Sunday, June 09, 2013


In his weekly column, which is usually unique among opinion pieces in being both carefully reasoned and highly insightful, Bas Heijne tore into a slew of targets yesterday. The reason why he lost his calm like that? Fyra.

Fyra is - or rather: was - the high-speed train between Amsterdam and Brussels. There is also a high-speed from Amsterdam to Brussels and then on to Paris, the Thalys, but that train works just fine and is not the topic of this story. Fyra, on the other hand, is an unmitigated disaster. It was launched on December 9, last year, and by the time I took the highspeed (Thalys) to Brussels in early January, it already had a reputation for offering at best an even chance of reaching its destination. Later that month, it was taken out of service, as reported by the BBC here. On May 31, the Belgian railways announced they were cancelling the Fyra service permanently, and a few days later the Dutch followed suit.

So who's to blame? Bas Heijne mentions a few people, but he seems mostly interested in talking about Parliament. However, let's start at the beginning:
  • The supplier of the train, the Italian company AnsaldoBreda, seems to have supplied a train that was not fit for purpose.
  • NS and NMBS took delivery of a train that was not fit for purpose.
  • NS and NMBS contracted with AnsaldoBreda in the first place.
  • The Dutch and Belgian governments are the only shareholders of NS and NMBS respectively, so clearly they dropped the ball.
  • Likewise, there are some things wrong with the regulatory system. More on that below, but again it is the governments of the two countries that are responsible for that one.
  • And finally, Mr. Heijne notes how Parliament (the Dutch one) seems to spend all of its time either screaming at the government about something that was on the front pages of the newspapers the day before, or screaming at the government because of some mess that resulted from the government giving it what it asked for. While that is quite correct, I'm not sure if it is such a relevant consideration in this particular instance. I don't recall any screams from Parliament about how we urgently needed a highspeed connection with Belgium. The government seems to have originated that idea all on its own.
So who's really to blame? Well, it may be my professional background, but I think the issue is one of regulation, not politics. Remember the issue of NS: Like Schrödinger's cat, it is two things at once. It is a state-owned for-profit company that contracts with another state-owned for-profit company for access to the network, which it is entitled to because of a concession it was granted by its owner, the state. All the money it makes running trains and avoiding taxes it pays out to the state in dividends.

In the 1990s, this schizophrenia infected even the state. The Treasury department viewed NS as a for-profit subsidiary and advocated treating it as such until its privatisation, which was to happen sooner rather than later. The Transport department, on the other hand, viewed it as a state-owned enterprise that should be encouraged to run the trains as wisely as possible based on the government's instructions without being burdened with such nuisances as competition or privatisation. The former was run almost exclusively by the liberal VVD party between 1994 and 2007, mostly through the highly influential Deputy-Prime Minister and occasional party leader Gerrit Zalm, while the latter ministry was traditionally a bastion of Christian-Democrats and Socialists. And so, with the ebbs and flows of power between parties and between ministries, the government's policy goals with regard to the railway sector changed as well. That is how the country ended up with a fully unbundled railway sector with competitive tenders in large parts of the system, but also with a state-owned incumbent who is given the most important concession outright every few years. (The last time until 2025.)

Highspeed South, which includes both Fyra and Thalys, is a wonderful example of this schizophrenia at work. When the Treasury was powerful, it pushed through a competitive tender for this concession. NS was so paranoid about letting any foreign company onto the Dutch market that they went crazy and overbid massively. As Mr. Heijne's own newspaper, the NRC, discovered in 2011, the company's internal bid team thought that €120 - 130 million per year would be the maximum realistic bid. The board, however, added to that in a series of meetings until they ended up with € 148 million, a sum € 18 million higher than the € 130 million that the Transport Ministry had estimated as the maximum. The bid was so high that the government went back and encouraged them to re-evaluate, but in the end the bid was accepted. (No other company even came close to bidding € 100 million, much less € 148 million, so NS's concern was entirely unwarranted.)

When High-Speed Alliance, the NS-KLM joint venture tasked with running the trains, went bankrupt in 2011, the Treasury had long since lost its influence. So the liberal approach to railway regulation was unceremoniously replaced by a conservative approach: The Dutch company gets to keep its concession. Instead of re-tendering, the highspeed service was added to NS's regular concession and granted outright, at a reduced price of € 108 million per year. (Ironically, since 2010 the Transport Minister was a liberal.) Nationalism and bureaucracy instead of competition.

In my view, that is how we ended up with this Fyra debacle. As NRC wrote in January, the reason why in 2004 NS and NMBS bought the AnsaldoBreda trains instead of rolling stock from another manufacturer was purely a matter of price. They compromised on speed (which you wouldn't need anyway given how close together the stops are) and quality in order to get the cheapest possible train. That decision made sense from the point of view of a company that was in over its head, having bid way too much in a competitive tendering process. The trouble only arrived now, long after all the responsible railway executives and government ministers have retired.

To review:
  • 2001: The government screws up the tender by accepting a bid that was unrealistically high. (Tenders are hard.)
  • 2004: NS and NMBS buy the cheapest trains they can get their hands on.
  • 2011: HSA collapses and is rescued by the Dutch state.
  • 2013: The trains start running and then break down. 

This is not a problem that started in Parliament. They wrote a law that is fundamentally sound. It just leaves a little too much room for shenanigans, so shenanigans is what we got. The solution seems to be that NS should be privatised post haste. A company that makes € 300 million profit per year should fetch a handy sum, which should please the orthodoxy, and theoretically privatisation should remove any further temptation for the Transport Ministry to do anything stupid. Let a private NS run the trains it has contracted to run, and let the Transport Ministry and the Regulator ACM fine them up the wahzoo if they screw it up.

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