The ongoing liberalisation of Europe's railway sector is mandated by a series of directives and regulations from the European Union. Chris Jackson looks at the legislative programme and current proposals that will drive further change

THIS MONTH sees the splitting of Belgian National Railways into two separate businesses - infrastructure manager Infrabel and train operator SNCB Transport. Legally, both will remain under state control as wholly-owned subsidiaries of SNCB Holding, but the move marks a significant breach in the bastion of the remaining 'monolithic' national railways across the European Union.

Over the past decade an unprecedented wind of change has swept through Europe, heralding the biggest restructuring for more than 50 years. The majority of national railways in western Europe have now been broken up into smaller units, essentially at the behest of the European Union. The pattern has been copied in Norway, and is now being replicated across central and eastern Europe, starting with the new member states that joined the EU last May.

As a bare minimum, each country should now have an infrastructure management body and a train operator, even if they are legally still part of a state-owned holding company, as in Austria, Belgium Germany or Poland. In a growing number of countries there has been a further split between passenger and freight operators. Although few countries have attempted the total disaggregation imposed in the UK during the mid-1990s, there are several cases where the provision of traction and rolling stock, operation of stations and maintenance have been further subdivided or privatised.

Opening up of the market for train operations has seen an increasing number of small regional or independent railways venturing out onto the main-line tracks, and the creation of new open access freight companies, either stand-alone or linked to major industrial shippers. On the passenger side, large international concession holders such as Keolis, Connex and now Arriva have started to win regional and suburban operating concessions. This has made Europe's rail industry much more complex.

On the positive side, in the new structure each player is able to become more specialised, whereas a national railway had to be a jack-of-all trades. However, there seems little evidence that the changes have reduced operating costs or state subsidies, or helped the railways to win back market share from other modes.

Driven by Brussels

The biggest influence on Europe's railways stems from the introduction of the European Single Market, and the breaking down of national borders. EU transport policy is essentially focused on improving international trade, which had been a weak point for railway operators traditionally focused on their national markets. Only in hub countries such as Switzerland and Austria, the Czech Republic or Hungary did transit traffic form a significant proportion of the railway's total business.

Since 1996, the European Commission has produced three packages of railway legislation. The underlying philosophy is that market forces will drive up rail's competitiveness by encouraging operators to cut costs, improve the quality of their service and offer new products.

A truism says there are only two market forces - fear and greed. Greed means a private company will invest in an activity only as long as it makes a profit. Fear says it does something because it is forced to - or because someone else may undermine its ability to do business profitably. However, these are very blunt instruments when it comes to managing a geographically intricate and technically complex industry.

The foundations for change were laid in the White Paper A Strategy for Revitalising the Community's Railways, published by the European Commission in 1996. This advocated a greater role for market forces, which the EC believed would encourage operators to cut their costs, improve the quality of service and offer new products. It also advocated a clear separation of responsibilities between the state and the railways, and recognised that the railway companies had to have a financial structure 'allowing them to be soundly and independently managed'.

The Commission suggested the creation of 'rail freight freeways', major routes on which the carriage of freight would be carried out under open access conditions. Paths would be shared fairly amongst operators, in accordance with Directive 95/19/EC. Commercial operation of these freeways would be handled by a 'one-stop-shop', with one infrastructure manager acting on behalf of all others involved. The hope was that voluntary co-operation between the infrastructure managers would improve access to national networks for international services, but in the first few years the freeways were not as successful as expected and little use was made of the open access rights.

First Railway Package

As a result, the First Railway Package was launched by the Commission in July 1998. This put forward three proposals aimed at improving the effectiveness of the existing legislation. After long discussions in the European Parliament and the Council of Ministers, agreement was reached in November 2000 and the Council adopted the three directives on February 26 2001. Member states were required to transpose the provisions of three Directives into their national legislation by March 15 2003 at the latest.

Directive 2001/12 modified the well-known Directive 91/440, requiring member states to adapt their national legislation to enable the extension of access rights for international freight transport services on their sections of the Trans European Rail Freight Network with effect from March 2003. The 50000 km TERFN covers designated routes handling between 70% and 80% of Europe's rail freight traffic. With effect from March 15 2008, the entire European rail network is due to be opened up for unfettered use by international freight services.

Directive 2001/12 also required different entities to be set up for transport operations and infrastructure management. 'Essential functions' such as capacity allocation, infrastructure charging and licensing had to be separated from the transport operations, to ensure that new operators have fair access to the rail market. This Directive also envisaged that the operators would set up different business units to run passenger and freight services.

Directive 2001/13 amended Directive 95/18 on the licensing of railway undertakings, defining the conditions under which companies can obtain a licence to operate rail services. Licences issued by any of the national licensing authorities are supposed to be valid throughout the EU.

However, a licensed operator also needs paths to run trains on the network. The allocation and charging of railway capacity was dealt with in Directive 2001/14, which replaced Directive 95/19. Applying to the entire network, it set the framework conditions for capacity allocation and management, as well as the principles of the tariff structure for the use of the network.

Infrastructure managers were required to publish a network statement, containing detailed information on the technical nature and limitations of their networks, the access conditions and their rules on capacity allocation. Each statement should also describe the tariff structure and the priority rules to be applied in case of conflicting demands. Capacity analyses were to be undertaken to identify any bottlenecks, and the Directive required infrastructure managers to put in place concrete plans to improve the quality and capacity of their networks.

However, progress has been mixed. In October 2003 the Commission announced that it was bringing legal action against nine member states which had failed to complete the legal transposition of European legislation into national legislation by March 15 2003: Austria, Germany, Greece, Ireland, Luxembourg, Portugal, Spain, Sweden and the United Kingdom. Of the 15 member states at the time, only France, Belgium, Finland, the Netherlands, Italy and Denmark had transposed the measures. Ironically, four of nine 'guilty' countries - Austria, Germany, Sweden and the UK - had already opened up their rail freight market to competition, whilst France and Belgium had complied with the legislation without effectively opening up their networks at all.

Second and third packages

In September 2001, the Commission published another White Paper, entitled European Transport Policy for 2010: Time to Decide, which it said would 'refocus Europe's transport policy on the needs of its citizens'. In total 60 measures were proposed to shift the balance between transport modes by 2010, by revitalising the railways, promoting maritime and inland waterways and 'linking up' the different modes through integrated planning and development of intermodal business.

Building on this White Paper, the Commission adopted on January 23 2002 its Second Railway Package, setting out five specific proposals. These were:

  • A new Directive on the regulation of safety and investigation of railway accidents and incidents;
  • A proposal to amend Directives 96/48 and 2001/16 on the interoperability of the high speed and conventional railways respectively;
  • A Regulation establishing a European Railway Safety & Interoperability Agency;
  • The Commission to negotiate conditions for Community accession to COTIF - the convention covering international carriage by rail;
  • A proposal to amend Directive 91/440 to open up access to the infrastructure for national rail freight services, in order to open up the market completely.

On March 16 2004, after more than two years of debate, the European Parliament and the Council of Ministers finally reached a compromise on the Second Railway Package, which was subsequently approved by the European Parliament on April 22. The Regulation setting up the European Railway Agency (p34) and the three Directives were published on April 30 2004.

By this time, however, the Commission had already brought forward its proposals for a Third Railway Package, which were announced on March 3 2004 (RG 4.04 p181). This proposes

  • a Directive on the certification of locomotive and train crews engaged in the carriage of passengers and freight;
  • a Regulation on international rail passengers' rights;
  • a Directive opening up the market for international rail passenger transport services by January 1 2010;
  • a Regulation on compensation schemes for rail freight services.

The European Parliament's Committee on Transport & Tourism considered the third package in November 2004 and proposals for a number of modifications. These amendments - and any others lodged by December 10 - are to be debated in January, and the committee expects to vote on the proposals at the beginning of February.

The committee's rapporteur Georg Jarzembowski wants to bring forward the target date for opening up international passenger services to January 1 2009, and extend the provision to national (domestic) passenger services with effect from January 1 2011. Several members backed this proposal, whilst others preferred longer transitional periods, or no liberalisation at all, setting the scene for a heated debate this month.

Rapporteur Gilles Savary welcomed in principle the proposals for certification of train crews, but put forward 25 amendments which aim, among others, to limit the scope of the directive to freight services only and to propose an obligation on drivers to compensate their employers for the cost of any training should they decide to leave on a voluntary basis.

The Commission's proposals on the rights and obligations of passengers using international rail transport were examined by rapporteur Dirk Sterckx, who has tabled around 80 amendments. These aim to broaden the scope of the regulation to cover national passenger services, make the structure of the proposal more logical, simplifying certain sections, and 'transposing the pan-European COTIF provisions into Community Law instead of developing a parallel system'. However, some of the committee members felt that Sterckx had 'gone too far' in weakening the provisions in the Regulation on topics such as integrated ticketing and the provision of information to passengers.

Rapporteur Roberts Zîle examined the draft regulation designed to improve the quality of rail freight services. The Commission hopes to drive up quality by requiring any contracts between train operators and freight shippers to include a compensation penalty of between 5% and 25% of the transport cost for late arrivals and non-delivery.

Some commentators have argued that it is inappropriate to legislate on the content of contracts between two private companies, and that liberalisation will improve service quality over time in any case. Nevertheless Zîle agreed that a Regulation would provide 'an important incentive', subject to two important amendments. He believes there should be exemption for delays in traffic with third-party countries, and that the whole legislation should be reviewed and re-authorised if necessary after three years.

Given the controversial nature of some of the proposals, it seems unlikely that the Third Railway Package will pass through the European Parliament and Council of Ministers before the end of 2005. Assuming that the proposals are adopted in mid-2006, that will leave less than three years for the member states to transpose the regulations into national law before they have to be implemented on January 1 2009. The next decade is set to be as turbulent as the last.

  • CAPTION: Separation at last. Belgian National Railways splits into separate operating and infrastructure businesses from January 1. This should pave the way for open access operator Dillen & Le Jeune Cargo to be joined by others
  • CAPTION: Benefit of competition. The arrival of Italian open access operator Rail Traction Co has brought about an improvement in punctuality of freight services on the Brenner main line between Italy and Austria