New rules to establish a more competitive rail market

New EU rules to create a more transparent and competitive rail market will be put to Transport Ministers for agreement at their meeting in Luxembourg this Thursday (16th June 2011). The proposals set out how competition on the rail market should work in practice by: ensuring fair access to railway infrastructure and rail related services; strengthening the power of national regulators; and creating a better regulatory framework to stimulate investment in rail.

Vice President Kallas said, “These rules are needed to make sure that competition exists in the rail sector, not just in theory, but in practice. This is another step forwards in terms of breaking down the concrete barriers that prevent a healthy rail market from developing. But we need to go much further. A swift political agreement will send a strong political signal and pave the way for the much more far reaching rail regulatory package we intend to bring forwards in the next 18 months.”

The European Commission published proposals for a Directive to recast the first railway package in September 2010. The proposed Directive is an exercise in legislative simplification and consolidation with the merger of the three directives in force and their successive amendments into one coherent text. It also aims to tackle key problem areas undermining the effective functioning of the railway market. The three key problem areas addressed in the Directive:

• Competition issues – ensure fair access to rail infrastructure and rail related services
• Strengthening regulatory supervision
• Strengthening the framework for public and private investment

See text below for more details on the key elements of the Commission’s proposals.

If Ministers reach an agreement in the Transport council, the new rules need approval from MEPs in the European Parliament before coming into law.

Background MEMO: Frequently asked questions on the new proposals: 1. What was the first railway package?

The first railway package consists of three directives (2001/12/EC, 2001/13/EC and 2001/14/EC) which were substantially amended in 2004 (second package) and 2007 (third package). Its purpose was to revitalise railway transport (still largely in the hands of state monopolies confined to their national markets) by gradually opening it to competition at Europe-wide level. The market for rail freight transport has been completely opened since 2007 and for international passenger services since January 2010.

The level of success of this policy is demonstrated by the stabilisation of rail’s modal share during the last decade after a long period of decline (its share among inland modes has remained around 17.1% in tonne kilometres for rail freight and between 8.6 and 8.4% in passenger kilometres for rail passenger transport since 2002). But, despite this achievement, which was difficult to arrive at, the establishment of a single rail market is a fragile construction and is hampered by several problems.

And why do we need a recast?

The proposal to recast the first railway package is: firstly an exercise in legislative simplification and consolidation (“codification”) with the merger of the three directives in force and their successive amendments (all in all nine directives, one decision and two acts of accession).

The recast also aims to modernise the legislation and tackle key problems areas which have been indentified on the market over the last 10 years.

2. What are the main problems that need to be addressed?

The EU railway market suffers in particular from three major problems:

• A low level of competition due to market access conditions which are not sufficiently precise and therefore still biased in favour of the incumbents.

The persistence of conflicts of interest in particular for access to rail related services (access to terminals, maintenance and servicing of trains etc…) between different market players and discriminatory practices.

Concrete examples of discriminatory practices on access to tracks and rail-related services include: km-based infrastructure charging or kWh-based charging for electricity that give disproportionate discounts to the largest operator (incumbent); insufficient information on requirements for newcomers’ access given in “network statements” (the document setting out the characteristics of the infrastructure and the conditions for its use); denied access to central stations for international passenger trains competing with those of the incumbent , no information nor ticketing facilities in stations for these same trains; denied or very limited access to freight terminals when no alternatives are available.

• Inadequate regulatory oversight by national authorities, often with insufficient independence, competences and powers. With a small number of exceptions, regulators’ offices in most other Member States are understaffed, have limited investigating powers and cannot enforce their decisions with financial penalties. When appeals against decisions by the regulator have suspensive effect, these decisions can be challenged through the entire judicial system and it can take years before a decision putting an end to an anti-competitive practice is enforced. Under present legislation cases concerning access to services (the most sensitive and frequent ones in the domain of competition on the rail market) may not be brought to the regulator. In several Member States the office of the rail regulator belongs to the ministry of transport, which also owns or controls the incumbent railway undertaking – a clear case of conflict of interest.
• Low levels of public and private investment as the quality of infrastructure is declining in many Member States because of insufficient funding, investment in railway services becomes less attractive both for incumbent and new operators. Underinvestment at national level is partly due to the absence of a clear “financial architecture” (investment plans, long term strategies, transparent and state-aid compatible relations between the state – nearly always the infrastructure owner and often the owner of the incumbent railway company – and infrastructure managers and railway undertakings).

In this context a new forward step in rail reform is necessary to remove these obstacles and create a genuine Single Railway Area, which would provide a key contribution to the effective completion of the internal market and the development of an efficient and competitive transport system in line with the EU 2020 Strategy objective of smart, inclusive and sustainable growth.

What is the link with the on-going infringement procedures

The persistence of these problems is partly due to the incorrect or incomplete transposition of the existing EU rail market access legislation by Member States. The on-going infringement procedures on the transposition of the Directives of the first railway package address these shortcomings. However, the Commission recognises that other parts of that legislation need to be modernised, clarified and adapted to become more effective. The Commission proposal has therefore been designed to address the 3 key problem areas mentioned above, as well as consolidating all the existing legal texts. It has no direct connection with the infringement procedures. The objective behind this two-track approach is however the same, i.e. that of establishing a Single Railway Area in Europe

3. What are the key elements of the new proposal?

The proposal to recast the first railway package:

• is firstly an exercise in legislative simplification and consolidation (“codification”) with the merger of the three directives in force and their successive amendments (all in all nine directives, one decision and two acts of accession), the elimination of cross-references and the harmonisation of terminology;
• secondly, it aims at clarifying existing provisions (solving in particular problems of diverging interpretations by Member States) and at adapting them to the evolution of the market during the last decade, with a view to addressing key problem areas – building on the experience of the last 10 years. These are the problems mentioned in the second section above and facilitating implementation.

In particular, concerning the issues referred to in the second bullet point, the proposed changes address the problems identified above as follows:

• Competition issues: the proposal will improve transparency of the rail market access conditions for example by

• requiring more detailed network statements -documents published annually so potential newcomers can see clearly the characteristics of available infrastructure and conditions for its use;
• establishing improved (and in certain cases guaranteed) access to rail-related services (subject for instance to management independence requirements) for freight and passenger trains;
• establishing explicit rules on conflicts of interest and discriminatory practices in rail related services.

• Regulatory oversight: The proposal strengthens the power of national rail regulators including:

• extending the competence of national regulators (to rail-related services);
• requiring the independence of national rail regulators (from any other public authority);
• strengthening the powers of the national rail regulators (with sanctions, audit and ex-officio investigating powers) and establishing the obligation imposed on these bodies to cooperate with their counterparts on cross-border issues.

• Investment: the proposals aims to strengthen the “financial architecture” to encourage investment including by

• requiring national long-term strategies and multi-annual contractual agreements between the state and infrastructure managers linking funding to performance, and business plans. These instruments of medium to long term planning should allow an orderly development of the infrastructure and give market players better predictability of business opportunities and thereby facilitate their own investments;
• requiring more precise and smarter infrastructure charging rules. Better implementation of the charging principles contained in the existing legislation should lead to lower track access charges for rail transport operators in many Member Sates. The new charging rules (with the introduction of noise-related modulation as the rail equivalent to external cost charging for road transport, discounts for interoperability) should also stimulate private investments in greener and interoperable technologies.

4. Other issuesDoes the Commission propose to extend the scope of market opening to domestic passenger rail services?

This Commission proposal is conceived to ensure fair competition on the rail market segments that have already been opened to competition, i.e. rail freight services and international passenger transport, not to extend the scope of market opening. As far as domestic passenger rail services are concerned, Commission presented an overall evaluation of the costs and benefits of competition for domestic passenger transport in 2011 and will then adopt a new initiative to facilitate further market opening by the end of 2012.

Facts and figures –the potential of rail in Europe

Between 2000 and 2007 the European railway industry has managed to increase the number of passengers and quantity of freight volumes transported, from 370.7 to 395.3 billion passenger-kilometres in 2007 (+6 %) and from 403.7 to 453.1 billion tonne-kilometres in 2007 (+12.2 %) respectively. Rail has thereby stabilised its modal share. In freight transport, rail continues to account for more than 17. % of all intra-EU inland transport activity. On the passenger side, the rail share of intra-EU inland transport remains between 8.4 and 8.6 %. However, these percentages do not properly reflect the role that rail plays in carrying freight and passengers over medium-long distances. On some rail corridors, its modal share can in fact reach up to 35% (such as for freight transport on the Rotterdam-Genoa rail line) or even 80% (such as for passenger transport on the Lyon-Paris rail line). This is indicative of the potential of rail transport if well organised and managed. While rail passenger transport managed to gain some ground, rail freight experienced a bigger drop in activity than other modes during the deepening economic crisis in 2009.

See also: http://ec.europa.eu/transport/rail/market/market_en.htm and IP/10/1139

Source – European Commission.