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31.01.2013

 

 

 

 

 

 

 

 

 

 

 

The European Commission adopts proposals for a Fourth Railway Package. Reflections within technique and ethics.

On January 30, 2013, the European Commission adopted the fourth Railway Package, a set of rules intended to reactivate the process of liberalisation of rail sector, started in 1991 and that is now facing some major difficulties compared to the original plans.

The proposal, which must still deal with the discussion in the Eurpoean Parliament, occurs in the current formulation as an act of great impact, which poses full liberalisation of rail transport in Europe in a quite close timing assignment (2019).

Vice President Siim Kallas, European Commission Vice President responsible for Transport said: "Europe's railways are approaching a very important junction. Faced with stagnation or decline in rail in many markets across Europe, we have a simple choice. We can take the tough decisions now that are needed to restructure Europe's railway market to encourage innovation and the provision of better services. Rail will be able to grow again to the benefit of citizens, business and the environment. Or we can take the other track. We can accept an irreversible slide down the slippery slope to a Europe where railways are a luxury toy for a few rich countries and are unaffordable for most in the face of scarce public money."

In detail, four focus areas have been identified for the fourth package (also known in the past few months as a "Recast" of EU Railway Package):

-Simplification and unification of standards and approvals.

-Opening of the market of national passenger transport by 2019.

-Independence of Network Operators and their coordination at EU level in a single continental network

-Competence and motivation of the workwrs to face the new competitive context

The matter of the independence of the infrastructure manager from any Traffic Operator has encountered major resistances in its application, even in defining of text itself to be adopted by the Commission.

In fact the networks of the major European countries (France, Germany, Italy) were inherited by railway companies which, although in the form of Holdings, took over as single entities the previous State Ownewd monopoly. And even if the rules currently in force inhibit (formally) the administrative mingling amongst the different operational branches, recent judicial implications for State Companies in all three of these countries - with inquiries and penalties for acts obstructing to competition and abuse of dominant position - demonstrate as in realitystill survive discrimination, favoritism and cross-financing among different business units, which essentially facilitate ex-monopolistic companies to the detriment of new railway undertakings in the free market.

This occurs to such an extent, that the liberalisation process is now perversely evolving into a phenomenon of cross-border nationalisation, where many small companies are acquired from State owned ex-monopolist, but in other Countries, creating a few blocks that actually share the market and reduce the benefits of competition and free enterprise. Very active in this sense is Deutsche Bahn from Germany, which in freight sector has already acquired a large market share in Britain, the Netherlands, Denmark, Romania, Poland, on the one hand thanks to its undoubted competence but also raising serious and well-founded suspicions of using for these purchases the funds obtained from network management and from subsidised services, bypassing the EU regulations, and also thanks to easier access to credit provided by being granted from public finances in a Country rated AAA. But also SNCF (Captrain, ITL), ÖBB (Rail Cargo Hungaria and Rail Cargo Italy) and Trenitalia (TX-Logistic) are doing their part. Just to remain in the field of the freight sector.

So strong was and remains the pressure from major companies and the CER (Community of European Railways, which appears quite obsequious towards these Majors) over EU organs not to insert into the rules the obligation to completely separate (unbundling) at corporate-level Network and Traffic.

I have previously analyzed in detail the positions of supporters of integrated model and those of the separation model in my Study for Confcommercio and FerCargo in may 2012.
Lately the emphasis is placed, by those who oppose the separation as the CEO of Ferrovie Italiane dello Stato and CER President Mauro Moretti, on economy aspect: already in October at Mercintreno he said that the choice for unbundling should be verified on the basis of costs, if higher or lower than with integration, and today in commenting on the Recast again to say that decisions cannot be taken on ideological grounds but after cost analysis.

I would like to remark in this regard that we do forget too often that there are not only the economics, the financial results, the principle of the lowest price, as the only parameters to evaluate the choices that regulate our social life.

The guarantee of independence and equality for subjects regulating and controling the game towards each and every of the players is a matter of ethics, namely of civil essentials. If ethics has a cost, this is an indispensable cost that we must undertake if we are to preserve such little civil freedom and of quality of life that still remain to us in these tough times. Not only in the field of transport, of course.

In this sense, the text proposed by the EC only minimally takes count of the integrationist thesis, subject to stringent safeguard clauses of equal access to network. So the press release of the European Commission:

Faced with numerous complaints from users, the Commission considers that the infrastructure managers must have operational and financial independence from any transport operator running the trains. This is essential to remove potential conflicts of interest and give all companies access to tracks in a non-discriminatory way.
As a general rule, the proposal confirms institutional separation as the simplest and most transparent way to achieve this. Rail undertakings independent of infrastructure managers will have immediate access to the internal passenger market in 2019.
However, the Commission can accept that a vertically integrated or "holding structure" may also deliver the necessary independence, with strict "Chinese walls" to ensure the necessary, legal, financial and operational separation (see MEMO for details).
Compliance Verification Clause: To safeguard this independence, in view of full passenger market opening in 2019, rail undertakings forming part of a vertically integrated structure could be prevented from operating in other Member States if they have not first satisfied the Commission that all safeguards are in place to ensure a level playing field in practice, and a fair competition is possible in their home market
.

Equally important to improve the rail transport competitivity towards the road are however also the other points, from reduction of times and costs for approval of vehicles for the whole European network, to the formation of adequate occupational skills apted to a much more dynamic working environment.

In any case, even a good sector regulation will not have an effect on the development of railway traffic without a coherent transport policy by Member States, oriented to balance the instances of different modes and to protect the function to the territory that rail service should have in relation to economic and social development.

And as to this we in Italy have so much work to do ....

Read here after an extract from the explanatory document referred to in the link below, in the part relating to the analysis of the theme of unbundling Network Manager / Traffic Operators, which I think is very precise in the analysis of the situation and in the identification of EC's proposals

read the full press release of the European Commission

and the interesting detailed annex

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Reference: MEMO/13/45 Event Date: 30/01/2013
from:
http://europa.eu

SECTION 2: A Structure that delivers

The current rules

The separation of financial accounts has been obligatory since 1991. Since 2001, functions then identified as "essential functions" of the infrastructure manager – in particular train path allocation and charging - have had to be separated from transport operations.

In reality, the precise meaning of the EU rules is contested by some of the Member States, and they have not fully implemented all of them. In addition, the rules only require path allocation and charging to be separated by the national incumbent's holding company. Other functions such as decisions on maintenance, day to day train traffic management and decision on the development of the infrastructure can be exercised by someone linked to a railway undertaking (train operator) – in practice the national incumbent . There is at the least a strong suspicion that incumbents have used this possibility to covertly discriminate against newcomers.

On the other hand, nearly more than half of the 25 Member States with a rail transport system have gone beyond what is required by EU law and opted for an institutional separation (with no ownership and control) between a fully-fledged Infrastructure Manager and the transport operators. Others have chosen to establish more complicated structures, opting for a fully integrated structure (delegating the two essential IM functions to external bodies) or a holding structure with one of the legal entities in the holding in charge of infrastructure management.

What is the problem?

As natural monopolies, infrastructure managers (IM), do not always react to the needs of the market and evidence from users suggests that the current governance does not provide sufficient incentives for IMs to respond to their needs.

In addition, there are no sufficient incentives for European and intermodal cooperation. A core EU rail system that connects all Member States to maximise positive network effects is required. This could only be achieved by IMs working together, promoting cross-border cooperation and driving efficiencies through shared best practice.

A strong stream of criticism has arisen from new market players in the case of IMs in integrated structures, where the IM has been known to discriminate against non-incumbent, for instance by increasing track and station access charges for passenger services considerably when a new operator entered the market.

Existing separation requirements do not prevent effectively conflict of interest, and functions not currently defined as essential (such as investment planning, financing and maintenance) may result in discrimination against new entrants. In addition, information asymmetries lead to competitive advantages for incumbent operators and there is a persistent risk of cross-subsidisation with funds allocated to the development of the infrastructure being diverted and used to provide a competitive advantage to the transport activities of the incumbent.

Ineffective management of the infrastructure

The current legislation still allows the following problems to occur:

Concrete examples: RFF, the French infrastructure manager, pays SNCF an annual fixed fee of around €3bn to perform network management tasks. Such organisation does not allow RFF to properly control that the use of the fee is optimal.

IMs along the Rotterdam-Genoa corridor made substantial investments to enhance capacity and establish the interoperability of train control and command systems on the basis of ERTMS. In doing so, they relied on the other IMs sticking to agreed time tables. However since the German investments will not be made for several years, anticipated benefits will only be achieved much later.

In short, infrastructure managers failed to respond to the needs of the transport services market, which lead to inefficient use of public funds and inefficiencies in the sector as a whole.

Distortions of competition and unfair market access

The current legislation still allows the following problems to occur:

Concrete examples: The German competition authority found that the charging system TPS 1998 allows for charges for DB Regio to be 25% - 40% lower than that of its competitors.

The Austrian incumbent, OBB Infrastruktur, increased track access charges for passenger services considerably after a new entrant, WestBahn, announced the start of its competing operations on the Vienna-Salzburg line.

The Italian Competition Authority (ICA) following a complaint sanctioned Ferrovie dello Stato (FS) and imposed a fine amounting to € 300 000 after finding that FS, through its subsidiaries RFI and Trenitalia had put in place a “complex and unified strategy” to keep Arenaways (a competitor of FS), which went bankrupt at the time of the decision, out of the profitable route between Milan and Turin between 2008 and 2011.

In short, national rail transport monopolies are still allowed to exert a considerable degree of control over the access to infrastructure. Infrastructure managers related to transport operators find it difficult to guarantee non-discriminatory access for all railway undertakings, and, at the same time, to take specific account of the interest of the railway undertakings which belong to the integrated structure.

The new proposals

The new proposals on governance will include key measures to:

Strengthen infrastructure managers so that they control all the functions at the heart of the rail network – including infrastructure investment planning, day-to-day operations and maintenance, as well as timetabling. The new proposals will ensure that a single entity – the infrastructure manager - performs all the functions related to the development, operation, including traffic management, and maintenance of the infrastructure. This will not prevent the infrastructure manager to subcontract, under its supervision, specific renewal or maintenance works to railway undertakings.

To ensure that the network is developed in the interests of all players, the Commission is proposing establishment of a Coordination committee which will allow all infrastructure users to express their needs and ensure that the difficulties they encounter are properly addressed. The aim is to make infrastructure managers more market-oriented and guarantee that their infrastructure allocation, charging, maintenance and renewal policy meets the demand of all the users of railway infrastructure.

Strengthen cross-border cooperation between infrastructure managers. The Commission is proposing the creation of a Network of Infrastructure Managers to ensure that issue of cross-border and pan-European nature are properly addressed by infrastructure manager in a coordinated manner. These issues include the implementation of the TEN-T network, rail freight corridors and ERTMS deployment plan.

Separation of managing the tracks and running trains. Faced with numerous complaints from users and evidence of discrimination, the Commission considers that the infrastructure managers must have operational and financial independence from any transport operator running the trains. This is essential to remove potential conflicts of interest and give all companies access to tracks in a non-discriminatory way.

This requires (1) extending independence requirements to all the functions of the infrastructure manager and (2) reinforcing such independence requirements.

As a general rule, the Commission's proposal confirms institutional separation as the simplest and most transparent way to achieve the necessary independence.

Under the proposal, institutional separation between infrastructure managers and railway undertakings (without ownership relations between the two types of entity) would become the applicable rule by default from the time of the directive's entry into force. Based on the proposal, it would not be possible any longer to create new holding structures in the rail sector.

Rail undertakings, independent of infrastructure managers, will have immediate access to the internal passenger market in 2019.

However, the Commission can accept that a vertically integrated or "holding structure" may also deliver the necessary independence, if it puts in place strict "Chinese walls" to ensure the legal, financial and operational separation, including for example: totally distinct decision-making bodies, to prevent discriminatory practices; separate financial flows (with separation of accounts and guarantees to ensure railway undertakings are not benefitting from cross-financing from incomes of the infrastructure manager); separate IT systems to avoid leaking of confidential commercial data; and stringent cooling-off periods for transfer of staff to eliminate conflicts of loyalty.

In view of full passenger market opening in 2019, rail undertakings forming part of a vertically integrated structure could be prevented from operating in other Member States if they have not first satisfied the Commission that all safeguards are in place to ensure the legal, financial and operational independence needed to provide a level playing field in practice and to ensure that a fair competition is possible in their home market.

link to the whole document >>>

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