Select Committee on European Union Fourth Report

CHAPTER 5: Problems and Solutions at European Level

European Union action

67.  Despite the problems and difficulties surrounding the rail freight industry at the present time, there is potential for the industry to grow if the necessary steps are taken at European and Member State level. In this chapter we outline what action we believe the European Union should take.

68.  The Commission must first and foremost ensure that the First Railway Package is fully implemented across the EU-15. The 10 new Member States may need longer to implement the legislation but the Commission should work with them to ensure compliance as soon as possible.

69.  The First Railway Package, which aims to introduce open access to the infrastructure and fair, transparent and non-discriminatory rules for the allocation of paths, has already made some progress towards solving some of the problems faced by the rail freight industry. Mr Hilbrecht from the European Commission put it to us that, "there are small flowers starting to come out." (Q 306). We were pleased to note particular signs of progress in a number of areas which we now consider.

70.  It is encouraging that in some parts of Europe real competition does exist between rail freight companies. We were told that competing operators exist in many countries, including Germany, Denmark, Sweden, the Netherlands and Italy. By contrast there is no competition at all to date in France and Spain.

71.  The freight corridor through the Alps is one of the most important in Europe and competition between rail companies is developing here. The pattern typically is for the main operator in one country to form a subsidiary in another through which to operate European services. For instance, Swiss Rail Cargo Germany (a joint venture between the Swiss operator SBB Cargo and the German private railway company HGK) operates trains between Switzerland and the Netherlands in direct competition with the German operators, including Railion. SBB Cargo also competes with the Italian operators including Trenitalia, through its Italian branch, Swiss Rail Cargo Italy. Railon Deutschland, through its association with BLS Cargo, now operates freight trains through Switzerland in direct competition with SBB Cargo. For their part, Trenitalia Cargo have entered the German rail freight market through a stake in the German private operator TX Logistics (CER written evidence).

72.  These are encouraging ventures and we hope that they will be replicated across Europe so that real competition and choice for the customer becomes an integral part of the rail freight industry. The full implementation of the First Railway Package in spirit and in the letter should help to further this welcome competition.

73.  Many of our witnesses told us that getting rail freight through France was very difficult. The significance of this problem is greater because France's geographical position means that international rail freight to and from Great Britain and the Iberian Peninsula travels through France. We were therefore encouraged by Mr Hilbrecht's confirmation that Europorte 2, a subsidiary of Eurotunnel, had received a licence and a safety certificate to operate in France. A subsidiary of Connex was awaiting a safety certificate, having already obtained an operating licence and Rail4Chem, a German Company, was exploring the possibility of operating in France (Q 287).

74.  The French two-part tariff system was also said to be a particular barrier to open access and fair competition within France. Mr Hilbrecht was happy "to say that we have achieved agreement with France . . . . They agree that it (the two-part tariff system) should be changed" (Q 283). Unfortunately the French government claim that because of the public service contracts with regions they cannot do so before 1 January 2006. This two-part tariff system needs to be abolished. We hope that the Commission will ensure that the French government abolish it as soon as possible.

75.  The last problem that we identified is the least tangible, but is nevertheless an important challenge facing the rail freight industry. The evidence we received led us to believe that the rail industry in general, and in particular the rail infrastructure managers, have inadequate incentives to win new traffic. We recognise that, for political reasons, rail passengers are given priority over the movement of rail freight. This appears to have resulted in an institutional framework within the rail industry in which there is little incentive to increase and improve rail freight. Whatever the cause of this lack of commercialism and competitive performance, it has to be overcome if the rail freight industry is to revive and achieve its potential.

76.  We were pleased to note however that an alliance of European rail freight operators, known as European Bulls, had been formed in January 2005 to enable freight customers to use rail for their European long-haul transport requirements. The organisation aims to guarantee high quality over the whole route and to achieve a significant increase in rail's share of international transport services in the next few years.

77.  We were similarly pleased to learn about Rail Net Europe which is a group of infrastructure managers from 23 European Union Member States with a head office in Vienna. They work together to provide every rail freight operator with a one-stop shop to plan, organise and troubleshoot any rail freight path they want to use. The operator can use any member in any country (Q 409). In Great Britain this group is still in its embryonic stages but it has worked well in other Member States. The Group aims to provide a champion for rail freight operators so that they do not have to negotiate with a myriad of infrastructure managers but simply interact with one person who will deal with all the issues that might arise. This Group therefore seemed to us to be a good example of the industry seeking to be more customer focused.

78.  We applaud these initiatives and hope that the Commission and the United Kingdom Government will do all that they can to help them to succeed.

79.  However, despite these encouraging signs, implementation of the First Railway Package is still patchy. A number of Member States, including the United Kingdom, have not fully implemented the Directives. The European Court of Justice has taken negative decisions against the United Kingdom, Germany, Greece and Luxembourg. The Commission has prepared infringement procedures against Spain and Belgium, and has entered into dialogue with countries such as France where they have seen problems or have concerns. The Commission must maintain pressure on Member States to ensure they implement this package.

80.  The continued existence of vertically-integrated rail freight companies which have both infrastructure and operation arms is a potential barrier to fair competition. As we have already explained, some of our witnesses believed that the two functions were imperfectly separated in some companies. On the face of it, the simplest solution would be to pass European Union legislation which would force the complete separation of these two functions. Mr Hilbrecht said however it had proved impossible to achieve agreement in the European Council to complete separation, although he would like to see this (Q 300).

81.  We have already indicated that we believe that the issue of complete separation of infrastructure from operations should be re-examined. In its absence, we accept that the requirement that rail freight operators should be at arms length from the infrastructure managers and that their funding should be transparent may be the best alternative. But we believe it is important that track access should be regulated and appeals concerning the conduct of the infrastructure manager should be heard by an independent regulator.

82.  The current legislation requires that the regulator be independent of the infrastructure manager. The regulator can still be a part of the Ministry which is also responsible for the finances of both the infrastructure manager and the incumbent operator, as is the case in France.

83.  Whilst we understand that some Member States are unwilling to set up an independent rail regulator because, with the current situation and lack of competition, they would have little to do, we perceived this as a chicken and egg situation. An independent rail freight regulator can only operate in a fully competitive market but for a fully competitive market to develop, there must be fair and open access to the infrastructure. Only an independent regulator can ensure this. The half-way house adopted by some Member States where the regulator is a department within the transport ministry (Q 287) is not acceptable in the long-term, given that the same ministry is frequently responsible for the state owned infrastructure manager and main freight operator.

84.  We believe therefore that the relevant legislation should be amended to make clear that each Member State requires an independent rail freight regulator, independent from the government, with appropriate powers and resources and tasked with ensuring fair and open assess to the rail freight market.

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