EU - Transport Policy

Written evidence from Eurostar (EU 26)

Background

· Eurostar is the high-speed train service between the UK and Continental Europe. We have been operating since 14 November 1994 and have since carried over one hundred million passengers, doubling the size of the market for travel between London and Paris in the process. Since 1 September 2010, Eurostar International Limited has been the first truly international passenger train operating company.

· Eurostar welcomes the recast of the 1st railway package as an opportunity to strengthen the liberalisation of the European railways and aid the growth of the sector.

· Nevertheless we do have some concerns and observations and these are set out below.

General comments

· Whilst the market for train services is being opened up and liberalized, the provision of infrastructure to run on remains an absolute monopoly service. Infrastructure access charges can consume over half of high speed rail revenue from passengers (55% for Eurostar), and so long as both their level and structure remain largely unregulated, they will act as a substantial brake on the development of high speed rail markets.

· The level of charges needs to be set at a level that is affordable, and will help high speed passenger markets to grow. The structure of charges needs to be smarter, so as not to deter the development of longer distance markets. Currently most infrastructure managers charge on the train-kilometer basis calculated with domestic funding conditions paramount. This ensures that charges are often unrealistic in the international travel market and destroys the viability of longer distance rail services. Strict regulation of infrastructure charging is therefore needed to avoid ‘Access Taxes’ and excessive capture of profit by infrastructure managers.

· At the same time it should be stressed that a fairer system for charging high-speed rail, with effective regulation to ensure the charges are affordable and predictable, is also in the interests of infrastructure managers, as it will mean more TOCs can use the infrastructure viably.

· A level playing field between rail and other modes is a necessity:

- It needs to be borne in mind that in terms of international rail, the market price for many international journeys is effectively set by the airline industry and yet the fixed costs stemming from infrastructure charges in the rail industry are of a vastly different order of magnitude.

- Where road transport is in competition with rail, it should, for example, pay for its CO2 emissions as high-speed rail already does and as air transport will, through the EU ETS. There also needs to be a floor price for CO2 emissions, which should rise steadily and predictably over time to give clear investment incentive.

Specific comments

Access Charges

· The drafting of the briefing and the directive say helpful things (in the context of international passenger rail).  The phrase ‘what the market can bear’ is important, because access charges tend to be constructed to meet national domestic funding conditions and effectively are added together to form international passenger (and freight) charges.  The sum of the parts often bears no relation to what the ‘international travel’ market can bear and can make the charges uneconomic. 

· This position is exacerbated for high-speed international trains, which inevitably run on newer and more expensive infrastructure.  The first cost to the TOC is considerable and this is made even worse by very high access charges calculated by reference to widely different and inconsistent charging models.

· The imprecision of the wording is unhelpful, because it suggests that the principle of ‘what the market can bear’ should only apply to freight.  The provisions for international services should apply to passenger as much as they apply to freight. 

· A similar charging mechanism for both international passenger and freight (not necessarily the same for both) needs to be developed and applied across the EU. High Speed international passenger and freight should be charged the incremental marginal costs their services generate. Thereafter, however, a fair and viable approach would be that international (high-speed) passenger and freight are both considered as ‘open access’ and therefore the charging mechanism would take into account the realities of the international market in which rail and air compete. This means in practice that the price charged to international rail must take account of the market price set by the airline industry.

· Cost transparency needs to be rigorously enforced by Regulators to ensure "open access" operators only pay for genuine investment costs. Cost transparency only currently exists in the UK. Eurotunnel operating costs are opaque (infrastructure and shuttle train operations are not separated), and in France and Belgium operating costs are lumped together with capital charges in a single access charge per train km.

· Any Infrastructure subject to bilateral arrangements should be treated in the same manner as any other highly important infrastructure and it should thus comply with EU regulations and Directives e.g. relating to accounting separation, transparency of charging over railway services, and network statements.

· The Commission should examine the compatibility with open access of any bilateral arrangements between TOCs and IMs which risk in law or in effect foreclosing all or part of access to other TOCs.  This would be the case including where bilateral agreements do not reflect the requirements of the then current Directives.

· We consider that all existing bilateral agreements should already be treated as subject to the principles of the existing Directives and the new proposals when they take effect.  We welcome the introduction of a further scrutiny process to ensure that this objective is achieved and that all existing bilateral agreements can be kept in line with the applicable rules.  We would be concerned to clarify that article 14 may not be restricted in the aspects of the Directive which may be the subject of its scrutiny.

Infringements to the current directives

· The recast should not be used as an excuse by Member States to put on hold or slow down existing market opening measures. We urge the Commission to continue to encourage and enforce the proper application of the current regime and in particular to press for access charge regulation.

Performance regimes

· The directive did and does make much of the requirement to have a performance scheme in place to compensate TOCs for infrastructure failures (and other things). EU legislation in the form of the Passenger Rights Directive means that TOCs already have to compensate passengers for delays incurred as a result of infrastructure failings. The lack of a mechanism to ensure that TOCs are subsequently remunerated adequately means that the status quo is inequitable. Currently the introduction of performance regimes in the EU has been effectively ignored except in the UK. This situation disadvantages those TOCs who are not part of a single national concern.

· We need the urgent introduction of performance regimes that better remunerate the TOC for the performance failures of the infrastructure manager.  That means, taking Eurostar as an example, full recompense on HS1 and a performance scheme on Eurotunnel, Infrabel and RFF.

State Aids

· Annex X 1b and c on regulatory accounts refers to avoiding cross-subsidies with ‘public funds’. Governments can however also lend indirect support to TOCs by forgoing taxes/charges/fees which they should normally collect. The reference to ‘public funds’ should therefore be replaced by ‘state aid as defined in EU law’, or similar, here and wherever else it occurs in the text.

Contract Term

· Standardisation of contract terms would lend greater predictability to cost and aid TOCs in long term planning. In the UK we currently have a 10 year duration contract with NR and HS1 and a contract with 40 odd years left with Eurotunnel.  Our new agreements with Infrabel and RFF are limited to a single timetable year at a time. The directive proposes that framework agreements can have a duration of up to 15 years.  We would expect the term of framework agreements offered by Infrastructure Managers to be consistent and to comply with the 15 year period proposed in the recast.

Service Facilities

· The redraft of article 13 (2) provides some new (imprecise) words on access to service facilities, where the operator is service dominant.  It suggests that the operator has to be separate from the service operator and that in the event of conflict appropriate capacity has to be allocated to the new arrival.  Eurostar would be concerned to clarify what this would mean in practice.

January 2011