French government breaks up state freight transport – under pressure from the EU Commission

An analysis by Pierre Lévy

This is a pure example of the wonders that the European Commission can do. Under pressure from this institution, the French transport minister announced the break-up of the rail freight subsidiary of the French railway company SNCF.

According to the plan presented by Clément Beaune on May 23, the said subsidiary, Fret SNCF, is to be replaced by a much smaller company and separated from the framework of the state-owned group. The new entity would be forced to cede some of Fret SNCF’s markets and resources to private competitors.

The story is very simple – and unfortunately classic. It begins with Brussels launching an investigation into Fret SNCF. And “discovered” that this subsidiary benefited from €5.3 billion in debt relief over the period 2007-2019. This debt relief was linked to the recent reform of the French railway sector. In 2018-2020 the SNCF group had been restructured (as a result of full liberalization imposed by the European Union).

The freight unit’s debts were then taken over by SNCF, ie the parent company. The parent company’s capital is owned by the French State. That was all it took Brussels spies to suspect “state aid” that could distort sacred competition and thus violate EU law.

The minister did not wait for the investigation to end, but effectively interrupted it by pleading guilty. And by himself proposing the punishment in the form of liquidating the “guilty” subsidiary and then setting up a smaller company, to show Brussels that it was ready to atone for the guilt.

In concrete terms, the successor company to Fret SNCF would be deprived of the business area “awarded/dedicated trains”, ie the trains that are fully chartered by large customers (e.g. with sea containers). This activity would be reserved exclusively for private competition for ten years. It now accounts for 20 percent of turnover and even 30 percent of traffic, and employs 1,000 of Fret SNCF’s 5,000 railway workers.

That is not all. The unions claim that private competitors would receive 62 Fret SNCF locomotives free of charge to ensure this part of the transport – the most profitable – and they would benefit from having the drivers who operate this transport at their disposal for 36 months be asked. In addition, the competing companies would inherit 40 percent of Fret SNCF’s real estate assets and one of its logistics platforms.

The new SNCF subsidiary would continue to transport single wagonloads – 80 percent of the business but the least profitable part. As icing on the cake, that subsidiary’s capital would be opened up to minority shareholders in 2026, which should be “public if possible,” the minister tried to console. Clément Beaune also assured that even if the future entity would only employ 4,000 people, there would be “no layoffs”.

The project is all the more unbearable for the railroad workers because sacrifices were made on them in the name of a return to “profitability”. In fact, Fret SNCF had been profitable for two years after a long period of negative results.

In fact, the opening up of rail transport to competition, which began in the 2000s with freight transport at the urging of Brussels, had meant that the volume of goods transported by rail had declined in favor of road transport. Only the Covid stimulus program has been able to reverse this trend thanks to government subsidies.

A number of commentators have also pointed out this paradox: this new attack on public rail freight transport comes at a time when both Brussels and Paris are singing the praises of the ecological importance of rail compared to road. In order to relieve himself, the transport minister promised the entire sector (i.e. in particular private companies) financial aid over the next few years. In the meantime, the principle of public service is undermined.

The case is not exceptional. As early as 2021, the Italian authorities had tried to keep the airline Alitalia alive. They hoped to soften Brussels by sacrificing half their planes and creating a downsized company, renamed ITA Airways, to replace Alitalia.

Germany is not safe from the wrath of Brussels either: In January 2022, the Commission launched an investigation into DB Cargo. This company, which handles half of the rail transport in Germany, is suspected of having anti-competitive advantages because its parent company, DB AG, compensates for its losses in the form of a profit transfer agreement.

Unforgivable, complained private competitors, whom the Commission may agree: Since DB AG is exclusively state-owned, EU law, which the Commission is supposed to enforce, is being violated. The management of the parent company justifies itself – not without reason – with the fact that freight transport, especially the single wagon business, which requires expensive infrastructure, is in the public interest. But what does this concept weigh in the face of European law – and its ideology?

Be that as it may, the president of the SNCF group spoke of “an explosion for the railroad workers“, because Jean-Pierre Farandou is aware of the consequences of the plan announced by his superior minister.

For his part, Mr Beaune justified himself by arguing that he had two solutions: the first is to let the Brussels procedure continue and risk Fret SNCF (like the Romanian railway company before) repaying the 5.7 billion euros what would ipso facto mean its liquidation, or to propose to Brussels a compromise that favors competition.

A third option, of course, did not occur to the young political wolf, who is very close to Emmanuel Macron and was previously his minister for European affairs: disobeying Brussels.

In this case, so dreaded by political leaders (but also by union officials who were careful not to mention it), fret-xit could have been the first step towards frexit…

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