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August 01, 2011

Will new regulator group aid Europe

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THE formation of the Independent Regulators Group - Rail (IRG-Rail) by 15 national railway regulators should bring some comfort to the line-up of private rail operators preparing to launch open-access passenger services in Europe, often in the face of stiff opposition from incumbents, not to mention embattled open-access railfreight operators.
European Union directives require member states to have independent railway regulators which can rule on disputes over access to the rail network to ensure fair competition for both freight and passenger operators.

Member states are also required to have legislation in place to allow the operation of open-access freight services both domestically and internationally, and more recently the operation of international open-access passenger services. Some countries have already taken this a step further, such as Austria, Britain, Germany and Italy, to allow competition between domestic passenger operators.
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While some member states, such as Britain, have well-established independent railway regulators, others like France and Italy have only recently set them up. Even so, recent judgements by the Italian regulator suggest it is still in the pocket of Italian State Railways (FS).

There is a paradox in Europe. The incumbent national railways are actively developing freight and passenger services in neighbouring countries, but they fight tooth and nail to prevent anyone, whether it is a national or private operator, from running trains in their home market. Few of them can see the much bigger picture that rail transport needs to increase its market share, and a good way to achieve that is through direct competition.

Last month, Mr Brian Kogan, deputy director, railway markets & economics with Britain's Office of Rail Regulation (ORR), told the inquiry into the European rail market being conducted by the British House of Lords, that one of the first initiatives by IRG-Rail is to set up a working group to study how to regulate international corridors. "That is not the only problem; it is just one of the more pressing ones," Kogan said.

"We observe the effect of competition where it exists on the national network, and we know that passengers and freight customers enjoy having the ability to choose between their suppliers of transport. It is almost a statement of the obvious, that if we make it easier for competing services to run internationally, that will favour both the passengers and the freight customers."

Across Europe, open-access freight operators frequently encounter obstacles in trying to operate in competition with the national incumbents, such as being denied access to terminals, and scarcity of paths. Similar obstructions are being put in the path of the new private passenger operators, with the situation in Italy being particularly difficult for Arenaways, which is being prevented from stopping at intermediate stations between Milan and Turin, thereby threatening the viability of the service.

It is interesting to note that virtually all of the new operators - HKX in Germany, Student Agency in the Czech Republic, Westbahn in Austria, and NTV and Arenaways in Italy - plan to launch domestic rather than international open-access passenger services, even though the EU's initial intention was to open up the market for international services. Only DB has announced plans to start an international open-access service, running from Frankfurt and Amsterdam to London in 2013. Even here DB has encountered very strong opposition from the French government on spurious technical grounds.

The objectives set out by IRG-Rail go right to the heart of the problem and include promoting the interests of rail users, encouraging competition and a consistent approach throughout Europe, and speaking with a common voice at the European level. "As the rail market in Europe grows, now is the time to strengthen cooperation between national rail regulatory bodies," the group says.

The hope is that the strong regulators among the now 16 members of IRG-Rail will bolster the confidence of the weaker ones to enable them to act more independently at home. There is certainly a long road ahead to achieve consistent, fair, and effective regulation across Europe to prevent the big boys riding roughshod over smaller operators.

Railways always claim that they are in competition with other modes, which is true, but it is not the same as direct competition from another rail operator, which forces incumbents to sharpen up their act. Competition usually benefits both the incumbent and the newcomer, provided it is fair and on equal terms.

There is never going to be a flood of new operators as the entry costs are far too high and the process to gain access takes too long. Railway infrastructure is extremely expensive to provide and maintain, so it needs to be used intensively. We cannot afford to have underused assets such as the Channel Tunnel and HS1 in Britain, which has around 50% spare capacity.

If the EU is serious about increasing rail use and encouraging competition then it needs to do more to bring member states into line over these issues. In the meantime, the creation of IRG-Rail is a step in the right direction.

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