Biggart Baillie Solicitors

European Commission Re-Casting of First Railway Package

Wednesday, July 29, 2009

by Neil Amner

In 2001 the European Commission adopted the “First Rail Freight Package”, comprising three Directives, the aims of which were to open up the EU rail freight market and so help to improve rail’s share of the wider EU freight market.  Continuing state ownership and control of infrastructure and service providers in a number of Member States has been seen, in the absence of adequate economic regulation, as frustrating those aims.

The First Rail Freight Package

The most significant parts of the first package concern the development of the Community's railways, the allocation of railway infrastructure capacity and the levying of charges for the use of the railway infrastructure and safety certification.

Originally, the Commission proposed the complete separation of infrastructure managers from service operators, but the Council did not agree to this. The outcome was a compromise whereby the two functions could remain in separate divisions of the same organisation, provided that there was separate accounting and independence of decision-making.  To remove incentives for discriminatory behaviour, however, the essential functions of capacity allocation, charging and licensing are not to be undertaken by an organisation that also provided rail services.

The first Package also sets out the rules for setting infrastructure charges and for capacity allocation. It provides for non-discriminatory access to a basic package of infrastructure capacity and rail-related services.  Infrastructure managers are required to publish network statements setting out the capacity of the infrastructure and the arrangements for and costs of using it.

Member State governments must ensure that the finances of the infrastructure manager are sound, and that there is pressure on it to reduce costs either through the regulatory process or through a multi-annual contract with government.

The Package also requires a regulatory body to be established to hear appeals from undertakings alleging unfair treatment by the infrastructure manager. This body must be independent of the infrastructure manager, but may be within the Transport Ministry of a Member State.

The Proposed Recast of the First Rail Freight Package

The European Commission intends to recast the Rail Freight Package due to what it perceives to be inadequate implementation on the part of Member States and this intention is supported by the House of Lords European Union Committee .in its Report on the Recast of the First Rail Freight Package, published on 02 June 2009.

As well as supporting the Recast, the House of Lords Committee Report also narrates the following conclusions: -

• Infrastructure Managers and Railway Operators: The Committee calls for a comprehensive separation between infrastructure managers and train operators.  At present, these functions can be carried out within the same undertaking provided appropriate “Chinese walls” are in place regarding accounting procedures and independent decision making.  The Committee concludes that these arrangements constitute an inadequate separation and can lead to “unfair practices”.
• Rail Regulation: The Committee suggests the Commission use the recast to detail the “powers and remits of national rail regulators” including a requirement that national rail regulators be independent of their respective national governments as well as infrastructure managers and train operators.  Whilst the Committee supports cross-border cooperation between infrastructure managers and regulators, it does not support the creation of an EU-level regulator; stating that this would be a “premature” development.
• Barriers to new entrants: The Report cites the infrastructure charges that the present system allows to be levied as a barrier to new entrants to the rail freight industry.  The Committee accept that charges will vary between Member States but calls for the Commission to use the recast to clarify which costs can be charged so that a degree of consistency is introduced throughout Member States.  It also recommends that Member States agree multi-year contracts with their infrastructure managers with the intention that the greater certainty of funding offered by longer-term contracts will encourage more investment in infrastructure and so reduce charges in those Member States where they are currently high.  “Non-discriminatory access” to last mile services is also raised as an issue presently acting as a barrier to new entrants although the Committee anticipates that the effective separation of infrastructure managers from railway operators will provide alleviation of this problem.

Infraction Actions

In addition to its conclusions summarised above, the House of Lords Committee calls upon the Commission should also proceed with infraction proceedings, where appropriate, and investigate the possibility of using competition laws in conjunction with the recast Package. 

Click here for a PDF of the table provided by the Department of Transport, showing a summary of alleged infractions sourced from the Commission’s Directorate-General for Energy and Transport.  

New Regulation?

Finally, the Committee suggest recasting parts of the Package into a Regulation to facilitate direct enforcement in all Member States as opposed to use of Directives, which require transposition into the various national laws of respective Member States.

Comment

The issues identified in the House of Lords Report echo many of the points I have heard made by delegates at European Freight and Logistics Leaders Forum meetings and other conferences and so the Report and its recommendations are to be welcomed. 

Whether the Commission acts on these issues and how successful any action proves to be will have to be seen.

For further information on the issues raised in this article or other rail freight related matters please contact Neil Amner.