March 01, 2013

European Court of Justice overrules EC on vertical separation

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THE European Court of Justice (ECJ) has ruled that the First Railway Package does not require member states to have an institutional separation between an infrastructure manager and the incumbent railway operator.

The ruling on February 28 follows an investigation into the practices of railways in Austria, Germany, Hungary and Spain, in light of concerns raised by the European Commission (EC), and is sure to have been met with a joyous reception at Austrian Federal Railways' (ÖBB) headquarters in Vienna and at German Rail's (DB) main offices in Berlin. Both the railways and the governments of Austria and Germany have continuously argued that the structures they have adopted for ÖBB Infrastructure and DB Networks do comply with European law.

The ECJ agreed stating that the Recast directive allows Austria and Germany to integrate both infrastructure manager and incumbent operator into a single holding company.

"It is apparent that both those companies have separate legal personalities as well as their own bodies and resources which are different from those of their respective holding companies," the ECJ said in a statement.

The ECJ also rejected the EC's argument that Germany failed to fulfil its obligations regarding the fixing of charges and the implementation of a system limiting infrastructure costs and reducing the level of access charges.

EC vice president Mr Siim Kallas expressed his disappointment at the ruling.

"While we respect the court's interpretation of the current law, the Commission remains convinced that a more effective separation between an infrastructure manager and other rail operators is essential to ensure non-discriminatory access to the rail tracks, and thus to stimulate growth in the rail sector," Kallas says, adding that the Commission's Fourth Railway Package, which was unveiled on January 30, "contains measures giving legal force to the level of separation which is necessary."

"The judgement is not in conflict with the Fourth Railway Package," he says. "It underlines the importance of moving to rapid adoption of the package to ensure the continued development of innovation in the rail sector."

Despite rejecting its views on Austria and Germany, the ECJ did support the EC's verdict that the practices adopted in Spain and Hungary contrast with EU law.

It found that the Spanish government has failed to respect the management independence of the infrastructure manager by entrusting it with the tasks of determining access charges for path allocation and use of the railway network. It also found that Spain failed to institute a performance-related charging scheme aimed at minimising disruption, and structured its path allocation system to favour the incumbent operator thus restricting access to new operators.

In Hungary the court found that charges paid to the infrastructure manager are not at a cost directly incurred as a result of operating the train service. It also pointed out that Hungary is failing to balance the accounts of infrastructure managers and adopt incentives to reduce the costs and charges to operate and use railway infrastructure, while it criticised the allocation of traffic management to two separate railway undertakings, Hungarian State Railways (MAV) and GySEV.

"The court clearly established that track access charges must be set independently by the infrastructure manager and not by the state, and also that the infrastructure manager may only charge direct costs for use of the tracks," Kallas says.

The Community of European Railways and Infrastructure Managers (CER) welcomed the verdicts, stating that it confirms what it has been saying for a long time about the separation requirements and the recast of the First Railway Package.

"This is also an important signal in relation to the Fourth Railway package," says Mr Libor Lochman, CER executive director. "We are in the firm view that member states should retain the responsibility for reforming their rail systems on the basis of factual economic evidence."

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