31. Off-balance sheet arrangements

A number of investigations are under way against NS and/or group companies and various claims have been submitted which are being contested by the company. Where deemed necessary, provisions have been made for this. A number of important subjects are explained below.

Authority for Consumers and Markets (ACM)

In 2015, the ACM concluded that NS had violated a number of articles of the Railways Act in connection with the Limburg tendering process. In addition, the ACM imposed a fine of €40.95 million on NS in 2017 for acting in violation of Section 24 of the Competition Act and Article 102 of the Treaty on the Functioning of the European Union. NS accounted for this in the 2017 result. NS submitted a notice of objection, asking the ACM to reconsider its decision. In 2018, the ACM dismissed NS’s objections. NS lodged an appeal against the ruling on the objection. On 27 June 2019, the District Court of Rotterdam set aside the ACM’s decision. The fine was annulled and repaid to NS in July 2019 and recognised in the income statement in 2019. The ACM has lodged an appeal. On 1 June 2021, the Trade and Industry Appeals Tribunal upheld the court’s decision. The case is hereby closed.

Chromium 6

On Thursday, 31 January 2019, the National Institute for Public Health and the Environment (RIVM) presented the results of the Chromium-6 investigation into the reintegration project tROM in Tilburg. In that project, people on unemployment benefit worked on trains belonging to NS and the Dutch Railway Museum at the then NedTrain workshop in Tilburg between 2004 and 2011. The RIVM carried out an investigation in which NS cooperated. An independent committee drew conclusions on the basis of the results of the investigation and formulated ad hoc recommendations. The committee drew firm conclusions, including about the role of NS in the Tilburg project. According to the committee, the municipality of Tilburg, NS and the Railway Museum all cut corners. At the beginning of February 2019, the parties announced that they would come to an arrangement jointly and each on the basis of its own responsibility. The aim is to provide clarity to those involved as quickly as possible.

NS already provided for its share of the expected costs as at 31 December 2019 and remeasured this based on its understanding as at 31 December 2021. The movement in the provision is recognised in other operating expenses.

Furthermore, the police carried out a criminal investigation on the instructions of the Public Prosecution Service, in which NedTrain was one of the suspects. The investigation has been completed and the Public Prosecution Service has announced that it will prosecute NedTrain for complicity in violation of the Working Conditions Act (Arbeidsomstandighedenwet). The outcome of the criminal prosecution is still uncertain.

Long-term contracts

There were a number of long-term financial commitments to third parties at year-end 2021, mainly concerning lease arrangements for trains, company cars and copiers. There are also long-term contracts for services by third parties in the areas of IT, maintenance and cleaning.

The Group has various lease contracts that have not yet commenced as at 31 December 2021. The future payments under these non-cancellable lease contracts are €1 million within no more than one year, €18 million within no more than five years and €3 million thereafter.

Energy contracts

As at the end of 2021, the purchase commitments under the energy contract in the Netherlands for the volumes already covered, the payments for the Programme for Responsibility and the surcharge for green electricity for the period 2022-2024 (the remainder of the 10-year contract) came to €176 million (compared with €205 million at the end of 2020). The amount expected to be required for 2022 and 2023 is fully covered. The volume expected for 2024 is largely covered. Transport costs and energy taxes are not included in the purchase commitments shown. If the difference between the market values and the contract value exceeds a given threshold, the Group or Eneco has to give the other party guarantees or provide cash collateral. Any payments and liabilities are netted, as they are both inextricably linked. As at year-end 2021, NS had received €313 million (year-end 2020: €0 million) in collateral in the form of margin money.

For more detailed information about the energy contracts, see note 25.

Tax group

For the purpose of corporation tax, all the Dutch subsidiaries belonging to the Group are part of the NV Nederlandse Spoorwegen tax entity. As a result, the Group is jointly and severally liable for all tax liabilities of the subsidiaries included in the tax entity.

Investment commitments

At the end of 2021, the Group had outstanding investment commitments of €911 million (2020: €1,184 million), primarily for purchasing and upgrading trains and investments in the areas around the stations.

Contingent liabilities

The Group has paid €29 million (translated) of its share in the issued share capital (€145 million after translation) of EUROFIMA AG. The Group has a liability for full payment on demand of the shares and other guarantee commitments totalling €262 million (after translation). Payment of the liability can be demanded if EUROFIMA AG’s own equity position gives reason to do so.

As a result of the agreements made with the Belgian carrier regarding the IC Brussels service in the context of the main rail network, the Group is making allowances for a negative balance for the Group in the settlement of the costs of commercial operation for this route. The amount of that negative balance depends on the commercial results on that route. The expected outcomes are part of the main rail network impairment test as explained in note 14.

Contingent assets

The Group has various outgoing claims and/or disputes that have not been measured because their outcome is uncertain.

Guarantees

The Group has issued guarantees totalling €781 million (31 December 2020: €734 million) relating to the operation of the franchises in the United Kingdom and Germany. Some of the guarantees relating to Abellio Germany have been provided for (see note 29).

Franchises

The Group had the following franchises during 2021. The entities holding the German franchises have been deconsolidated as of 30 June 2021.

• * The franchise will expire in October 2022 after the ERMA emergency contract ends; the award of a subsequent NRC contract is currently under negotiation.

Netherlands

Main rail network

The main rail network franchise is awarded by the Ministry of Infrastructure and Water Management. It covers passenger transport by rail on the main rail network in the Netherlands. The old main rail network franchise and the HSL franchise (see the paragraph below) ended in 2014 and the ministry decided in December 2014 to award a new integrated main rail network franchise to NS for the period from 1 January 2015 to 31 December 2024. The train services on the HSL South have also been covered by this franchise from 1 January 2015 onwards. The franchise agreement stipulates that performance must improve during the term of the franchise. The evaluation will take place during 2024. If NS does not achieve the target values for 2024, NS will be obliged to pay a sum of €1.5 million for each performance indicator not attained up to a maximum of €19.5 million per evaluation. If NS does meet the conditions, a maximum bonus of €10 million can be earned for each evaluation. In addition, the Ministry can impose a fine of up to €6.5 million a year on NS if NS does not achieve the minimum baseline values for the franchise performance indicators. The performance indicators are measured for the following performance areas: general (customer satisfaction), the door-to-door journey, ease of travelling (transport capacity at peak times), journey information (in the event of disruptions), safety (including personal safety) and reliability (punctuality for passengers).

The agreements made with the government include agreements on the production assets (rolling stock in particular) that are to be used for operating the main rail network franchise. Depending on the ownership situation and the form of tender, the production assets may be leased in the event of complete or partial loss of the main rail network franchise to a subsequent franchise holder, or sold at the carrying amount, and/or their leases may be transferred unchanged to the subsequent franchise holder.

The overall fees for track use and the franchise for the integrated main rail network/HSL South franchise were €178 million in 2021. The negotiation agreement of 2011 included an adjustment mechanism to avoid the liquidation of HSA. This adjustment mechanism has been included in the implementation agreement for the franchise. It works as follows. If the average return on investment for the franchise holder over a fixed period turns out to be lower than the threshold value (4%), the holder will be entitled to an adjustment to the franchise price (equal to the difference between the actual return and 4%, with the adjustment over the entire duration of the franchise being capped at the equivalent of €144 million at 2010 prices). There was no entitlement to any such adjustment over 2015. Any entitlement to an adjustment was first calculated in 2016 using the average return on investment for 2015 and 2016, and thereafter on a rolling basis using the previous three years. An entitlement to an adjustment to the franchise price deriving from the implementation agreement does not lapse if at any point in subsequent years the return on investment exceeds the threshold value. Payment of any entitlement that may have arisen through an adjustment to the franchise price will be spread in instalments, as per the implementation agreement. The adjustment mechanism for the average profitability is recognised during the franchise on a straight-line basis covering the entire franchise term.

The franchise also includes an adjustment mechanism for a settlement of any windfalls in energy price changes over the franchise period. This adjustment will be calculated cumulatively, with NS owing the Ministry of Infrastructure and Water Management 75% of the difference between the actual energy prices and the forecast energy prices according to the business case, with no adjustment being made if the cumulative actual return on investment falls below the cumulative norm return. Apart from the calculation outlined above, NS owes an unconditional one-off sum of €56 million to the ministry for 2016. This payment is amortised on a straight-line basis over the entire term of the franchise. This arrangement is capped at €290 million (including the one-off payment) and will never result in a payment to NS by the Ministry of Infrastructure and Water Management. No energy cost adjustment is owed for 2021 and previous years.

In June 2020, the Ministry of Infrastructure and Water Management announced its intention to award the franchise privately to NS with effect from 2025. This was confirmed by the House of Representatives in September 2020. The term and conditions of the franchise are not yet known.

Gouda-Alphen aan den Rijn franchise

In 2021, NS operated the Gouda – Alphen aan den Rijn franchise, which runs until 11 December 2031.

The franchise was awarded by the relevant province. A fee is received from the franchise authority for the operation of the franchise.

The United Kingdom

Merseyrail franchise

This franchise is operated as a 50:50 joint venture with Serco, a listed UK company. This is for passenger transport on the railway network in the region around Liverpool. There is an obligation to operate well-defined services (timetable, quality of the service) at a fixed fee that is paid by the regional authorities. An evaluation is carried out every five years, which reviews, among other things, whether the activities continue to be ‘efficient’. The annual payment from the government (the subsidy) is determined in the contract and is indexed annually.

Greater Anglia franchise (East Anglia)

Abellio won the new Greater Anglia franchise in August 2016. It is operated by full subsidiary Abellio East Anglia Ltd. The franchise operates passenger transport in the railway network in the Anglia region in the eastern part of England. The original franchise contract was changed to an EMA, and subsequently to an ERMA, before being terminated in September 2021. The contract is now a ‘National Rail’ contract that expires in September 2026.

ScotRail franchise

Abellio was awarded the ScotRail franchise in October 2014. The franchise commenced on 1 April 2015 and has a term of seven years. The ScotRail franchise was awarded by Transport Scotland and is operated by the full subsidiary Abellio ScotRail Ltd, which provides intercity, regional and provincial passenger transport by train on the Scottish national railway network. There is an obligation to provide the specified services (timetable, quality of the services) at a fee determined in advance that is paid by the government (subsidy) and that is indexed on an annual basis. In December 2019, the Scottish government decided not to agree to our commercially viable option to extend the franchise until 2025 and subsequently exercised the break clause in the franchise agreement to terminate the ScotRail franchise at the beginning of March 2022. The contract was amended in 2020 with both an EMA and an EMA 2 contract until 28 February 2022 and for the period from 1 March to 31 March 2022 additional arrangements will be made in the form of a ‘Temporary Measures Agreement’.

West Midlands franchise

Abellio started operating the West Midlands franchise on 10 December 2017. The franchise runs until 31 March 2026. It covers the area around Birmingham and the services from London Euston to Crewe and from Liverpool to Birmingham. The franchise agreement stipulates that new trains need to be introduced in 2021 to provide room for more passengers during peak periods in Birmingham and London. The long trains offer more seats and more space for passengers. In this franchise, investments are also being made in a better ticket system and better journey information as part of the changes intended to improve passengers’ journeys. The original franchise contract was changed to an EMA, and subsequently to an ERMA, before it expired in September 2021. The contract is now a National Rail contract that ends in September 2026.

East Midlands franchise

Abellio started operating the East Midlands franchise on 18 August 2019. The franchise runs until 21 August 2027. The franchise comprises the Midland Main Line, which terminates at London St Pancras, from where the services to Derby, Leicester, Sheffield and Nottingham are operated. It also covers a network of local railway lines serving destinations including Grantham, Lincoln and Mansfield. The routes also comprise services to Luton Airport and East Midlands Parkway. The franchise agreement provides for the introduction of new trains to replace the entire existing intercity fleet and passengers will benefit from an 80% increase in the number of morning rush-hour seats in Nottingham, Lincoln and St Pancras. Passengers will also benefit from shorter travel times over long distances, a new express service from Corby via Luton to London, the introduction of improved compensation for delays and flexipass tickets for improved value for money. The original franchise contract was changed to an EMA, and subsequently to an ERMA. For East Midlands, the ERMA ends in October 2022, after which a ‘National Rail’ contract will be offered by the Dft there too.

London

Abellio London operates bus services in London from a number of depots (with a market share of 8%). The franchises have an average term of five years with an option for extension by two years, depending on the achievement of various performance criteria.