EU Rules Expand Access to State Aid for Rolling Stock

State aid for rolling stock can make rail services more attractive. It can help operators modernize fleets. It can also support train purchases. Those trains can be more comfortable. They can also be more energy-efficient. In addition, they can be better suited to current passenger demand. At the same time, they can support lower carbon emissions.

Within that framework, the Guidelines on State Aid for Land and Multimodal Transport (LMT Guidelines) set the conditions for such funding. They do so in a way that remains compatible with the internal market. Also, the objective is to support rail development. It is also to maintain a level playing field.

State aid for rolling stock and wider eligibility

The European Commission says state interventions can play a decisive role in the railway sector. This reflects the scale of investment needs. Also, a substantial share of rolling stock across the European Union is nearing the end of its life cycle. That makes fleet renewal a major challenge. Smaller rail operators are especially exposed. Limited financial resources can leave them unable to fund needed acquisitions. They can also leave them unable to fund rolling stock modernization.

Structural pressures in the market

The European Commission considered several railway market features when shaping the new framework. Much of the fleet in the EU is near the end of its service life. Some of it has already exceeded that point. At the same time, insufficient technical standardization between Member States continues to restrict interoperability. It also limits cross-border transfers of rolling stock.

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The updated approach also addresses difficulties faced by SMEs and new market entrants. It also covers companies with low market capitalization. For these groups, the cost of buying rolling stock is a major obstacle. Limited access to financing is another one.

A broader beneficiary base

As International Railway Journal notes, the new regime is broader. It goes beyond the railway-specific rules introduced in 2008. It applies to sustainable land transport more generally. In the rail sector, the circle of beneficiaries is no longer limited to railway operators. It also extends to other relevant actors. These range from rolling stock owners to organizations across the logistics chain. They include transport firms, freight forwarders, and multimodal operators. This applies where they choose rail as an alternative to road transport.

The guide also clarifies the term “railway operator.” It covers not only railway undertakings. It also covers other rail companies that provide rail transport services without traction services. For example, this applies when they must lease locomotives to operate.

LMT Guidelines and access to rail financing

According to the Commission, low levels of investment still hold back rail transport. They also hinder its full development. In that context, state aid for rolling stock can support a modal shift. That shift is toward sustainable land transport. It can also improve access to financing for smaller or less established operators. This includes railway companies that qualify as SMEs or small enterprises. It also includes new entrants to the rail transport sector.

Financing constraints in the rail sector

Maintaining an adequate rolling stock fleet is essential. It helps keep rail competitive with other modes of transport. It can also help shift demand toward more sustainable land-based mobility. At the same time, access to financing remains limited for SMEs and new entrants. It affects both market entry and expansion.

The text says the main barriers to acquiring rolling stock are financial. That reduces operators’ investment capacity. In addition, SMEs and other mid-sized companies often face restricted access to funding. Competitive terms can be hard to obtain. Traditional operators, by contrast, generally hold a stronger market position. In some cases, especially when publicly traded, they can more easily show solvency. They can also show financial credibility to lenders and investors.

Ongoing compatibility assessment

The European Commission also says it will continue assessing compatibility. Still, this is especially the case where financing involves low-emission or zero-emission vehicles.

Public loan guarantees and eligible costs

As RailwayPro reports, the European Commission sees public support for rolling stock purchases as effective. This is particularly the case in the form of public loan guarantees. These temporary instruments are presented as appropriate. They can reduce financing imbalances in the sector. They do so between established operators and smaller or newer participants.

How public guarantees work?

Through public loan guarantees, SMEs, mid-cap companies, and new entrants could obtain better loan conditions. Those conditions could be closer to those usually available to large, established firms. In addition, this kind of aid can be regarded as transparent and proportionate. That applies to rolling stock purchases by SMEs or new entrants to the rail market. That is the case only if a clearly defined set of cumulative criteria is met.

The mechanism must apply only to new loans for vehicles intended for rail transport. Loan amounts cannot exceed the eligible investment costs. Those costs include the purchase price of new or used vehicles. They also include delivery expenses. Separately, they include spending on design, consulting, or engineering services. That applies where those costs are directly linked to the project. It also applies where they are not already covered by other forms of public aid.

Guarantee limits and eligible costs

The guarantee may cover no more than 90% of the principal loan amount. Also, its fee must start at no less than 50 basis points. This applies where the issuing Member State has a sovereign rating between AAA and A. Meanwhile, other countries have greater flexibility in setting the fee. The duration of the guarantee is limited to a maximum of 15 years.

Support for the purchase of rolling stock may also be combined with other financing. That financing can aim at increasing interoperability or technical modernization. Still, those additional cost components are not counted among the eligible costs. In that case, net expenditure on interoperability or technical adaptation is defined in a specific way. It is the difference between two amounts. One is the total cost of a purchased vehicle already equipped with the relevant systems. The other is the total purchase cost of a vehicle that is not equipped. It can also be a vehicle that still requires retrofitting or technical adaptation.

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