February 15, 2018 / 4:46 PM / 3 months ago

French PM signals change of line on debt-laden railways

* Prime minister says SNCF situation worrying

* Report suggests huge debt be taken off SNCF books

* Risk for Macron double-edged; debt costs and protests

By Jean-Baptiste Vey

PARIS, Feb 15 (Reuters) - French Prime Minister Edouard Philippe called for urgent and sweeping changes to state-owned railway operator SNCF on Thursday to address disrepair and indebtedness in the network.

In doing so, Philippe fired the opening shot in a showdown with unions who fear that the railway service and its 260,000 employees, most of whom have jobs for life, will be targets for reform under President Emmanuel Macron.

Philippe’s comments follow a report recommending that SNCF debt - which is now about 45 billion euros ($56 billion) and rising - be booked as part of overall French public debt.

The report concluded that if France did take on all of the SNCF debt it would increase the country’s public debt by 2 percent and directly impact the French deficit, at a time when Paris only just scraped under the 3 percent deficit to gross domestic product (GDP) cap stipulated by the European Union.

The government-commissioned report, prepared by a former Air France chairman, recommended that debt transfer go hand in hand with other far-reaching changes to the way the SNCF, which is gearing up for EU-wide liberalisation from 2019, operates.

That, unions fear, will pave the way for reforms that could end a wide range of perks that SNCF employees have accrued since rail nationalisation in the 1930s - above all job-for-life contracts and a right for many of them to retire at 50 or 55.

“While it has its strong points, serious failings in the quality of the service and the economic model threaten its future,” Philippe said, adding that the situation at France’s public rail service was “worrying” for its very survival.

CROSS THE TRACKS

The report said most spending had gone into France’s widely-admired high-speed TGV services at the expense, for 30 years, of other lines that carried the bulk of passengers. Accidents in recent years have in some cases been blamed on poor maintenance.

While the SNCF’s debt is bigger than that of a small country such as Iceland or Croatia, it is in line with the debt of rail networks in places such as Britain, where rail services were privatised in the 1990s.

For Macron, the risks in tackling the issue are two-fold. One is union protests snowballing into strikes, even if it is unclear how determined railway employees are to resist.

The other is the damage the debt transfer would do French finances; with interest rates expected to rise after a prolonged period at ultra-low levels, prompting Finance Minister Bruno Le Maire to say on Thursday that extra measures may be needed to keep a lid on debt servicing costs. ($1 = 0.8010 euros) (Additional reporting by Jean-Baptiste Vey; Writing by Brian Love; Editing by Ingrid Melander and Alexander Smith)

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