Tom Winsor, now a Partner in London-based solicitors White & Case, corrected serious defects in the original commercial, financial and regulatory structure of Britain's privatised network when he was Rail Regulator and International Rail Regulator from 1999 to 2004
THIS ARTICLE is speculative. It deals with something which may happen in five or ten years, and for which people need to prepare. It is a single network code for the whole of Europe, beginning with one for the cross-border and high speed routes and then, after a few years, extending to the rest of Europe's railways. Europe's railways, governments and regulators should engage with the idea and participate in its development. Those who close their eyes will probably regret it when it is too late.
We all know that the market share of Europe's railways is lower than it should be, and that railways face strong competition from road and low-cost airlines. In the 25 EU nations, road has 72% of the freight market whilst rail has only 16%. In the passenger market, high speed services account for less than 1% of passenger-km on all modes.
If the politically-desired shift of traffic to rail is to make a significant impact, Europe's railways must be revitalised. To achieve this, we must create the conditions necessary for a major improvement in infrastructure capacity and the provision of rolling stock.
It is widely accepted that we need a continental railway system which is interoperable between the national networks. So far, action has been mainly directed at harmonisation of safety and technical standards, and requiring national authorities to adopt common commercial conditions for railways within their own borders. More is likely to come this way.
The internal market - and the objectives of free movement of goods and people, cohesion, growth and employment - need an efficient and economical transport system. That means modern infrastructure and good quality, reliable rolling stock, and it means that the continental network works reliably and economically to meet the needs of the customer.
The trans-European transport networks (TEN-T) are at the heart of the economic integration of Europe. Without them, the full potential of the internal market simply cannot be realised. And so the European Union has laid out very clearly its policy of the creation of an integrated European railway area - a single railway for Europe where national frontiers are all but dissolved, and services can operate smoothly across the whole Union. It is an ambitious goal. It is also an essential one.
Many of Europe's transport systems are under strain. Economic growth creates pressures, and if the means of transport are not up to the job there will be trouble: slower development, higher overall costs and, of course, public criticism. Some railway systems in Europe - particularly rolling stock fleets but also infrastructure east of the former Iron Curtain - are substantially life-expired.
The trans-European network needs investment of €600bn by 2020. To begin with, the Parliament and the Council have adopted 30 priority projects for completion by 2020, and 80% of these are railway projects. On their own, they account for €225bn, of which €140bn is needed in the period 2007-13.
For those eight years, the European Commission has proposed its own budget of €20bn for the trans-European networks. Most of the money will be spent on refurbishment - rolling stock, signalling systems, track, stations and maintenance facilities - rather than enhancement, although there will be capacity expansions and with them new rolling stock orders. There is a lot of refurbishment to be done, especially in central and eastern Europe.
Opening up the rail market
To this end, the legislative power of Europe's institutions has been harnessed to open up the rail market internally, to establish a common framework for rail safety and interoperability and to develop the trans-European rail network, especially the cross-border sections on major routes.
The separation of infrastructure and operations for accounting purposes in 1991 was followed in 2003 by the first rail infrastructure package of Directives presaging full legal separation. New regulatory bodies had to be established, and they are required to liaise and co-operate. There are now mandatory rules for capacity allocation and charging, and each infrastructure manager must produce a Network Statement describing its network and containing the information which a prospective user will need to run its services: conditions on access and charging, capacity allocation principles and rules. Harmonisation of rules in relation to licensing of operators has also been introduced.
The second railway package of Directives, dating from 2004, is designed to intensify the work to establish the single European railway, with further measures concerning liberalisation of the rail freight market - opening it to full competition from 2007, a safety directive which modernises and harmonises safety structures and methods, and an intensification of the principles of interoperability extending them first to trans-European, and eventually to all 'conventional' lines.
The European Railway Agency (ERA) has been set up in Lille and Valenciennes with a remit presently confined to co-ordination of European rail safety and interoperability issues. The European Commission has designated six European co-ordinators for large rail projects, including one for the deployment of the European Rail Traffic Management System (ERTMS).
The third railway package would take the process even further, including by January 1 2010 full network access to all international passenger services. And the relaxation - or rather extension - of Community co-financing rules is designed also to ensure these objectives are met; new financial instruments are being developed to meet this colossal challenge.
The actions of the European institutions are being supplemented by RailNetEurope, the partnership of 23 national rail infrastructure managers. RNE is establishing itself as a gateway to European rail infrastructure with the objective of increasing rail traffic, ensuring fast and easy access to networks, enhancing the quality of rail services and improving efficiency in traffic management. In doing so, RNE and its members want to act as a single virtual European rail infrastructure company for international traffic.
RNE's core business is planning, selling and managing train paths on international corridors. It has also established the European Infrastructure Charging Information System (EICIS) which gives access to the different national pricing systems, and uses Pathfinder, a web-based tool for processing international timetabling. It operates a one-stop shop system, under which customers can deal with a single person who will co-ordinate the requirements of the infrastructure managers who will carry the traffic in question.
Significantly, RNE is also trying to develop a common form of framework agreement - legal and commercial terms of access to national infrastructure - with a single train operator and two or more infrastructure managers. And it is working on a European performance regime for railway operations, with a trial on an Italian - German service beginning in 2006. It has all been about integration, commonality and interoperability, and it represents real and substantial progress.
What more is needed?
The first thing to recognise is that the railways of Europe, and their national governments, have in some cases proved reluctant or slow to embrace these ideals, or to give them practical effect within their borders. Although the UK rail network - the EU's fourth largest in terms of route-km after Germany, France and Poland - has the most liberalised rail market, it too faced infraction proceedings by the Commission because it had failed to transpose the first railway package of Directives into national law.
By contrast, other countries have done what the Directives require in law but are very far from honouring their spirit and trying to give effect to their aims. The problem is usually that politics, opposition from the rail unions and money are the primary factors in holding up liberalisation and the adoption or implementation of measures which would give real life to the single European railway market. Railways will never be free of such considerations.
But national treasuries are not bottomless pits of money. Railways have long lead-times and cost a lot. They are usually worth it, but we all know that political horizons are much shorter than transport planning ones.
With public budgets severely stretched, new forms of financing are needed for railway projects. And so governments turn to the private sector for finance - not just to borrow the money, but to take project risks and establish public-private partnerships or concessions. The private sector is well-equipped to take such risks, including construction and operational risks, although market risks usually need to be shared with public authorities.
Private investment in railways is not a new concept. It was the private sector which built much of Europe's railways in the first place. And the conditions for private investment in railways have not changed very much. It needs stability, clarity of responsibility and risk allocation, predictability and fair and effective regulatory rules. Certainty and reliability of financial criteria and decision-making are necessary, as are an integrated approach to planning and evaluation of cross-border rail links.
In large-scale cross-border rail projects, co-ordination and realistic risk-sharing between the public and private sectors are very important factors in project success. We observe in the long-running travails of Eurotunnel the consequences of a failure to achieve this balance; the private sector cannot do it all.
The work of RNE and others is welcome, but they are still a long way from achieving a single set of legal and commercial rules - including capacity allocation and charging principles - which enable train operators to move around Europe with maximum freedom consistent with protection of the interests of other users and the infrastructure managers concerned.
If a single European railway is to be a reality, it is very likely that the institutions of Europe will soon come to press hard for maximum harmonisation of contract conditions between railway undertakings and infrastructure managers - recognising that the inertia or resistance of national governments and railway enterprises means that it will never be achieved without the lead being taken at a European level. This, after all, is what motivated the establishment of the ERA.
Any kind of network - whether energy, telecommunications or land transport - which involves transportation potentially from any part of the network to any other part, however distant, cannot operate economically and efficiently if it is in reality a collection of different networks stitched together like a patchwork quilt with awkward and lumpy seams. Harmonisation and integration are essential.
The British network code
In Great Britain, there is a predominantly single national railway network and multiple users, passenger and freight. Those users have individual access contracts which specify the extent to which they are entitled to use of the capacity of the network and what they pay.
But each contract is made subject to a superior, overarching network code. The network code contains the conditions which must be the same if the network is going to operate on a single, integrated basis. It is an essential part of the interface between the network operator and network users, an interface whose competent design and proper operation is probably the most critical - and difficult - in any vertically separated railway. If that design is got wrong, very serious problems occur, as was found to great cost in Great Britain.
The network code deals with the establishment of the annual timetable, and contains rules for the change of access rights over time to ensure flexibility and efficiency in capacity consumption. It sets the framework for the handling of operational disruption, giving the infrastructure manager virtually complete control in sorting out problems which disturb smooth running of the railway. It establishes local accountabilities, so that individual train operators have enforceable rights to particular levels of network performance in their areas, with adequate sanctions if they are not met.
Perhaps the code's most controversial aspects are in the network and vehicle change regimes. These parts govern how the infrastructure manager may make changes to its network - deterioration as well as enhancements - and contain important protections for all parties against unjustifiable changes. The same kind of regime applies to making changes to rolling stock or bringing new types of vehicle onto the network, ensuring that they are compatible with the national standards. This will become increasingly important with the introduction of ERTMS and other supranational standards.
Information about the condition, capacity and capability of the network is essential, not only for the infrastructure manager but also for its users. The lack of that information in the hands of Railtrack - the original private sector infrastructure manager which collapsed in 2001 - led to the disintegration of the integrity of the network after the fatal crash at Hatfield in October 2000.
Railtrack simply did not know where else on its network rolling contact fatigue might cause another derailment, so in many respects it tore up the national timetable for over six months, with disastrous consequences. And if GNER, the train operator whose train crashed, had known the condition of the track, the crash would almost certainly have been avoided by imposing a speed restriction when the condition of the rail became known many months earlier.
The British network code will now give train operators and others an enforceable right to that information. Information of that kind is also essential if new projects, major renewal schemes or new rolling stock orders are to be procured on economic and affordable terms.
The British network code did not start life like this. In 1994, when it was first put in place, it was a skeletal document with many shortcomings. The railway industry neglected it for years, and it was left to the Rail Regulator to reform both the code and the underlying access contracts substantially, making them fit for their purpose.
That was done in 2000-04, and the process of improvement is continuing. Many important lessons were learned, and they have equal value in the design of the legal, economic and commercial track-train interface for the railways of Europe, and indeed elsewhere.
If Europe's railways are to fulfil their potential, it is very likely that the next step in European rail reform will embrace the idea of a single network code for Europe, drawing from the strengths of the national systems and network codes of other countries. It would be the natural and logical extension of the policy of the first three railway packages.
Given the highly divergent - in some cases quite perverse - ways in which the charging principles of Directive 2001/14 are being applied in some European railways, and the weaknesses of some of the new regulatory bodies and their lack of adequate resources, it is quite possible that a pan-European network code may include more specific rules on charging which respect the mandatory requirements of the Directive, but at the same time establish a greater degree of uniformity and specification, introducing performance regimes with effective and substantial economic incentives. This could also have the effect of compelling national governments to face up to rather than fudge railway funding issues, and confront the fact that sustainable networks require stable and durable financial settlements.
A European regulator
And the institutions could go even further, establishing an overarching single European economic regulator for the railways, subsuming the present national regulators and making them the national branches of a single European authority. Who would be that authority? The hot money would be on the European Railway Agency with a greatly expanded remit.
This will not all happen at once. It may never happen at all. But if it does - and I believe it will - it is likely that a Europe-wide network code will start life in general terms, with high-level rules operating below the Directives, but above and in much more specific terms than national codes, contractual terms and network statements. It would be introduced on a phased basis, applying to the major international routes first. Over time, its reach would extend to the whole European rail network.
We know that Europe's institutions are rightly determined to create a single European railway area. They have been pushing and pulling the national railways and governments of Europe to embrace liberalisation, and they haven't stopped. In European terms, liberalisation is not just about opening markets and dissolving operational, legal and economic barriers. It is about liberation too.
- CAPTION: 'It is likely that a Europe-wide network code will start life in general terms with high-level rules'
- CAPTION: 'Further measures concerning liberalisation of the rail freight market will include opening it to full competition from 2007'
- CAPTION: 'Some infrastructure east of the former Iron Curtain is substantially life-expired'
- CAPTION: High speed services account for less than 1% of passenger-km for all modes. If the politically-desired shift of traffic to rail is to make a significant impact, Europe's railways must be revitalised.