Rail Wars

A battle between private train operators and state-owned České dráhy is finally underway

His train was supposed to have been running two years ago. When it set off last week, on its maiden journey, there were problems. The stewardesses struggled to serve passengers with coffee, croissants and sushi along the speeding train's narrow aisles. The wireless internet connection kept dropping out.

But for entrepreneur Radim Vančura, whose yellow RegioJet trains are now competing with state-owned České dráhy (ČD), these are small details that can be fine-tuned later on. To all intents and purposes, he can consider the launch of his rail service a mission accomplished and begin focusing on making money. He has set himself a more important task, however: breaking ČD's monopoly and forcing the regional authorities to hold tenders for rail services.

It could drastically alter the status quo, under which the state automatically extends its contracts with ČD on most routes, effectively providing it with state subsidies. The situation will become clearer next year but it's already obvious that the tenders that have been announced will benefit rail passengers.

Under pressure
The train was supposed to supplement Jančura's yellow bus lines, which run between Prague and Ostrava, because buses can't really compete with high-speed trains. The more Jančura learned about how train transport works in the Czech Republic, however, the more disillusioned he became. ČD has monopolized the high-speed train sector for some time and, from an entrepreneur's point of view, it seemed like a risky venture.

ČD's train connections between Prague and Ostrava were allotted a subsidy amounting to 350 million crowns per year, despite the fact that, according to Jančura's figures, they didn't need a subsidy to become profitable. As a result of pressure from Jančura, ČD has since stopped receiving these subsidies.

Five years ago, Jančura and his team weren't sure if they could find the legal tools necessary to force the state to stop subsidizing profitable lines. If they hadn't, they wouldn't have been able to compete with ČD. These problems, plus the delays to the launch of his train service, inspired Jančura to keep going with his fight against the monopoly. Because of the energy he has expended on the rail project, he's had to let other projects go. While there are a number of successful hoteliers and other types of businessmen in the Czech Republic, he says, he would be the first to enter the rail industry as a private train owner. Jančura clearly relishes the challenge.

Local connections and fast trains
The turning point for his big plans was the hiring of two experts from the Transport Ministry. Jiří Schmidt, an expert on European train legislation, was the first person to point out that, under EU law, the Czech authorities should hold tenders for train services. Schmidt believed he would be able to enforce this rule while still working at the ministry but faced such strong opposition that he decided to join Jančura's firm.

Jančura learned from Schmidt that he can also compete for short-distance routes, which are less profitable but which are regarded as a public service and subsidized by the state. European law states that companies can compete for these routes and the company that submits the lowest bid wins the tender. Jančura's firm tried to talk to the regional authorities responsible for short-distance train routes; Schmidt and his colleagues, meanwhile, worked on gaining access to the Prague-Ostrava route, which is simpler because no subsidies are involved.

While Jančura's service between Prague and Ostrava has now been launched, gaining access to the short-distance routes has been much more difficult. With help from Radek Martínek, the hejtman (governor) of the Pardubice Region, local Social Democratic politicians agreed 10-year contracts with the Transport Ministry without holding a tender. The politicians claimed this would provide regional train services with much-needed "stabilization" and would allow them to concentrate on replacing obsolete trains and improving services. Tenders will be held at the end of the 10-year stabilization period. Jančura decided to file a complaint with the European Commission arguing that neither the regional authorities nor the state was allowing fair competition in the Czech rail system.

Currently, no one dares predict the verdict but Jančura's determination to take his battle with the state monopoly to extremes has already borne fruit. Thanks to his fierce campaigning and through lodging complaints in Brussels, a meeting between state representatives and private transport companies was held on the subsidizing of high-speed train routes. Jančura's efforts resulted in the state agreeing on a schedule for opening up these routes to private rail operators. "The first competition will be announced at the end of this year," says Ondřej Michalčík, director of the Transport Ministry's public transportation department. "The winner would launch his trains in 2013."

Only two winners
The state is planning a tender inspired by one in Bavaria, Germany under which whoever offered the lowest bid was declared the winner. This actually managed to save around 15 percent in costs. Thanks to Jančura's competition, České dráhy now plans to introduce stewardesses of its own and to increase comfort levels for its customers. Entrepreneur Leoš Novotný, the son of the owner of the successful food company Hamé Babice, wants to enter the Ostrava train market too. Experts say that the route could be profitable even if it were shared by two operators, so the fight for passengers should drive prices even lower.

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