The last few months has seen some massive lobbying both for and against the Fourth Railway Package, planned by the European Commission to introduce once and for all a Europe-wide liberalised rail market, fully interoperable and with full and fair competition above track for both passenger and freight services, and with infrastructure managers required to co-operate not only with the adjacent ones but more formally with all their customers. Growth, better service quality and lower prices – and costs – were forecast to result, with of course the added benefit of CO2 reduction.

The final version issued on 30 January 2013 illustrates the extent to which the original and excellent draft was neutered in the space of less than a month by the intervention of German Chancellor Angela Merkel into a German Railway Package for Europe. Merkel’s intervention, following the massive lobbying by Deutsche Bahn, forced the Commission to change its plans.

This new package now allows the holding company model of the railway in Germany to be maintained, and permits the hidden transfer of funds from the infrastructure manager via the holding company to the commercial activities of train operators, placing them in a competitive advantage over their competitors who do not benefit from such aid.

It allows for subsidised DB companies to buy operators in other member states, unfairly competing with other companies; by a failure to provide full separation between infrastructure managers and railway undertakings, it will allow confidential IT and other information, as well as funding, to flow undetected between these companies, again to the detriment of fair competition.

Thus, many of the smaller operators, the independent infrastructure managers and the smaller member states generally supported the original package but the big monopolistic beasts led by SNCF and DB vehemently opposed the requirement to separate infrastructure managers from their own train operators.

Mixed messages from France

France, infamous for years for seeking to prevent any other operator from using its tracks, stations and terminals, sought to undo even the existing bad structure which allows liberalisation in name but prevents it in practice. It is not surprising that SNCF was fined €60 million earlier this month for abuse of dominant position and other anti-competitive actions. In its proposed restructuring, whereas it is good that the infrastructure manager gets full control of all its activities, it is also to become closer in management terms to the incumbent operator SNCF, likely to create a new overall rail company SNCF SA. This is a step backwards in liberalisation which the EC must investigate. It is perhaps a coincidence that only last autumn the Advocate General of the European Court of Justice published his opinion on the current structure in France — that it does not even comply with the First Railway Package.

French Commissioner Michel Barnier suddenly changed his support for the original draft by writing to President Barroso in January threatening social unrest. ‘One should not underestimate social and political unrest that may stem from the perception that the EU is aiming at dismantling bodies of professionals which are cemented by a strong corporate culture and a long history without it being absolutely indispensable for a well-functioning competitive market.’

While of course supporting the Commission (but not now!), he continued, ‘Like you, I am firmly committed to the idea that the liberalisation of the market can only work effectively if independence of IM is strictly ensured.’ Except that France is proposing the exact opposite now!

Deutsche Bahn keeping ahead The European Commission sent a Letter of Formal Notice to Germany in December under its infraction proceedings, accusing the latter of disobeying EU rules that require integrated companies to keep accounting separation and prohibit the transfer of funds related to infrastructure management or the provision of public service transport services to any other businesses.

There is no transparency between the IM (DB Netz AG) and the train operators owned by Deutsche Bahn (DB) due to a peculiar Profit Transfer Agreement that foresees the transfer of all profits made by the subsidiaries to the holding regardless of the origin of the ‘profits’ (e.g. public funds granted by the State to fund infrastructure development), or its intended use (to cross-finance commercial activities of the holding, to make acquisitions abroad etc). Other competition issues are also being considered, and the Commission believes that this leads to the absurd result of independent operators financing their own competitors belonging to the holding company; these are the hidden subsidies that keep DB ahead of any competition.

This Commission also states that ‘cross subsidisation would also enable integrated companies to use the funds aimed for reserved areas to finance the acquisition of other transport companies (or, at least, to facilitate their acquisition): a good illustration of this would be the acquisitions made by DB in recent years that no competitor was in a position to match: in the Netherlands, Denmark, the British Arriva, Laing Rail (passengers), and English, Welsh & Scottish Railway (freight) and, more recently, the state owned rail freight companies in Belgium and Portugal as well as Transfesa in Spain.

The Commission pointed to other issues including the amounts received by DB Netz or granted from it including free interest rates loans, capital increases funded by the State or the fact that during the first years of liberalisation DB subsidiaries were the main users of the network and benefited from advantageous tariffs.

Private sector investment needed There is much more to this directive of course; plans to give increased interoperability and give more responsibility to the European Rail Agency for ensuring technical harmonisation across Europe and, in return, reduce the need for receiving approvals from individual member states. This has, in the past, enabled the French authorities to block approvals for rolling stock not manufactured in France – as Eurostar found when it had the temerity to purchase new trains to be made by Siemens.

There is a section on liberalisation of passenger services which will be strongly opposed by those who want to preserve the status quo even when it has been demonstrated in several member states that tendering out packages of services can provide better quality at considerably lower costs.

So what will happen now? The Council and European Parliament are preparing to scrutinize the new Directive which may or may not make sufficient progress to be ‘carried over’ to the new Commission and Parliament after the elections of 2014. The Fourth Railway Package is an essential prerequisite to successfully completing the liberalisation of the rail sector and to attracting private sector investment which the sector needs so badly.

Our experience in the UK is that this will not come unless the private sector sees long-term confidence; this needs an effective internal market with a level playing field in rail between all market actors. If this happens, one can expect good growth in quality, price and efficiencies as well as of course much reduced carbon outputs. So all those who want to see growth, better service quality and more competitive prices must continue to press the Council and the European Parliament to amend the draft to ensure that these objectives are achieved.

Tony Berkeley is chairman of the UK Rail Freight Group