Competition coming at snail’s pace to Finnish railways

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By Jouni Mölsä
     
      Finland has chosen to develop its railway services by opening them up to competition, in accordance with the wishes of the European Union, but if the idea is making any progress at all, it is going at a very slow pace.
      The exclusive right of the rail service provider VR for passenger transport is expected to continue at least until 2019, and in local services in the Helsinki region, it is going on until 2017. No competitors have emerged for freight transport, even though it is now open to competition.
     
“In rail transport, we are taking cautious steps toward moderate competition”, says transport director Miika Mäkitalo of the Finnish Transport Agency.
      In his doctoral thesis Mäkitalo has studied the deregulation of rail transport. He is a member of a working group of the Ministry of Transport and Communications, which is currently examining how competition might be introduced into rail transport.
     
A goal has been set at the EU level to seek to get away from regulated markets. The assumption is that competition would lead to more efficiency and better services, because the survival of the companies depends on these.
      To promote competition and enhance transparency, transport and track maintenance have been separated.
      In Finland the state offers transport companies the use of the rail network in return for monetary compensation. The rail use fee covers 10-15 per cent of the costs of rail maintenance.
     
A potential jackpot for railway companies would be the opening of passenger traffic to competition. The EU does not require this.
      “Even if the government decided to free competition today, the establishment of activities that improve passenger service would take more than ten years”, Mäkitalo says.
      The mere drafting of the paperwork for establishing competition would take three years.
     
Another obstacle to the establishment of rail competition is that starting a railway service requires very much money.
      “I don’t know who would have the tens of millions in cash needed for buying equipment for a rail yard sitting in his pocket, and who would then put an ad in a newspaper saying that if someone wants to have something transported, I could do it”, Mäkitalo says.
     
The situation is also made difficult by the fact that much heavy industry has moved out of Finland.
      The Ministry of Transport is buying EUR 40 million in transport services for rail lines where there are perhaps a few dozen daily passengers.
      Otherwise the transport would not be viable.
     
Community researcher and veteran politician Osmo Soininvaara criticised this in an interview with Helsingin Sanomat (24.2.). In his view, the aim of train transport should be to carry as many people as possible.
      Mäkitalo, who is paid by the state, cautiously agrees with Soininvaaara.
     
“In the future, this [buying transport services] will be passed on to the Finnish Transport Agency. Then we can consider how a system using train and bus transport to complement, or to replace each other can be built.”
      The shift is happening in early 2011.
      Mäkitalo opposes turning the clock backwards by returning to the model of a state-run enterprise.
      “If something is taken care of by one company or institution, the organisational diagram is certainly simple, but will it produce as much well-being as possible? According to economic theory, the answer is know”, he says.
     
The report of the working group of the Ministry of Transport and Communications on the possibilities of establishing competition, is likely to be completed in April.
     
Helsingin Sanomat / First published in print 26.2.2010


Links:
  Finnish Transport Agency
  Finnish Railways, VR

JOUNI MÖLSÄ / Helsingin Sanomat
jouni.molsa@hs.fi