The sluggishness in orders for TER trainsets observed over the last sixteen months bears witness to the difficulties faced by the Regions in funding the procurement of new rolling stock. Theirs is a dilemma which is obviously worrying manufacturers keen on keeping their production line ticking-over regularly. However, with the transport demand steadily on the rise, it naturally follows that new  sources must be found in response to this thorny funding  issue.

The state-of-the-art TER trainset models showcased to the Regions and SNCF in 2011  were  precisely designed to illustrate the ability  of Bombardier and Alstom to comply with more-than-tight delivery times. The novelty of this exercise is that it also gave the Regions an opportunity to address the vexing problem of funding for these new trainsets. Yet paradoxically at the time when contracts were being signed, the mood was euphoric if only because the previous period had been particularly rewarding for the railway manufacturing industry. But we were then in Autumn 2009, a mere few months before introduction of  the reformed business-tax regime, whose negative  financial  impact was immediate as the Regions were soon to discover....

A break in momentum

Of course the Regions had already contributed massively to this success story, and indeed all the stakeholders who shared the rostrum during presentation of the first Regiolis set on 14 June 2011 sportingly acknowledged the decisive role played by the Regions in rescuing the fleet of semi-fast  trains from the scrapheap by transforming them into TER sets. The Regions themselves used this event as a platform to remind all and sundry that they had already invested up to € 6.5 billion of their own money in the procurement of  modern rolling stock, hailed by them as "a financial effort unprecedented in Europe over  the last twenty or so years"..

Less than one year on, and if we exclude the five options converted into firm orders for           Regiolis sets by the Pays-de-la-Loire Region in early 2012 representing a € 33 million outlay, the disturbing fact is  that neither Alstom nor Bombardier have recorded any fresh orders in  the past twenty-four months or more, a situation which should be paralelled  with the potential orders for one thousand Alstom Regiolis sets and eight hundred and sixty Bombardier Regio2N sets mooted when  the contracts were being signed!

The Regions, at grips with serious financial problems as they are today, can therefore no longer continue to act as market drivers for the French railway manufacturing industry, bearing in mind  that the funds allocated by central government, after deduction of the budget earmarked for  TER-related activities, translate into a € 1.5 billion  shortfall that must be made good annually. This is where the  statement then made by  Martin Malvy, President of the Midi-Pyrénées Region and also Vice-President of the Association of  French Regions, whereby "....we the Regions can no longer continue sourcing the procurement of new trains unless allowed to access fresh revenue streams... " is as  relevant today as ever before. The fact of the matter is that no fresh funding source has emerged up to now to offset the  tax-revenue gap faced by the Regions, baring the windfall from the Domestic Tax on Petroleum Products (TIPP) and the road-vehicle registration duty. To make matters worse, the TIPP revenue stream , after rising for several years, is now capped, which means there no longer is any margin for manoeuvre in this area,  the  bleak news being  that the TIPP contribution will actually reduce in line with the expected fall in petrol consumption.

The fears of manufacturers

For the time being , the  two main stakeholders Alstom and Bombardier are behaving as though their production plans were not under threat. While the Alstom camp remains cagey in this regard,  Bombardier Transport CEO Jean Bergé conversely remains more upbeat, going so far as to state the following: " Of course this loss of financial autonomy afflicting the Regions is a real  concern , yet I feel quite relaxed about our production prospects going forward. We'll be working to full capacity up until 2016.....I remain confident about the future, all the more so as we expect to seal single-digit orders for Regio2N sets this year". For French Railway Industries Association (FIF) boss Jean-Pierre Audoux, by contrast, "there is a real risk of the domestic railway manufacturing market  contracting by some 50%  by 2016 if TER order books do not start filling again soon, remembering that this market, driven by the boom in TER orders over recent years , peaked at € 2.3 billion in 2010...."

The good news, however, is that the livelihood of manufacturers is not underpinned solely by contracts for regional trains. Indeed, after a protracted period of uncertainty during which the thorny issue of  track-usage fees looked like jeopardising prospects for fresh orders, SNCF finally committed to ordering forty Euroduplex sets deliverable as from 2015, the contract being potentially worth € 900 million with an escape clause for possibly ten of these sets.  Add to this welcome news the tendering call issued  in June 2012 for over sixty new-generation bi-level sets for working the Eole-line westward spur, which is bound to reassure the manufacturing industry particularly as this high-capacity rolling stock is due for delivery as from end 2017! By which time the decision to replace the fleet of Corail coaches for TET trains will hopefully have been confirmed, so opening-up fresh opportunities for Alstom and Bombardier......which both from the outset had  banked on developing Intercity  versions of their ...Regiolis and Regio2N sets! Here too, however, the  project   might also face delays  given  the parlous state of  the ....national finances this time.

Nor should all the opportunities offered by the sale of more tramways be dismissed lightly as  this is precisely the type of business that  constitutes the daily menu of manufacturers. In this regard,  all the different equipment projects linked with the construction of the future  Greater Paris network are necessarily good news by any yardstick.

Prospects for a breakthrough...

As the stalemate over fresh TER rolling-stock opportunities is no longer tenable in the long run, the  Regions continue to militate for a favourable outcome to this conundrum. As pointed out by Jacques Auxiette, President of the Association of French Regions (ARF) and of the Pays-de-la-Loire Regional Board, " the tax reform due to be introduced in Autumn 2012 must guarantee the Regions a revenue stream so they can discharge the additional  tasks imposed on them  in terms of economic development, job creation, etc. The concept of a transport levy accruing to the Regions is one option but surely cannot be the funding solution for them. Several scenarios have therefore been considered, like for example an extra levy to top-up the tax revenues provided by central government. This levy could perhaps take the form of an additional tax on a number of flows like the networks. We want to be able  to access long-term loans refundable over years fifteen years minimum, preferably over twenty-five years if at all possible, without this generating unduly-high extra costs for us. Lastly an end needs putting to   the current situation where the Regions are not owners of their rolling stock, remembering that the relevant rolling-stock specifications are drawn up by SNCF and that the corresponding costs are inherently  inflationary...."

Other novel funding scenarios which the Regions might be able to  access include the leasing formula already used by several Regions like Champagne-Ardenne to fund procurement of new dual-current /bimode AGC sets. With this solution, the financial  burden shouldered by  the Regions can be spread over longer periods, the drawback being of course that it is very costly at the finish and moreover does not solve the capital-outlay issue. Another yet-unexplored option is the creation of rolling-stock leasing companies (ROSCOs). Surprisingly no truly-dedicated company yet exists in this field, but perhaps the opening-up of French  regional train services to competition will impose the  development of an instrument of this type in future. Meanwwhile, cash-strapped Regions seem to have no other alternative bar borrowing on the market to fund the procurement of new TER trains.

In the meantime  and however much the National Federation of Transport Users' Associations (FNAUT) believes that TER operating costs can be trimmed, the Regions for their part  are faced with the impossible task of trying to square the circle.. Which is why they have already approached SNCF to study the feasibility of extending by a few years  the service life of old and renovated rolling stock, but this measure alone will not compensate  for the need sustainably to deploy additional trainsets in line with the continuous growth in transport demand. Quite apart from their implications for the Regions themselves, these procurement delays could well also translate into job  losses, with the Nord-Pas-de-Calais  Region being the worst affected on this front.

Olivier Constant