UK: Rail Issue - The European Commission´s Second Railway Package

Last Updated: 24 May 2002
European Competition Commissioner, Mario Monti’s speech this week at the Union of European Railway Industries (UNIFE)’s annual reception confirmed that railways are firmly on the European Commission’s agenda at the moment.

Commissioner Monti spoke on the Commission’s approach to competition in the rail transport market and revealed that he has asked the Competition Directorate-General to become more pro-active in this sector. The Commission is already pursuing two cases of suspected European Competition law infringements by railway undertakings which, Commissioner Monti told UNIFE members, were a good illustration of the deficient restructuring of the industry which the Commission is currently seeking to redress. Commissioner Monti re-emphasised the importance the Commission attaches to the separation of infrastructure ownership and operation of services.

Earlier this year, the European Commission published a number of proposals for new laws with the underlying objective of achieving an integrated “European railway area”. This second railway package followed on from the framework mapped out by the 2001 infrastructure package which has to be implemented by 15 March 2003 (Directives 2001/12, 2001/13 and 2001/14 on rail regulation, separation of the functions of infrastructure management and train operation, charging and slot allocation). While the UK industry wants to see how the UK implementation of the 2001 suite of Directives will affect it – both in the way industry participants are regulated and in the contractual arrangements for infrastructure access – the industry has to absorb the impact of the new proposals.

The Commission’s proposals of 23 January 2002 for three Directives, one Regulation and one Recommendation follow the publication of the White Paper “European transport policy for 2010: time to decide”. The White Paper envisages three lines of action to revitalise the railways: (i) to establish a fair system of charging for all modes of transport (already partly put in place in 2001); (ii) to further develop trans-European networks, giving high priority to rail; and (iii) to achieve a legally and technologically integrated European railway area. The remainder of this e-bulletin outlines the five new legislative proposals and comments briefly on their significance.

1. Developing a Common Approach to Rail Safety

The proposed Directive on rail safety is intended to clarify responsibilities by establishing independent national safety authorities and developing common safety methods, targets and indicators, thereby removing barriers to further market opening. The envisaged process for modernising and harmonising the safety regulatory structure is gradual and the Directive defines procedures for the development of common safety methods and indicators. New national safety rules will require European acceptance. This is intended to lead to a migration towards common safety rules.

The Directive introduces common requirements for and common elements of a safety management system, that must be implemented by infrastructure managers (such as Railtrack in the UK). Safety certificates granted in one Member State are intended to be valid throughout the Community for equivalent rail transport operations.

In order to increase transparency, railway undertakings (i.e. the TOCs in the UK) and infrastructure managers will be obliged to submit annual reports on the development of safety to their national safety authority. The authority, in turn, must publish a report each year and make it available to the European Railway Agency (see below for details on its establishment).

The Directive also provides for the establishment of permanent national investigation bodies, conducting mandatory safety investigations, aimed at establishing root causes of accidents and incidents and responsible for the follow-up on safety recommendations. These national bodies are to be independent of all interested parties, including the national safety authority.

The UK is already taking steps along the lines proposed, but the European proposals go further, both in terms of strictly separating the investigation body from the safety authority as well as in terms of the harmonisation and management at European level.

2. Amending the Interoperability Directives

The proposed Directive amends the two Interoperability Directives (Directive 94/48/EC on high-speed rail systems and Directive 2001/16/EC on conventional rail systems) in order to improve their operation and ensure consistency with the proposed Directive on safety (see above) and the proposed Regulations establishing the European Railway Agency (see below).

The operation of the Interoperability Directives is still in its infancy. Although the high-speed Interoperability Directive has now been implemented in the UK (SI 2002 No.1166), there is still a lag in the establishment of firm technical standards. At present the industry feels the impact in terms of increased cost and uncertainty but in the long term there should be real benefits for suppliers and operators in terms of economies of scale and common basic standards.

The proposed changes have a relatively small impact on the framework already in place. The main effects are brought about by the proposed extension of the ‘geographical’ scope of Directive 2001/16/EC to the whole railway network and by the proposed assignment to the European Railway Agency of the task of preparing the draft Technical Specifications for Interoperability (TSIs) and reviewing TSIs already adopted.

3. Completing the Internal Market for Rail Freight Services

The proposed Directive amending Directive 91/440 on the development of the Community’s railways (as amended by Directive 2001/12) aims to open up the international and national freight services without delay across the entire network. The completion of an integrated market for rail freight services is considered to be a cornerstone of the transport policy set out in the White Paper.

The proposals extend to the opening up of the domestic rail freight market to foreign railway undertakings, including the possibility of cabotage (i.e. occasional domestic services while performing international services). All railway undertakings established and licensed in the EU will be granted access to the railway network for domestic and international rail freight services on equitable and non-discriminatory conditions. The concept of limiting access to the Trans-European Rail Freight Network (TERFN) will be repealed.

National freight operators will thus in future face potential competition from foreign freight undertakings as well as from domestic freight undertakings. This increased competition will also affect passenger services providers as there will potentially be greater competition for pathways. Freight operators may also qualify for preferentially low access charges and infrastructure managers may be faced with difficult allocation decisions in achieving a balance in utilisation and cost with essential passenger services.

4. Accession by the European Community to the OTIF

The Commission proposes that the European Community should join the OTIF (Intergovernmental Organisation for International Carriage by Rail) in its own right. The OTIF, which currently has 40 member countries including all the EU Member States and candidate countries, applies the Convention concerning International Carriage by Rail (COTIF) which covers uniform rules on the international carriage of passengers, freight, dangerous goods, international use of infrastructure and technical standards for railway material.

As the Community now has exclusive or shared responsibility in several of the areas covered by the COTIF, it wants to join the OTIF and its Convention in order to be able to exercise its powers in the railway sector within this forum.

5. Setting up a European Railway Agency

This Agency, as set up by the proposed Regulation establishing a European Railway Agency, is to be a centre of technical expertise on railways at European level and, in particular, is intended to co-ordinate railway safety and interoperability.

Organisation

The proposed Regulation envisages that the Agency will be in operation by 2004, with approximately 100 members of staff and one Executive Director. The Executive Director will retain a high degree of independence and flexibility on the organisation of the internal functioning of the Agency.

An administrative board will supervise the Agency and appoint the Executive Director. This will be made up of six representatives appointed by the Commission, six representatives appointed by the Council of Ministers and three independent members, with no vote, appointed by the Commission for their recognised expertise in the sector.

Functions and Powers

The Agency is to give technical support for decision-making to the Commission and the Member States, thereby functioning as an advisory body to these institutions. It will not have autonomous decision-making powers but may adopt recommendations and opinions.

It is intended to promote exchange between the national authorities, thus helping the creation of a true network. National authorities (such as the national regulatory bodies set up pursuant to Directive 2001/14/EC) will be able to ask the Agency for an independent technical opinion, for example in the context of access right disputes.

The Agency’s main focus will be on rail safety and interoperability. It will be in charge of the technical side of drafting legal texts in these fields, examining new national safety measures and monitoring safety performance. It will also set up a website, collating and making generally available relevant documents issued throughout the EU such as all licences, safety certificates and rolling stock certificates.

As regards interoperability, the Agency will be in charge of preparing the TSIs. It will steer and coordinate the work of groups of experts from organisations representing the industry. With the help of these experts, it will draft technical standards which are then approved by a committee of representatives of the Member States, following which they are submitted to the Commission for approval.

In addition, the Agency will be the technical evaluator of infrastructure projects receiving Community support, act as the monitor in relation to interoperability progress and aid in the development of a European certification system for maintenance workshops and train drivers’ diplomas.

These proposals come at a time of change in the railway structure in the UK. This presents an opportunity to make the UK arrangements mesh well with the European structures.

The place of operation of the Agency is still to be determined. There is no doubt, however, that it will become well known to members of the industry in due course in the light of the Agency’s far reaching influence in matters of safety and technical issues.

FUTURE ACTION

The European Commission views the measures we describe as an indispensable first step to revitalising the railways, but as not enough on their own. The Commission therefore intends to pursue further measures to improve rail freight services as well as passenger services in due course. The Competition Directorate-General will also be active to stimulate competitiveness in the industry. This means that all industry operators need to stay on their toes in a decade of change in the industry. They will need to look increasingly to European authorities alongside national bodies.

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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