Etienne Schouppe, Managing Director of Belgian National Railways, is treading a delicate path of reform in a country where performance of the national railway is a deeply political issue. The restructured company lends itself to privatisation, but Schouppe told Murray Hughes in Brussels that the changes were needed to put transparency into the business

'WE RESTRUCTURED primarily to reduce the overheads.' Etienne Schouppe, Managing Director of Belgium's still entirely national railway, homed in on achieving a lower cost base when asked why he had introduced a new management structure: 'We could see what the people running the operating units were spending in direct costs, but we could not discover the indirect costs which disappeared into the melting pot of the whole company. The result was evident if we were bidding for outside work, as the indirect costs took up such a high percentage that it put us out of the running in any outside competition.'

Schouppe's second point was that 'we had to restructure the accounting system to meet European directives for separation of infrastructure and operations, and to distinguish between public or social services and those which are run for commercial reasons.' Given that he was obliged to do this for legal reasons, 'it was only a small step to go one stage further and break down the costs in much more detail. I used the European directive and our economic objectives to achieve a much more detailed separation, allowing us to manage the costs better inside the company by separating out the costs of the business units.'

Schouppe felt that business units were 'the best way to manage as it gives a clear view of what's going on, a clear view of the financial results, and a clear view of productivity. But the disadvantage is that you need stronger co-ordination between the business units.' This was achieved by changing the role of the management committee, which Schouppe chairs. 'In the past, the management committee had direct responsibility for the operating units; now their mission is to supervise and co-ordinate the different business units and to bring them in line with company strategy.'

Schouppe drew up the restructuring plan in 1997 and moved quickly to implement the changes. 'We set up the new structure in January 1998, and we did a lot in that year. We used the first two quarters to build up the accounting structure and the technical independence of each unit - for example, each business unit was allocated rolling stock or had to agree arrangements to use the stock belonging to other units.'

While Schouppe says 'that there are separate plans within a global unit', SNCB's new structure is not typical of that chosen by other European railways, although there are elements that could be traced to the sectorisation process in Britain in the early 1980s.

Transfer prices

The whole idea is based on what Schouppe terms 'transfer prices', and much time was spent last year 'in setting these at the right level'. Schouppe uses an Antwerpen - Charleroi freight train as an example: 'it needs wagons, a loco and a driver, and a fee must be paid for use of the infrastructure. The freight business unit is responsible for buying from other units the various components of the traffic, including maintenance. If the total price is higher than the selling price to the customer, then the manager has an easy choice. He either increases his selling price or gets the transfer price reduced. In this way each unit is under pressure to work as cheaply as possible.' Putting it another way, Schouppe says that 'the market price determines the price of operations within the company.'

Individual business units (Fig 1, p104) have a 'guided freedom' in setting their prices. 'If they are too high compared with the market price, then they have three to five years to restructure so that they have lower transfer prices', explained Schouppe.

Once the start-out transfer prices were set, the test was to determine the financial result. 'From July 1 the business units had full responsibility for their costs and for their own accounting results, and we will see in the year's financial results where the concept worked, where there is space between the transfer prices and the market prices, and where there are opportunities for new business.' He was referring to plans to bid for outside work such as maintenance for wagon leasing companies, which he sees as an important way of encouraging private investment in railways (Rail Business Report 99 p35).

Was Schouppe satisfied with progress to date? 'Not yet', came the reply, 'I have the feeling that some business unit managers are too concerned with their profit and loss accounts and are only aware of their own activity, losing interest in the company as a whole. The management committee is there to keep the global strategy in place, but good progress has been made compared with the past. We will have very good financial results in due course.'

Did that mean reducing SNCB's call on government funds? Schouppe said that 'the government forced us to accept a long-term performance contract, first for four years and then for five, and they obviously want us to keep public services running, but they have not given us a single centime more ... for exceeding the minimum level of train-km for public services. However, if we can improve on the target revenue figure, we are entitled to keep the money.' In 1997 SNCB received BFr37·7bn in grants for public services, while revenue from passenger traffic was BFr16·8bn (p103). The revenue figure for 1998 is expected to show an improvement of 1·5%.

In practice, SNCB has not met the quality of service targets, mainly because of a disastrous start to a radically different timetable launched in May 1998. Clockface departures for international services were agreed so that they would mesh with national timetables in France, the Netherlands and Germany, but this meant using the maximum number of paths on routes where domestic traffic shared tracks with international trains.

'We had been running the same IC/IR timetable with minor adjustments for 16 years, and we knew the risks of a change on this scale. But our mistake was to be too ambitious. We were under public pressure to improve the level of service, and we increased train-km by 8%, but without taking on extra staff or using more rolling stock.' The result was near chaos that led to public calls for Schouppe's resignation and much adverse publicity.

'The problem was that we did not allow enough buffer time between services, so if a driver was delayed on one train, it automatically led to delays on many others. We were much more vulnerable to incidents than in the past.' SNCB has since made adjustments to bring the service up to acceptable quality. Looking back, Schouppe felt that 'we had to take the risk, because in the long term it is an absolute necessity that we use all the paths.'

Easier to privatise

A glance at Fig 1 shows that there are individual structures that could perhaps be sold off as separate units. Was the structure chosen to make it easier to privatise all or part of SNCB?

Schouppe readily agreed that 'it is a fact it will be easier to privatise, but it is not my target, not at all. I don't want to privatise, and I don't believe we need it. I see it as part of a process that is leading to international structures in European transport.'

He said it was important to distinguish between commercial services and those requiring public money, as 'they both need to be organised on a different basis. You cannot operate with two philosophies, and you cannot split a man in two, not if he a business unit manager or even the managing director.' He speculated that there would come a time when the two types of traffic were managed quite differently right across Europe.

In contrast, Schouppe was in favour of private capital being injected into the business. 'I believe that the majority of capital should not be held by the public sector. At the moment only a very small amount is privately owned - about 1% - and I would welcome it very much if the government had only 50 to 55% and the rest was put into a real commercial environment. Maybe the government would keep only 30 or 40%, and the impact of private capital would be considerable as the shareholders would expect a commercial return on their investment.'

No separation

Schouppe needed no prompting to condemn the European Commission's proposals for full separation of operations and infrastructure. 'I am still in favour of keeping infrastructure and operations together - I believe it gives the best advantage for operating companies who use the infrastructure, and it ensures that the track does not suffer from badly-maintained wagons or too heavy loadings.'

Recognising that separation is a route to competition, Schouppe repeated the argument that 'our real competitors are the roads and inland waterways', but he said he 'would welcome on-rail competition as it obliges us all to cut expenses and be competitive. But we should not do it for reasons of dogma.'

Schouppe felt the important point was that 'co-operation should be allowed on international services. Even German Railway is not able to ensure good quality of service to all destinations across Europe, even though it is centrally located. It needs the help of the local operator or railway company. If the European Commission's target is to transfer traffic from road to rail, they must give rail the ability to do this and should allow international co-operation so that we can offer our customers a good price and good quality of service.'

Having a subsidiary company in another country was not good enough, 'because people need to be there when the cargo arrives.'

Did this mean transnational companies? Schouppe agreed they would come 'one day, maybe, but I believe in joint ventures with close co-operation and well-understood mutual interest.' He denied rumours that a joint venture was being planned with French National Railways to counterbalance the planned NS Cargo-DB Cargo and SBB-FS mergers. 'That would be a mistake, but naturally we have a more positive attitude to the French who don't want us in the German basket. Equally, the Germans would rather have us in a neutral position. I believe we are strong enough to keep our independence, and that it will be possible to cope with both baskets. The German market is obviously very important for us because of the traffic moving through the Belgian ports.'

Where did SNCB stand on open access? 'There are a lot of misunderstandings on open access', warned Schouppe. 'People believe it is so easy for a new operator to come in. I'm not against it, but I told the European Transport Commissioner (Neil Kinnock) that companies wanting to compete on a European scale or on a purely national level must be subject to the same conditions as existing companies. They should not take advantage of existing operators.'

Warming to his theme, Schouppe insisted that 'in terms of financial support, responsibility, technical equipment and drivers' qualifications, basic conditions must absolutely apply. We must be aware that allowing cherry pickers to take over the most renumerative traffic is too easy and leaves existing companies with too many disadvantages. A new company must apply the rules of the market.'

So far, two companies have applied to run open access operations in Belgium, 'but neither of them is a Belgian company', said Schouppe.

Brussels RER

For some time now there has been talk of creating a Regional Express network in and around the Belgian capital. Why had no progress been made?

'I believe that an RER will come sooner or later, but it cannot be done by an organisation separate from SNCB - we must be part of it', insisted Schouppe. The problem centres on the financial arrangements needed to keep an RER network in business. 'It must generate benefits but the operating deficit must be less than what is generally expected. Not only that, but we want to be sure that the new service does not have an adverse impact on our IC/IR business - we need more tracks before we can accommodate an increase in services.'

Schouppe was adamant that 'the political bodies responsible for regional and local transport in and around Brussels must have a clear agreement with the federal government for the financial support needed. If the RER project is to be successful, we must have low fares and a high density service, which means that to start with the percentage of costs covered will be low.' But he confirmed that all investment in the Brussels area, whether relaying tracks or adding new ones, 'takes account of the need for an RER network. In the near future, probably in three to five years, we will be able to make clear proposals.'

Eurostar improvements

While the Thalys high speed services to Paris had proved very successful, the Eurostar service to London still needed improvement. An obvious way to achieve this would be to abandon or reduce the frontier controls that require passengers to check in at least 20min before departure. Was Schouppe pressing for fewer controls?

'Yes, that's our big demand. We insist that the political reasons requiring frontier controls earlier on are no longer a reality and do not apply any more. This should allow us to ease some security controls - they can be organised in another way, and the Schengen agreement issue currently demanding passport control in Brussels and Britain can be done differently too. I believe that the check-in operations can be reduced, and I hope there will soon be a 5min check-in before departure instead of 20min.' Amen to that.

CAPTION: In 1996-2005 SNCB plans to spend BFr78bn on rolling stock renewals and acquisitions. Latest EMUs to be delivered are these AM96 three-car sets

CAPTION: Belgium's ports handle large volumes of traffic that transits by rail to and from Germany

CAPTION: Fig 1. SNCB's structure is designed to encourage internal trading so that the business units are under pressure to keep costs down

CAPTION: SNCB's Type I11 driving trailers (left) cannot be used in push-pull mode until the fleet of Class 13 locomotives (above) is released into traffic

CAPTION: Keeping the passengers happy is not easy on a closely-meshed network of frequent services. A timetable change in 1998 led to much dissatisfaction because SNCB was too ambitious

TABLE: SNCB in profile 1997 1998*

Tonne-km million 7465 3875

Tonnes carried million 58·8 n/a

Passenger-km million 6984 3594

Passengers carried million 143·6 n/a

Freight and parcels revenue BFr million 14208 9656

Passenger revenue BFr million 16841 9153

Public service subsidy BFr million 37700 19097

*provisional figures for January to June

Restructurée, la SNCB fait face à la pression du changement

Étienne Schouppe, directeur exécutif des chemins de fer belges, avance sur le délicat chemin de la réforme dans un pays o