Europe is growing below potential relatively Ken Wattret, our chief European economist discusses the European Centr… https://t.co/fPPsOBg7xk
Regulatory changes to Spanish rail sector
On 18 September, the National Commission of Markets and Competition (Comisión Nacional de los Mercados y la Competencia: CNMC) announced it would allow the first private rail operator to compete with state-owned train operator Renfe on Spain's rail network.
- The competition commission's decision will accelerate the opening up of Spain's rail sector after several years of very slow progress.
- The entry to the market of private-sector competition is likely to focus initially on obviously attractive passenger routes, but will function as a test case on the attractiveness of other routes.
- The current center-left government is likely to have to engage in further pre-emptive talks to mitigate potential industrial action if, as seems probable, competition drives down passenger prices, with potential knock-on impacts on wages and conditions or job security for unionized workers in the sector.
The National Commission of Markets and Competition's (Comisión Nacional de los Mercados y la Competencia: CNMC) decision enables private operator Intermodalidad de Levante SA (Ilsa) to run trains between Madrid and Montpellier, making additional stops in Zaragoza and Barcelona. The CNMC justified its ruling on the basis that it would increase, by 50%, the daily number of trains between Madrid and Barcelona, reduce journey times by up to 10%, and most likely have a deflationary effect on prices. Both the state-owned rail operator Renfe and the Ministry of Public Works and Transport had previously sought to prevent such a judgment via a series of legal challenges and, more recently, by publicly accusing the CNMC of "not being impartial". Renfe is likely to file a final appeal within the next month, but no reversal of the decision currently appears likely.
The competition commission's judgment that the entry of Ilsa to run services on the Madrid-Montpellier line is likely to bring down prices highlights a significant potential driver for labor union industrial action in the Spanish rail sector in the next two years. Should lower consumer prices for passenger services affect wage levels, conditions, or working practices for state-employed rail sector employees, it is probable that labor unions will go on strike. Worker representation in Renfe is made up of several separate labor unions. That diversity of unions in the company means that there are a potentially wide number of disruptive labor union grievances, but it also presents hurdles to the co-ordination of unified national-level action. Nonetheless, despite that mitigating effect, labor unions retain significant leverage in the Spanish rail sector and are capable of coordinating disruptive nationwide strikes. In July 2017, a strike called by the Confederación Sindical de Comisiones Obreras (CC.OO) resulted in the cancellation of almost 300 high-speed AVE trains and around 50% of Cercania commuter trains, mainly in Spain's major cities. A planned September 2017 strike by unionized workers at Renfe and state-owned rail infrastructure operator Adif was averted at the last moment when unions were given assurances of greater participation in forward planning on labor matters as the Spanish rail sector liberalizes. Those events followed an announcement by Renfe in April 2017 that it would make redundant 25% of employees from its rail freight division as part of a plan to reduce losses. Spain's Ministry of Development budgeted EUR4.3 billion (USD5.0 billion) for rail investment in 2018, notably for work to create new dual-gauge connections on key parts of the network, for example connecting the Spain-France border with Algeciras, the main Spanish port serving North Africa.
Outlook and implications
Spain's governing Spanish Socialist Workers' Party (Partido Socialista Obrera de Espana: PSOE) has historically had strong links with labor unions, including in the rail sector, and in mid-2017 agreed with the CC.OO and Unión General de Trabajadores (UGT) to roll back labor reforms enacted under the prior People's Party (Partido Popular: PP) governments since 2010. However, it is unlikely that the government will seek to resolve potential labor complaints by apportioning more money to specific labor union grievances as the industry liberalizes. The government is constrained by the EU directive driving liberalization in the rail sector, and it is unlikely that it has much appetite to significantly boost public spending in the sector while it continues to attempt to maintain relative fiscal discipline to satisfy EU strictures. It is also the case given that the PSOE's main parliamentary ally, the more leftist Podemos party, has a long list of ambitions for public spending, which the PSOE will have to factor into its own behavior as long as it remains a minority government.
The CNMC's ruling falls in line with a European Commission deadline of 2020 for all EU countries to open their domestic rail networks to international competition. However, Renfe may still be able to stall the start of Ilsa's operations beyond the envisaged date in October through other means. In February 2017, Ilsa filed a request to lease three trains for its Spanish operations from Renfe Alquiler, but the company has thus far not complied, claiming it lacks the capacity to do so. The continuation of this stance would force Ilsa to find alternative vehicles at short notice, likely delaying its new Spanish service. The CNMC is currently reviewing a case that could see Renfe forced to lease Ilsa the requested trains. Should such a ruling be issued, this would indicate a greater likelihood that the firm will meet its envisaged start date. An indicator of probable industrial action on the part of rail workers would be if new market entrants chose to compete with Renfe principally on price, potentially driving the state-owned firm to reduce labor costs and consider redundancies. Such potential industrial action is unlikely to spread significantly into other transport sectors such as aviation, which have already been liberalized in recent years and where labor union representation is less influential.
- Weekly Pricing Pulse: The case builds for higher commodity prices
- Capital Markets Weekly: Liability extension and search for yield continue post-Thanksgiving
- Weekly Pricing Pulse: Commodity prices rise for a second week
- Capital Markets weekly: ICMA conference highlights complexity of ESG fund-labelling initiative
- Weekly Pricing Pulse: Commodities rise but without conviction
- Capital Markets Weekly: China successfully returns to dollar market in Thanksgiving-affected week
- Monthly GDP Index from Macroeconomic Advisers by IHS Markit for October
- Kenya data regulations
In the first week after Thanksgiving, two borrowers raised perpetual debt and several others obtained longer-dated… https://t.co/8qdQ087pwO