Capital expenditures and public sector grants
DB Group is one of the largest investors in Germany.
The focus of our capital expenditure activities continues to center on the Integrated Rail System for measures to improve performance and efficiency in the rail infrastructure and to expand our vehicle fleet.
Infrasturcture Capital Expenditures
According to Art. 87e (4) of the Basic Law, the Federal Republic of Germany (Federal Government) guarantees that “in the expansion and maintenance of the rail network [...] the common good is to be taken into account.” The Federal Government fulfills this infrastructure mandate by making funds available for capital expenditures. The legal basis is the German Railway Foundation Act and the Federal Rail Infrastructure Expansion Act. The funds are generally granted as non-repayable investment grants. We also invest a considerable amount of DB funds.
Investment grants are provided for the acquisition or manufacture of property, plant and equipment.
Below you will find essential information on the various forms of funding and on measures to ensure that these public sector funds are used in accordance with the law.
Recognition of investment grants in the consolidated financial statements
Investment grants account for by far the largest share of public funds received by DB Group’s infrastructure division. In the 2020 reporting year, the largest share of this was attributable to the DB Netze Track business unit. (€ 7.6 billion), followed by DB Netze Stations (€ 1.1 billion) and DB Netze Energy (€ 0.3 billion). In DB Group’s accounting system, investment grants are generally deducted from acquisition or manufacturing costs (AMC) on the assets side after completion of the relevant investment. As a result, the investment is recognized at a reduced carrying amount and depreciation is reduced accordingly. The grant thus reduces the operating result over the entire useful life of the investment and is therefore also referred to as a grant with no impact on profit and loss.
In the consolidated financial statements, all capital expenditurs made in a financial year are shown both at their gross value, this means before grants are deducted from assets, and at their net value. In addition, the statement of cash flows shows the receipts of payment from grants received. This also applies to repayments if the funds or the capital expenditures supported by them have not been used in full for the intended purpose. On the one hand, this makes it completely transparent which public sector funds have been collected. On the other hand, the net accounting of investment grants automatically excludes the possibility of an impermissible interest rate request on the publicly financed part of the infrastructure. The capital employed, which forms the basis for calculating the target return, only reflects the net capital expenditures financed from DB Group’s own funds.
The Federal Republic of Germany (Federal Government) is by far the most important provider of grants due to its responsibilities under the Basic Law. At € 7.9 billion, about 88 % of all investment grants in the year 2021 were provided by the Federal Government. The remaining funds came from the Federal states and municipalities (€ 1.0 billion, 11 %), the EU (€ 0.1 billion, 1 %) and other grant providers (< € 0.1 billion, <1 %).
In principle, all public authorities impose strict conditions on the provision of investment grants which ensure that the funds are used in full and for their intended purpose and thus exclude any unauthorized misappropriation or transfer to third parties.
Of the investment grants received by the DB Group in the reporting year (€ 9.0 million), the majority were for infrastructure. The most important sources of funding for investments in infrastructure are grants from the Federal Government, followed by Federal state and municipalities.
The main basis for this was the Federal Railways Expansion Act (BSWAG) and - as a special instrument below the BSWAG - the LuFV. Further investment subsidies were granted under the Municipal Transport Financing Act (GVFG), the Federal Noise Abatement Program and the Railway Crossing Act (EKrG). The European Union grants subsidies for infrastructure investments in the trans-European networks (TEN) (TEN and Connecting Europe Facility [CEF]).
In addition to investment grants, DB Group also receives (significantly lower) grants recognized as income, also mainly in respect of infrastructure.
On the balance sheet, investment grants are directly deducted from the purchase and manufacturing costs of the assets to which they relate. The reporting of all grants is such that the competent Federal agencies can conduct comprehensive checks to ensure that they are spent in accordance with their purpose and the law.
The European and national requirements of the railway regulation comprise further regulations which also include the monitoring of the use of public funds. In Germany, these are above all the unbundling requirements laid down in the Railway Regulation Act (Eisenbahn-Regulierungsgesetz; ERegG) (Article 7 ff. ERegG), but indirectly also the requirements for fee regulation (§§ 23 ff. ERegG), the monitoring of which is the responsibility of the Federal Network Agency (Bundesnetzagentur; BNetzA).
Of particular relevance here is Article 7 ERegG on separate accounting and the ban on reconciliation of public funds laid down in paragraphs 3 to 5. These clarify that the general obligation to keep separate accounts for railway infrastructure, rail transport and other areas within DB Group also includes the recording of public sector grants. The corresponding separation of accounts and the preparation of annual financial statements (at least balance sheet and statement of income) must also make it clear that public funds received by one of these activities are not transferred to the others.
In monitoring these rules, the BNetzA ensures, among other things, that investment grants are deducted from assets in accordance with these unbundling rules and that all grants received are allocated to the correct areas of activity. The monitoring of the ban on reconciliation also includes checking the appropriateness of internal cost allocation and the regulations on profit and loss transfers.
As part of the regulation of access charges (prices for the use of train-paths, stations, the traction current grid and other service facilities), the BNetzA checks whether subsidies granted to promote one of these areas are actually posted there and deducted from the regulated cost basis in such a way that they benefit infrastructure users.
The latter is automatically guaranteed in the case of investment subsidies recorded on the balance sheet on the basis of the net accounting described. In addition, the infrastructure divisions also receive grants in smaller amounts that are recorded in income (2017: € 0.2 billion). As a rule, these are closely related to construction measures, but cannot be capitalized. Such grants are recognized as other revenue and disclosed separately in the annual reports. The BNetzA ensures that these revenues, together with the associated costs, are always allocated and netted appropriately and uniformly in the same division and are thus taken into account in the cost basis for the charges to reduce costs.
The performance and financing agreement (LuFV) between the Federal Government and the rail infrastructure companies concerns the maintenance and financing of railway lines. On the basis of this agreement, only earmarked payments for the implementation of replacement capital expenditures in railway lines (Article 11 (1), Article 8 (1) BSWAG), so-called infrastructure contributions, are made by the Federal Government. The so-called LuFV I was valid for the period 2009 to 2014 and was replaced on January 1, 2015 by LuFV II, which was renegotiated with the Federal Government. It should be noted that the measures undertaken within the framework of the LuFV are not always pure replacement capital expenditures, but that the facility renewals carried out using them may include expansion and new construction elements. On 1 January 2020 LuFV III, renegotiated with the federal government, and its term of ten years (2020 to 2029) has doubled compared to LuFV II. The LuFV relies on comprehensive transparency and control. The Federal Railway Authority monitors how the agreement is implemented. In LuFV III, 17 criteria were agreed to measure the success of the agreement. If DB fails to meet the contractual requirements, fines will be due.
(2) Federal Rail Infrastructure Extension Act (Bundesschienenwegeausbaugesetz; BSWAG)
The traditional subsidies from the Federal Government according to Article 8 of the Federal Rail Infrastructure Extension Act (BSWAG) are granted here for capital expenditures in the new construction or expansion of lines or for replacement capital expenditures in existing rail lines of the Federal Government that are not financed via the LuFV. The annex to Article 1 BSWAG contains the individual projects included for implementation in the “Requirement Plan for the Federal Rail Infrastructure Extension” in coordination with the Federal Transport Infrastructure Plan (Bundesverkehrswegeplan; BVWP). Insofar as the financing and implementation of investment projects by the Federal Government in the expansion of infrastructure does not fall within the scope of the LuFV or BUV, a framework financing agreement applies. This agreement was newly concluded between the federal government and DB in 2020 and replaces the predecessor agreement (Framework Agreement 1999). It also regulates the co-financing of eligible costs by the EIU depending on the economic viability of the measure.
(3) Noise remediation
The Federal Government grants subsidies for “measures for noise remediation on existing rail lines of the railways of the Federal Government.” Subsidies for active sound insulation (capital expenditure = sound barriers) are sufficient if the noise level exceeds certain immission values.
(4) Municipal Transport Financing Act (Gemeindeverkehrsfinanzierungsgesetz; GVFG)
These federal subsidies relate to grants for expansion and new construction expenditures by DB to improve the traffic conditions of municipalities in accordance with Section 11 of the Municipal Transport Financing Act and amount to up to 60 % of grant-eligible costs. In this context, expansion and new construction projects for local rail passenger transport amounting to more than 50 million euros are subsidised, which are located in densely populated areas or in associated peripheral areas.
(1) Municipal Transport Financing Act (GVFG)
Subsidies under the Municipal Transport Financing Act (GVFG) are granted by the authorities of the federal states in addition to federal funding in the amount of up to 40 % of the approved costs for “capital expenditures to improve the transport conditions of the municipalities” within the meaning of Article 1 GVFG. In addition, a plan lump sum of 7 % of the total grant-eligible costs is paid. However, rates that deviate from this may also be agreed bilaterally with the federal states.
The other grants from the federal states/municipalities come both from the regionalization funds and from the general budgets of the federal states and the municipalities.
The most important funding program of the EU is the Connecting Europe Facility (CEF). It is the follow-up program to the previous financing of the trans-European networks (TEN-T). As part of the grant financing with CEF funds, the advance and interim payments are made to INEA in the form of reports or applications by the recipients – in this case the BMVI. The application must confirm that the costs claimed have actually been incurred and relate to the benefits to be attributed to the eligible elements of the grant agreement (CEF Grant Agreement). This must be certified by the EBA as an independent review body.
In addition to TEN funds, grants are awarded for the European Rail Traffic Management System (ERTMS) and the European Train Control System (ETCS).
Grants from other third parties relate to non-government capital expenditures, for example from private individuals or companies (partnerships or corporations) for capital expenditure measures in property, plant and equipment