The European Parliament’s change of heart and the future of EU railway market opening

Helene Dyrhauge |

The European Parliament’s first reading on the fourth railway package (26 February 2014) has watered down both the Commission’s proposal and the TRAN committee’s report. The adopted report opens for more differentiated governance structure, where the member states can decide to create an integrated governance structure where the infrastructure manager and rail operator belong to the same holding company, as exemplified by Deutsche Bahn, or a separated governance structure as seen in most member states including the UK, Sweden and Denmark.

Previously the Parliament has supported the Commission’s drive towards complete separation between an independent infrastructure manager and railway operator (see my book for a discussion). In 2012 rapporteur for the “recast of the first railway package” MEP Debora Serracchiani (S&D, IT) only abandoned her amendment to make unbundling mandatory when the Commission gave her and the TRAN committee reassurance that it would address the issue in the fourth railway package. Thus, the Parliament’s vote, in February 2014, to weaken the separation between infrastructure manager and operators in integrated governance structure, especially regarding flow of finances, is a blow to the Commission’s long term political objectives. Indeed Commissioner Siim Kallas has been quite direct in his criticism of the European Parliament.

The issue about the railway governance structure goes back to 1991 and Directive 91/440 which outlines the levels of separation between the infrastructure manager and railway operators. The subsequent railway packages in 2001, 2004 and 2007 have aimed to prevent flow of information and finances between infrastructure managers and railway operators, who are part of the same holding company. The flow of information and finances are problematic for competition, as the railway operator in the integrated governance structure often has a monopoly in providing railway services and has a large market share in railway operations. Thus many new railway operators have complained about difficulties in gaining access to the railway networks, especially in countries with an integrated governance structure.

Throughout the 2000s the push for further rail liberalisation gathered speed amongst several EU actors, especially the European Commission and the European Parliament, plus interests groups representing the new railway operators and infrastructure managers, in addition to several member states, such as the UK, the Netherlands and Sweden. Whereas certain sections of the industry – most notably the incumbent state railways and trade unions, together with some member states, most notably Germany, Austria and France, tried to slow down the market opening. This week’s vote shows that the table has turned and the actors opposing the Commission’s vision for how the railways should be governed have won a strategic battle. The central questions are how will the Council receive this report and to what extent do the new Parliament in the autumn share the position taken by this Parliament?  Several MEPs from the TRAN committee, including several rapporteurs for the fourth railway package are seeking re-election, so watch this space for an interesting debate and inter-organisational negotiation in the autumn!

So why has the Parliament changed its position since it adopted the recast of the first railway package in 2012? There are various factors, and they all include Deutsche Bahn (DB) and Germany as key variables. Both the European Voice and the Economist Schumpeter blog highlight the intense lobby of MEPs by DB and CER ahead of the vote. Indeed the Economist suggests that CER had written the amendments, which on the one hand demonstrates the successful lobbying by CER but on the other demonstrates the problems with industry’s lobby power and transparency in European Parliament decision-making. Moreover, there was no roll call vote for the amendments, which was adopted, so it is not possible to determine the nationalities or political parties of the MEPs who voted yes to the amendments.

DB’s integrated holding company include both infrastructure manager, DB Nets, and rail operator, DB Mobility and Logistics, which gives it a strong market position in the German railway market, where DB Nets controls the infrastructure and DB Mobility and Logistics runs most of the railway services. Moreover, DB has bought several rail operators, including Arriva, and is operating in several countries. Several member states are concerned that domestic market opening, where public service contracts are tendered, will result in DB increasing its market share, which they find problematic if DB is financing its expansion with money from its other subsidiaries, such as DB Nets, or from funds it has received from the Federal Government to operate domestic services. The Commission and the TRAN’s committee aimed to strengthen the financial separation to prevent this, but the amendments adopted by the Parliament allows for cross-subsidisation between different sections within a holding company.

Whilst many actors in the rail industry have voiced their support for EU railway market opening there has been little appetite for action, possible due to fatigue and exhaustion over liberalisation in other public utilities, where some countries have regretted the separated governance structure, or due to resistence by strong national stateowned railway companies. Overall, it is tempting to conclude that perhaps rail liberalisation is a white elephant being transported on a slow freight train!