European Commission puts state aid to DB Cargo under scrutiny

Image: Deutsche BahnDeutsche Bahn

The European Commission has launched an investigation to find out to what extent certain aid measures by the German government for DB Cargo are in line with EU state aid rules. The committee reports that it will conduct an ‘in-depth investigation’ in response to a complaint about the situation, while representatives of the railway sector feel justified by the development.

DB-Cargo is a subsidiary of the state-owned Deutsche Bahn AG. Although the company has incurred significant financial losses in recent years, Deutsche Bahn has structurally absorbed them based on a profit-and-loss agreement between the two companies. According to the complainant, this creates unfair competition with private rail operators.

Four points of investigation

The European Commission has announced that it will investigate the profit and loss agreement between Deutsche Bahn AG and DB Cargo, the possible favourable terms for loans that the company has received, the potentially favourable pricing terms for intra-group services to DB Cargo, and the partial coverage by the German Federal Railway Fund of the remuneration of civil servants previously employed by the former national railway company Deutsche Bundesbahn and currently allocated to DB Cargo.

The financial support that DB Cargo receives from the government allows the company to invest in its growth and expansion, which would be impossible otherwise. However, under current EU state aid rules, public intervention is not considered state aid if accepted under market conditions. In such a case, and under article 107 of the EU Functioning Treaty, state aid to a company is considered financially advantageous over its competitors.

‘No more competing with DB’s money bags’

Hans-Willem Vroon, director of RailGood, already mentioned this problem in a LinkedIn post last week concerning the news about the replacement of DB Cargo’s locomotive fleet. The company ordered 200 hybrid locomotives after already ordering 100 new locomotives a year ago.

“Competitors in the free market have to compete with Deutsche Bahn with its infinite amount of money bags and German state aid. Market forces on the railways remain a special matter in Europe. Entrepreneurs are smart and inventive, although this form of competition is not very pleasant from a business financial perspective’, he highlighted.

Moreover, Ludolf Kerkeling, CEO of the Network of European Railways, also favours the in-depth investigation on DB Cargo. “On behalf of the freight railways, the NEE expressly welcomes the Commission’s decision. Fair competition is a cornerstone of European cooperation, and it is the Commission’s duty to demand this fairness and react in the event of possible violations. We have repeatedly heard from our members about incomprehensibly priced offers from DB Cargo and are looking forward to the result of the investigation with eager anticipation,” he commented.

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Author: Nikos Papatolios

Nikos Papatolios is editor of RailFreight.com, the online magazine for rail freight professionals.

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