Kallas rolls back EU bid to break up state rail monopolies


In a compromise aimed at countries like France and Germany, the European Commission on Wednesday (30 January) unveiled its latest plan to integrate rail services, allowing traditional state companies to maintain their hold on railway infrastructure as well as passenger and cargo services.




The Commission took a step back from earlier plans to break up railway operations by 2019 – known as unbundling – by allowing EU countries some flexibility in the route they take to creating more competitive markets and getting more people and goods on the rails.

The proposals would allow countries like Germany and France, where traditional state rail systems are dominant, to maintain their holding companies that oversee infrastructure, cargo and passenger services so long as they separate their financial and managerial operations. Britain, Sweden and several other countries prefer a system where the infrastructure is managed separately from trains themselves.

Germany’s powerful Deutsche Bahn (DB) holding company operates infrastructure, passenger and freight services and is competing aggressively for high-speed services across Europe. DB had lobbied against a complete separation of operations.

Kallas: Reform is 'radical'

Commission Vice President Siim Kallas, who is in charge of transport, called the EU’s Fourth Railway Package “quite radical” but also said the Commission found “satisfactory balances” between those seeking more aggressive opening of the market and those favouring more traditional “vertical” systems like DB’s.

“If you propose [legislation] in Europe which has intentions to change something, you will have enormous pressure from all sides,” Kallas told a news conference on Wednesday.

Referring to pressure to protect DB’s integrated holding company model, he said: “Germany is a very big country in transport issues, Germany always has its views, but in general we’ve all finally cooperated. There are some different views concerning the holding structures, but on all the other issues we have very good cooperation.”

The package expands on past initiatives by calling for a complete opening of domestic passenger rail services to competition by 2019 and strengthening the role of the European Railway Agency (ERA) to allow to issue safety certificates for trains operating anywhere in the EU.

It also seeks to create a network of infrastructure managers – those who build and maintain the railway corridors – to improve transnational operations, one of the obstacles to expanding and modernising continental routes.

Long ride to a single market

The latest railway proposal comes 12 years after the first package of legislation aimed at injecting competition into Europe’s market and creating a seamless travel and cargo links across the 25 EU countries with railways – Malta and Cyprus do not.

>> Read: Europe's rails: A bumpy ride to a single market

But like similar setbacks in air and road transport, many countries have continued to protect traditional railway companies from competition and technical problems – such as a jigsaw of signalling systems – have stymied progress.

Rail is seen as the most expedient way to reduce vehicle pollution and ease highway and aviation congestion. But it has kept a relatively low market share of about 6% for passengers and 10% for cargo services.

More than 212,000 kilometres of rail lines crisscross the EU, compared with 5 million kilometres of highways and 42,700 kilometres of navigable inland waterways.

In the lead-up to the new proposals, there was growing discord over whether the Commission should break-up integrated holding companies like Germany’s, or shift to a model similar to Britain’s, where infrastructure and rail operators are ‘unbundeled’ or owned separately.

Lobbying offensive

Germany had pressured the Commission to follow its model that is also used by Austria, the Czech Republic and France. Germany’s position was backed up on 6 September by a European Court of Justice preliminary ruling that upheld the German model over Commission objections that it violated legal provisions for independent infrastructure management.

Britain moved swiftly in the 1990s to separate infrastructure operations from rail services, while breaking up the old British Rail system to allow private competition. The Netherlands, Poland, Spain and several other countries have followed similar paths, severing infrastructure from operations with varying levels of public or independent oversight.

Mofair, a German group representing private rail companies, had urged the Commission to stick to its plans for unbundling.

“If the Commission should deviate from the proposals it originally made in the fourth railway package, the European single market in the rail sector will become a thing of the past before it even gets out of the starting blocks,” Wolfgang Meyer, the group’s chairman, wrote in a letter to the Commission.

“In view of Deutsche Bahn's superiority, we believe that other Member States would be faced with the following alternatives: reintegrating their railways and sealing off the market to other railways; supporting railways with state funds, thus launching a subsidy race; or handing over their rail companies to Deutsche Bahn,” he said.

François Coart, who heads the European Rail Freight Association, also urged the Commission not to reverse its push to separate rail and infrastructure operations as a way to encourage competition across the EU. In a letter to Commission President José Manuel Barroso, ahead of the announcement, he urged the EU executive to stick to its earlier proposals for “the financial, economic and legal independence of the infrastructure manager.

“No regulation or regulatory body can ensure a more adequate market opening than the separated model. And European rail liberalisation is more than necessary to the European economic growth,” the letter said.

But the Commission’s proposals do not preclude holding companies like DB or France’s SNCF to continue, so long as they separate their management and finances. It would also allow other countries to bar such companies from entering their domestic markets after 2019 if they do not meet the Commission’s competitiveness guidelines.

The Fourth Railway Package – which must so go through the legislative process – is the latest such set of proposals. The earlier rail packages were:

  • 2001: First railway package, which set the groundwork for liberalisation of cargo traffic as well as interoperability
  • 2004: Second railway package, which set 2007 as the deadline for competitive rail freight and developed a common approach to railway safety
  • 2007: Third railway package, which called for liberalisation of international passenger service in 2010 and provided a bill of rights for passengers.
  • 2012: Parliament approves the recast of the first package, which consolidates the 2001, 2004 and 2007 legislation and provides for strengthening regulatory oversight and performance of infrastructure operators.

Libor Lochman, executive director of the Community of European Railway and Infrastructure Companies, said: “The so-called technical pillar of the Fourth Railway Package, in conjunction with generalised open access rights, will mark an important step forward for the Single European Railway Area. CER looks forward to constructive exchanges with policy-makers in order to ensure progress on these vital issues. On the other hand, CER urges policy-makers to defend the principle of subsidiarity with respect to Public Service Obligations and governance matters.”

The European Rail Infrastructure Managers, or EIM, welcomed the railway proposal. In a statement, the group said it was "pleased that the European Commission picked up recommendations of EIM for strengthening the infrastructure manager by giving it all functions it needs to control both its income and expenses, in the interest of all its stakeholders."

In the European Parliament, reactions were broadly favourable.

Mathieu Grosch MEP (Belgium), a coordinator in the Parliament's transport committee for the centre-right European People's Party (EPP), welcomed the railway package: "For us, making the railway sector more efficient is key. The EPP Group is committed to establishing a well-functioning Single European Railway Area where competition can develop across borders without being hampered by restrictive national rules.

"To achieve a well-functioning European rail sector Member States must commit to investing in rail infrastructure, in line with the commitments made in the negotiations on the Trans-European Networks and Connecting Europe Facilities," Grosch said.

"While there is likely to be controversy over some of the concrete proposals, for us, ultimately, the goal is to create sustainable jobs in the railway sector and improve public service. This should be achieved  via enhanced efficiency, new investments in rail and through a more efficient service to passengers travelling by train or to companies transporting freight by rail. Current obstacles to transporting goods and passengers across Europe by rail will be removed when the new railway legislative package presented by the European Commission comes into force."

The Socialists and Democrats (S&D) welcomed the objective of creating a true European railway network. However they warned that the public service obligation must not be undermined in any way, to guarantee the best possible service for all citizens and the highest safety standards.

S&D MEP Brian Simpson (UK), chair of the transport committee in the European Parliament, said: "We want the operators to be able to run trains across the continent without technical or administrative barriers. Right now the Thalys running from Paris to Amsterdam requires three different certificates."

"All these barriers undermine the internal market and should be removed, but in order to do it, we need an increased role for the European Railway Agency."

Michael Cramer MEP (Germany), transport spokesperson of the Greens in the European Parliament, said: "We support the objective of financial separation because it is essential for preventing companies from using public funds as they please. We encourage the Commission to make use of the possibility to prevent companies that do not respect these requirements from entering foreign passenger markets in the future."

The European Conservatives and Reformists group (ECR) welcomed the Commission's proposal but said it didn't go far enough in removing technical and administrative barriers to a single railway market.

"Special market conditions and technical particularities of those parts of the European rail network with different gauge sizes, such as the Baltic States and Finland, have not been properly taken into account in the new proposals, both in regard to technical interoperability requirements and competition rules," said Roberts Z?le MEP (Latvia), coordinator in the transport committee for the ECR group.

"The rail freight market is dominated by traffic to and from third countries – mainly Russia – and therefore the EU regulation should help EU companies to maintain a strong position in those rail markets, where they face specific competition, discriminatory rail tariffs and a lack of reciprocal market access with neighbouring third countries," Z?le said.

Attempts to create an interoperable European system date to the Treaty of Rome, when a European transport policy was considered, and an earlier European Conference of Transport Ministers called for better continental interoperability.

The European Commission’s recast of the first railway package in 2001 was adopted in 2012. It was designed to address the historic challenges to creating a consolidated railway market, which in the eyes of the EU executive include too little competition, poor regulatory oversight and inadequate public and private investment.

The 2012 recast consolidates the 20012004 and 2007 legislation and provides for strengthening regulatory oversight and performance of infrastructure operators. It also seeks to improve transparency in rail contracts and operations.

The EU has also proposed price incentives to modernise services, expand the network and encourage the development of quieter and safer trains.

  • 2019: Deadline for EU governments to open their domestic markets to competition

European Commission

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