The contract the Dutch government intends to award to Dutch railway operator NS for passenger transport services is facing EU scrutiny and is “fundamentally illegal”, according to the head of the European lobby group of independent railways.

Nick Brooks, secretary general of the Alliance of Passenger Rail New Entrants (ALLRAIL), told Dutch News the new concession, announced last week, grants unjustified subsidies, covers a disproportionate size of railway services and its timing is “suspicious”.

The European Commission has already opened legal proceedings against the Netherlands on this matter.

On August 14, caretaker infrastructure minister Vivianne Heijnen announced her intention to directly award a new concession to state-owned railway operator NS by the end of 2023. The current contract expires in December 2024 and the new one would run from 1 January 2025 to the end of 2033.

As part of the arrangements, international routes to Berlin, London, Paris and Frankfurt will be opened to competition, while NS will keep exclusive rights on most domestic links.

“I believe that the market offers opportunities for travellers for these international connections… The connections between these major European cities have a different frequency and are also left to the market in our neighbouring countries. It is therefore logical to take this approach in the Netherlands as well,” Heijnen said in a briefing to MPs.

The cabinet also agreed to give NS a subsidy of €13 million a year to compensate for the downturn in passengers since the coronavirus pandemic, and to deal with energy prices, wage increases and staff shortages. At the same time, ministers have made the controversial decision to give the green light for higher ticket prices during rush hour.

The contract, however, is raising eyebrows in Brussels, as EU rules require that from December 2023 rail transport services are awarded through competitive tenders.

Under the fourth EU Railway Package adopted in December 2016, direct contracts are permitted until 24 December 2023. After that date, exceptions are allowed only in specific situations, for instance to ensure services that would not be viable under market terms (e.g. in remote locations) or in case of emergencies.

The European Commission believes the new NS concession attempts to bypass such rules and in July, the EU executive sent the Dutch government a letter of formal notice, the first step in a legal procedure that could take the Netherlands to the EU Court of Justice.

Long period

“The long period between the date of award, 24 December 2023 at the latest, and when services will start after 1 January 2025, is without objective justification. In this context, the Commission considers that the decision to directly award this contract now constitutes a circumvention of the principle of competitive award,” the body said in a press release.

The government has now two months to respond to the Commission legal notice, but Dutch News understands it has requested an extension of the deadline, which expires on 14 October 2023.

If the reply is not “satisfactory”, the Commission can carry on by sending the Netherlands a “reasoned opinion”, then if necessary taking the case to the EU Court of Justice.

In the meantime, the Dutch government said that the procedure “has no suspensive effect and the award can therefore continue as planned for the time being.”

Brooks said the contract might be stopped as a result of the EU legal action, and there might be damages to pay and requests of repayments “which will have consequences for the NS balance sheet”.

Independent rail operators

ALLRAIL had submitted a complaint to the European Commission about the NS contract. “We believe it is fundamentally illegal,” Brooks said.

“For the first time they want to give subsidies for this contract and that has never happened before… there is an EU regulation saying that if something is commercially viable and can finance itself by fares and revenues, then it should not be subsidised.

“The last NS contract was profitable, and now it is just astonishing that for the first time they need subsidies. We see no real reason for that,” he told Dutch News. “The only way you can get a direct award under the new regulation… is if the system is not profitable” so the subsidy would work to “justify a new direct award,” he added.

Secondly, the contract is “not proportional” because it covers 95% of rail services, Brooks continued. And thirdly, the timing is “suspicious”, because “if it’s the same operator just continuing [a service], you do not need 13 months to prepare [for a new contract],” he said.

International routes

Brooks added that the liberalisation of the cross-border links as part of new NS arrangements was inevitable because the interest shown by other companies proved the connections are commercially viable.

Several railway companies have notified Dutch authorities of the intention to operate these services. European Sleeper launched night trains to Berlin and plans to offer a similar service to Barcelona. Arriva, which is owned by German state railway Deutsche Bahn, plans for a service between Groningen and Paris in 2026. Qbuzz intends to connect Amsterdam to Paris, Berlin and Eindhoven in 2027.

Taking advantage of new EU rules, Italian state-owned Ferrovie dello Stato (FS) is also looking at high-speed services connecting Brussels, Amsterdam, Paris and Berlin, the Financial Times recently reported.

But a letter sent by the Commission to the government in July, and seen by Dutch News, warned against a ministry proposal by which, in case of congestion, “priority would be given to requests for capacity for services covered by concessions”.

“While a member state is entitled to give priority to services provided under public service obligations, it should not make it de facto impossible for open access operators to exercise their rights to access the railway infrastructure. The risk of insufficient visibility over available capacity and possible congestion may also render the exercise of open access rights exceedingly difficult,” the Commission wrote.

EU railways liberalisation

Brooks said it is ironic that it was the current prime minister, Mark Rutte, who agreed to the new EU rules and that NS itself has run services in Germany and Britain.

He added that many EU member states, including Austria, Poland, Denmark, Croatia, Slovenia, Greece and Bulgaria, have taken advantage of the December deadline to award direct contracts to national operators, “essentially delaying the opening of the market for another ten years”.

“The reason is that… you have a conflict of interest in that the member states are the owners of the incumbents,” he argued.

CER, the Community of European Railway and Infrastructure Companies, a lobby group of mainly state-owned railways, including NS, declined to comment.