulation in Europe), passenger rail services may be liberalized in two ways. The first is by means of competitive
tendering for public service contracts. The second is by open access for the operation of
commercial services, which means total liberalization.

The countries which have taken the first approach furthest are Britain, Sweden and Germany.

Britain has adopted franchising by means of competitive tender for almost all passenger services, subsidized and commercial; state-owned British Rail was not allowed to bid and ceased to exist as a train operator.

Sweden has adopted it for virtually all subsidized services; most are procured by the regions, and 45% of all services in Sweden are now operated by new entrants.

In Germany, the federal states are responsible for procuring all subsidized services; there is a trend towards competitive tendering and 18% of regional services are operated by new entrants. It is a slow process.

All three countries have at least some commercial open access operation, but the country that has taken this furthest is Italy, where a new entrant provides frequent services in competition with the state-owned operator on the high-speed network. By contrast, France has no competitive tendering or open access competition (except on a couple of international routes).

What are the consequences?

In all three countries – Sweden, Germany and Britain – there has been rapid growth in demand for regional services, and subsidy per train km has generally fallen. By contrast in France, with no competition and a system which looks like the Finnish one, it has risen substantially. Whilst in Germany and Sweden costs have been reduced, in Britain train operating costs have actually risen. So the public franchise model, where the regions are making the tenders and chose the contractors, seems to be the best system, and the countries where the state-owned company operation the trains before the reform stayed as the main operator seem to have the best results. If Finland chooses this system, it would be a relative liberalization, and not a revolution.

However, the privatization does not go without hiccups. In the UK, there were major problems with the trains, including a number of accidents and dissatisfaction with the costs for the passengers, and the government and the regions are now obliged to inject a lot more of public money in the system than what they expected. In Scotland, there is even a push for the re-nationalization of the railway system.

In Sweden, there were also some accidents, obliging the government to add more money in the budget to maintain the infrastructures. In addition, in 2014, there was a strike among the train staff, because of the zero-hours contracts imposed by one private company: in Sweden, private operators are not obliged to hire the staff operating the public services and to keep their contracts, but they were able to hire their own staff, which had led to some abuse and may explain the strike in Finland on Monday. IN Germany and UK, the staff and the contracts had to be kept by the private operator. This could be a wise solution for a smooth transition.

The question for Finland is to make a choice between these different options. Everywhere, it has meant long and serious negotiations to arrive to the best solution for the country. In Finland, the government, as usual for Sipilä’s team,  announced that it will pass a law, without taking the time for at least a serious consultation and a debate with all stakeholders. This led to Monday-Tuesday warning strike. It is contrary to the Finnish tradition where you take the time to discuss, and then you decide…


Categories: Economy, Government, Uncategorized

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1 reply

  1. Speaking as a UK citizen and having lived through the privatization of the British railway network (my grandfather was an engine driver), this is just so sad to read, and it will be an absolute disaster for Finland, I guarantee it.

    So, the privatization of the Finnish national railway network has come down from on high from within the EU legislature – with the alleged approval of the Finnish parliament, who almost certainly had no choice other than to agree to the terms – and will go ahead to create “greater competition” and “further liberalization” of the European-wide transportation networks. Note that the movement of freight – which is political double speak indicating the free movement of transnational capital across borders for the express purpose of lubricating further the interests of big business – as the overriding motive for the decision. It seems to not have been even a consideration of the EU, let alone the Finnish government, that this action is being undertaken overwhelmingly against the wishes and without the consent of the majority of the Finnish people by public servants supposedly elected to serve the needs of the mass of the population. This outcome clearly demonstrates that the needs of corporations and their corrupt practices outweigh public opinion in a supposedly open and democratic society. There can be no argument against the fact that this privatization will serve only the needs of wealthiest elites at the expense of everyone else. If we bear in mind that words “competition” and “liberalization” are the core watchwords of the neo-liberal agenda, then it will come as no surprise to many that the consumer will pay the highest price for what will no doubt be a complete debacle. As we have seen repeatedly in other countries where the same privatization measures toward public transportation services have been implemented, it has been an unmitigated disaster in terms of cost to the public. It now cost less to fly to Edinburgh from London than to take a train, for example. The fact then Finland is undertaking this inane move twenty years too late just shows how little this has been properly thought through by the powers that be.

    Anyone in Finland who does not want to see their very efficient national railway system butchered and/or demolished beyond all recognition should do everything in their power to support the Finnish locomotive drivers union (VML), the majority of whom will no doubt end up ultimately losing their jobs, should the Finnish government decide to privatize the VR railway network. Mark my words – and I speak from personal experience – do not let what has happened in the UK happen in Finland under the aegis of false progress. Privatization will only result in terrible train services across the board with delays to the network; dangerously mismanaged maintenance due to the outsourcing of working practices; the forced redundancies of many employees, as well as the unceremonious liquidation of pension schemes and ridiculous ticket price hikes that only the wealthy or indebted will be able to afford. It will also open the door to further privatization and, as in the UK, the result will be a wealth gap opening up in Finland geared toward bolstering the interests of the wealthy together with foreign corporations coming in and buying up (formally) state owned companies and services at a fraction of their real value, and for which the tax payer will not be compensated. Finland and the majority of its people will then begin the long slide toward vast inequalities that will serve to destabilize society further. Finland is a great country because of its protectionist practices which protect the taxpayers’ investments and likewise the services those taxes provide, so do let any neo-liberal espousing dimwit convince you of anything to the contrary. Privatization does not work – this has been proven in the UK and elsewhere time and time again – and it is certainly not the answer to any country’s problems no matter how dire the government might convince you things are.

    At the very least, the Finnish government should not be permitted to sell-off what is essentially a publicly owned and publicly financed institution without the direct consent of the voting tax payer, who has funded the enterprise from its inception. Consider this: since the establishment of the Finnish railway system in 1862 it has been wholly funded and maintained with taxes derived from the peoples of Finland. Are we, the public, to accept that we will let the government sell-off the railway system to make a greed motivated, one-time profit without first compensating the tax payer for those 155 years of financial backing and investment in a railway to which they have greatly benefited? Who are the government to sell an institution that they DO NOT own? The people own the railway not the government in that we elect government officials as public servants solely for the purpose of administering our society not to sell-off and strip the nation of its assets to the highest bidder. At the very least, the Finnish government must offer the public a referendum on whether or not they should be allowed to sell it in the first place, and in the event that the public are overruled then the welfare state should be the direct recipient of the purchase funds and not the self-serving politicians we’ve elected to protect us from this sort of corporate takeover. The people who loose out most from this kind of transaction, where the government is concerned, should be the party most in need of compensation.


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