With massive rail investments incoming, there is a greater need for transparency. That is the view of the German Monopolies Commission, an advisory body to the German government. It concurs with earlier sector calls for a full separation of DB InfraGO from Deutsche Bahn (DB), because there is a risk of market distortion.
The Monopolies Commission has called for the separation of infrastructure manager DB InfraGO from the Deutsche Bahn group before. However, it says in its tenth railway report, “this is now even more urgent. Only the separation of ownership rights will create the conditions necessary for the now even greater financial resources to be used exclusively for investments in infrastructure.”
Germany will invest nearly 600 billion euros in infrastructure in the coming 12 years. The majority of that money will go to rail. For that reason, the Monopoly Commission considers it even more important to improve transparency.
Deutsche Bahn CEO Richard Lutz announced the establishment of DB InfraGO, the successor of DB Netz and DB Station&Service. Image: © Deutsche Bahn
DB InfraGO out of DB group
The way to do that, it says, is to entirely unbundle DB InfraGO from Deutsche Bahn. Currently, DB operations with profit and loss transfer agreements: Subsidiaries transfer their annual results to Deutsche Bahn, which then consolidates them. DB passes profits to the federal government as dividends, which are then partially recycled back into the infrastructure network.
“This financing architecture for existing infrastructure investments is too complex and non-transparent”, says the Monopoly Commission. It poses a risk that some profits may remain within DB to aid loss-making business units and distort market competition. Moreover, the Commission says that the system violates EU competition law.
In the case of DB Cargo, the losses of which were compensated by DB for years, the EU Commission found the financial scheme to indeed be in breach of competition law. It has obliged DB Cargo to become financially profitable by 2026, and it must terminate DB’s profit transfer agreements.
Independence and favourable pricing
The Monopoly Commission points to two more problems: corporate control mechanisms at DB and internal transfer pricing. In the case of the former, Deutsche Bahn leadership can overrule the DB InfraGO board. Infrastructure management is not quite independent, which it is supposed to be by law.
As for the latter, the Monopoly Commission warns that DB InfraGO could technically treat other DB companies more favourably than others. “In principle, the integrated DB Group can shift profits between its subsidiaries through internal transfer pricing. This becomes problematic for competition when profits are moved from the regulated sector to competitive segments”, the advisory body explains.
“For example, DB InfraGO can set internal transfer prices for its services to sister companies below market rates, thereby distorting competition in the competitive sectors.”
The Commission is not content with current government plans, even if ruling parties CDU and SPD have committed to a further separation of the infrastructure manager from DB. It wants a complete separation of ownership. At the very least, it says that all infrastructure responsibilities should reside within DB InfraGO, and the DB infrastructure board position should be eliminated.
The German rail freight sector has issued similar calls for a complete separation of DB InfraGO from Deutsche Bahn.