Recast of the First Rail Freight Package - European Union Committee Contents

Chapter 3: Infrastructure managers and railway undertakings

18.  The infrastructure manager is responsible for providing and maintaining the rail infrastructure. In some Member States, the infrastructure manager is also responsible for capacity allocation, setting charges for the use of infrastructure and providing access to other rail-related services, such as terminals, sidings and marshalling yards (see chapter five for further details).

19.  Article 6 of Directive 91/440/EEC, as amended by Directive 2001/12/EC, provides for accounting separation between infrastructure managers and railway undertakings. It says, "Member States may also provide that this separation shall require the organisation of distinct divisions within a single undertaking or that the infrastructure shall be managed by a separate entity". The setting of charges and the allocation of capacity must be undertaken by a body that is independent in legal form and decision making from any train operator. Member States have implemented this requirement in different ways. For example, in Germany the Deutsche Bahn Group includes the infrastructure manager, DB Netz AG, and the dominant German freight operator, DB Schenker Rail. In France there is a separate infrastructure manager, Réseau Ferré de France (RFF). However, RFF has appointed SNCF, the incumbent operator, as its "delegated manager" with responsibility for many of the duties usually undertaken by the infrastructure manager[23]. In the UK the infrastructure manager, Network Rail, is prevented by statute from owning an operator.

20.  The majority of witnesses were in favour of the recast requiring full separation of infrastructure managers from operators rather than allowing the "distinct divisions with a single undertaking" option. Lord Berkeley, Chairman of the Rail Freight Group, identified the separation of the infrastructure manager and the train operator as one of the two major principles "that need to be got right" (Q 73).

21.  Witnesses argued that separation is necessary to ensure all operators have equal access to the infrastructure. The European Rail Freight Association (ERFA) argued that accounting separation alone cannot guarantee non-discriminatory access and questioned the effectiveness of a "Chinese wall" between infrastructure managers and incumbent rail operators where they are part of the same organisation (p 61). Similarly, the Belgian regulator, the Service de Regulation du Transport Ferroviaire et de l'Exploitation de l'Aéroport de Bruxelles-National, lacked confidence in Chinese walls between divisions, saying, "sometimes a wall can collapse very quickly" (Q 267).

22.  The Government were also concerned that the Package "has not achieved the desired intention of ensuring transparent, equitable and non-discriminatory access to rail infrastructure for non-incumbent, independent operators" (p 137). Arriva, a privately owned operator, put it bluntly: "the motivation to retain the infrastructure is primarily an instrument to maintain control over a monopoly asset and the operators using it" (p 109).

23.  European Rail Infrastructure Managers (EIM) agreed that an infrastructure manager independent of any rail operator is desirable because "if you want to open a market, you have to make it easy for people to enter a market. By having an independent infrastructure manager, it is very easy, because his remit is to ensure that the infrastructure is used in the most effective manner" (Q 44).

24.  Witnesses also gave examples of how the problems of integrated infrastructure managers manifest themselves. Lord Berkeley said, "there is no transparency of the movement of funds between an infrastructure manager and a train operator. How can you have fair competition … if you think that the incumbent train operator is being unfairly subsidised by the infrastructure manager or one of the local authorities that is funding it?" (Q 73) ERFA argued that this lack of transparency leads to "a lot of suspicions about what has gone on internally" (Q 154).

25.  Other problems include the flow of staff between subsidiaries of a holding company (ERFA, Q 154, the Belgian regulator, Q 266), the fact that some integrated infrastructure managers deal with safety certification for their subsidiaries as well as their competitor freight operators, and potential confidentiality issues where the subsidiaries of a holding company share the same IT system (the Belgian regulator, Q 266). EIM identified safety certification in France as a problem because the responsibilities of the regulator and safety body to approve locomotives have been "re-delegated back to SNCF" (Q 45).

26.  The Federal Network Agency, the German regulator, said that "because Deutsche Bahn is still influenced by a holding structure … There is also a tendency to give preferential treatment to their own subsidiaries" (Q 186). Whereas other witnesses referred to informal collusion between divisions such as "the quiet word in the ear" (Lord Berkeley, Q 76) or operators "suspected to have the slightest advantage" (ERFA, Q 154), the Federal Network Agency cited the specific example of DB Netz AG offering a "special rebate" which only DB Schenker Rail could take up (Q 186).

27.  Some witnesses argued the result of separating infrastructure managers from operators was increased competition and promotion of the use of rail freight. The Office of Rail Regulation, the UK rail regulator, said that since privatisation "the rail freight market share of land transport has grown from around 8.5 per cent to 12 per cent in the last 10 years. There has been a substantial amount of growth in rail freight and volumes of freight moved are up by 60 per cent" (Q 133). Lord Adonis, Minister of State, Department of Transport, said that the UK's market structure was "one of the underlying reasons for this growth" (Q 500). Other witnesses also cited the UK's growth in rail freight as supporting the separation of infrastructure managers from operators (Rail Freight Group p 21, Network Rail p 2).

28.  However, NewRail, a research centre based in Newcastle University, said that some of the growth in rail freight could be accounted for by the changes in the coal sector. As more coal has been imported, the amount needing to be carried by rail freight from Scottish ports has increased (Q 95). Lord Adonis agreed that the increase in coal being carried by rail freight was "a big factor in the increase in rail freight in Britain" but insisted that market liberalisation was another significant influence (Q 530).

29.  In contrast with other witnesses, Deutsche Bahn argued that the development of railway markets in Europe does not provide evidence that full ownership separation is required to achieve market opening (p 152). They cited the Rail Liberalisation Index 2007[24], which scores countries in terms of the degree of their market opening (p 152). The Index gave high scores to countries with holding structures like Germany and Austria as well as those with fully separated markets like the UK and Sweden. In the Community of European Railway and Infrastructure Companies' (CER) view, "rail freight growth is not directly linked to the opening up of the market. We do not have such evidence". They argued instead "that rail traffic growth is much more related to the investments into the infrastructure and the track access charging schemes" (Q 316).

30.  Some witnesses argued that integration was an effective model provided there was a strong regulator. The Federal Network Agency said that the holding company system works in Germany because they have sufficient powers. Their regulatory remit covers not only the railways but also the energy, telecommunications and postal markets. According to them, there is strict separation of functions in the energy market but no such requirements for telecommunications. However, despite these different structures "success is open to every model" because they are able to regulate the markets effectively (Q 184). The Office of Rail Regulation agreed that integration may be acceptable when there is a strong regulator (Q 141).

31.  Network Rail, the UK infrastructure manager, argued that if a strong, independent regulator is established the legislation does not need to require the separation of infrastructure managers from operators. They explained that the history of independent regulation of markets in the UK shows that "regulation in itself has forced that separation and actually forced the companies to want that separation" (Q 19). Similarly, the Office of Rail Regulation said that effective regulation would encourage an integrated infrastructure manager to "move towards wanting to separate itself anyway" (Q 141).

32.  However, ERFA disagreed. They argued that even "a very, very strong regulator will never be able to counterbalance a bad market" (Q 155). They said that in an integrated market the regulator needs to intervene "very early in the processes, the earlier the better … but the risk of him coming too late is extremely great because he does not have full transparency on all the processes". They also argued that the regulator would need to "mirror all the processes that are going on" and would therefore become over-staffed and inefficient. Finally, ERFA argued that the consequence of needing such a regulator would be "over-intrusive" regulation (Q 155).

33.  Other evidence also suggests that strong regulation is not sufficient to counter integrated infrastructure managers and operators. The Belgian regulator said that they were aware that some operators had difficulties accessing rail-related services (see chapter five) and "although we are able to deal with such complaints we have not received any formal complaints" (Q 238). Arriva said that in Germany they had often opted for dealing with problems "in a co-operative way", rather than going as far as lodging a formal complaint (QQ 367-369). This lack of formal complaint may be explained by the dominance an integrated infrastructure manager can have in a national market. We would expect independent operators to be reluctant to lodge formal complaints against integrated infrastructure managers for fear of damaging their relations with the infrastructure managers on whom they rely to operate.


34.  We conclude from the evidence that the full separation of infrastructure mangers from railway undertakings has not been the only factor contributing to rail freight growth. It is clear from the evidence that factors such as funding and changes to other markets are also important. However, we believe that the growth of rail freight has been restricted by the fact or suspicion that some freight operators have received preferential treatment from infrastructure managers. The evidence of the Federal Network Agency demonstrates that even where there is a strong and active regulator, placing infrastructure management and freight operation in different divisions of the same company is not sufficient to guarantee an open market where operators can be confident of non-discriminatory treatment. We believe that this approach, no matter how well regulated, leaves room for unfair practices. Full separation is much more likely to remove that possibility and create the conditions necessary for increased rail freight. We recommend the Commission include in the recast a requirement for the full separation of infrastructure managers from railway undertakings.

35.  We conclude that the lack of formal complaints to regulators in some Member States is evidence of the practical constraints on market opening. We believe this demonstrates the need for the Commission to press ahead with the proposed recast, to bring about a genuine free market that operates without fear or favour.

23   See RFF's website: Back

24   Rail Liberalisation Index 2007: Market opening: comparison of the rail markets of the Member States of the European Union, Switzerland and Norway, IBM Back

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