Home / Business Intelligence / Western European governments finance 87% of railways’ rolling stock procurement

Western European governments finance 87% of railways’ rolling stock procurement

The Rail Working Group together with the consulting firm Roland Berger have published a new study examining the extent to which rolling stock procurement in Western Europe is directly or indirectly publicly funded. The Private financing of rolling stock study involves an analysis by country and by sector of 246 rolling stock procurement projects in 13 countries across Western Europe in the years 2011-2013, averaging spending of close to EUR 11 billion per annum. However, EUR 9.352 bn (87%), representing 191 of 246 projects (78%), was directly or indirectly financed by governments.

The study also shows a clear correlation between the deregulation of rail markets and private finance: the more markets are opened up, the greater role private capital plays in financing new railway equipment. “Bearing in mind a more liberalized market in the future, projected steady procurement expansion of about 2.7% per annum and increasing pressure on government debt levels, the trend is clear,” said Roland Berger partner Andreas Schwilling, one of the authors of the report. “We can expect a requirement for much more private finance looking forward,” he added.

Rail Freight Group Chairman Tony Berkeley welcomed this report as evidence that the best way to attract private finance to the railway is to ensure an open, transparent market structure where there is fair competition between different players. “In freight in the UK, there is already a thriving market in private wagon and locomotive financing and leasing, which is helping to encourage investment and growth,” he said.

“Part of the problem,” observed Howard Rosen, Chairman of the Rail Working Group, “is a legacy of the historic ownership of the railways where there was limited need for private sector finance and very patchy legally enforceable security for private sector lenders, so even where support from banks and institutions has been needed, they were reluctant to come into the market”. EU-led reform of the European rail system, including open access for freight and gradually passenger services, is now creating a more competitive industry, which urgently needs private capital for investment in new, more efficient equipment.

“The Luxembourg Rail Protocol, a global treaty creating a new system of security for lenders and lessors, will significantly change the way that the private sector looks at financing rolling stock in the future, leading to cheaper and more available finance, new possibilities for operating leasing and a more dynamic rail sector. What this study shows is that there is massive potential for the private sector to finance new and much needed rolling stock procurement, creating more jobs and underwriting more environmentally friendly transportation in the future. The Luxembourg Rail Protocol will support this by delivering a consistent legal framework for this area of finance,” added Rosen.

A second study covering Eastern Europe will be published in early 2016.

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