IT IS NOW more than a decade since the European Commission (EC) voted
to adopt the First Railway Package (FRP), a move that aimed to clear
the way for liberalisation and ensure non-discriminatory access to the
network for anyone with a safety case and the right paperwork. While
this was a straightforward idea, implementing it was anything but, and
the success or failure of the FRP relied on national governments to
fully support its objectives.

Naturally, different member states viewed liberalisation in different ways, and over the last 10 years they have contorted the FRP through their respective legal systems into an array of national variations that are often incompatible, and in many cases fail to ensure new entrants compete on equal terms with incumbents.

The FRP is built around the notion that a regulatory body, independent of government and rail operators, properly resourced, and armed with all the relevant statutory powers, is allowed to ensure fair competition on the network. The authority and level of independence granted to these bodies varies massively between European countries.

The regulatory models adapted by member states can be broadly categorised as stand-alone or integrated, and independent or tied to a ministry. Given that regulatory independence is considered to be of such prime importance to liberalisation, it is remarkable that 12 member states' regulators are still part of a government ministry.

Last month the European Parliament Committee on Transport and Tourism (Tran) voted in favour of the EC's proposal to recast the FRP, which includes new provisions to strengthen regulators' powers and ensure their activities are fully segregated from those of governments and the rail industry. The proposal, entitled establishing a single European railway area, was passed by 36 votes to six with one abstention.

The Member of the European Parliament (MEP) responsible for drafting the recast, Mrs Debora Serracchiani, argues that establishing fully-independent regulators at a national level should be a first step towards a European regulatory framework.

Measures in the recast empowering national regulators are intended to pave the way for the creation of a European regulator with a remit to mediate international services. MEPs have asked the EC to present a legislative proposal on this two years after the publication of the new directive.

In a statement issued last month in response to the Tran vote, the Community of European Railways and Infrastructure Companies (CER) said: "It is vital that regulatory bodies are truly independent from all other interests (including national government), adequately staffed and financed, and powerful enough to intervene and arbitrate where necessary, so that competition works. On balance, the parliament's latest proposed compromises make some useful contributions in this direction."

Serracchiani's initial draft of the recast, which included complete separation of operators and infrastructure managers (IMs) as "the only way to achieve a single market" was not backed by a majority of MEPs, although the committee still wants to see separate and transparent profit and loss accounts.

This separation of functions, or unbundling, has some powerful opponents, particularly among member states such as Austria, Belgium, Germany and Italy which have adopted a holding company model. In the run-up to the vote last month, German Rail (DB) issued a statement arguing that its integrated structure offers significant economies of scale and is therefore a prerequisite to the positive development of rail transport in Germany.

Germany's IM remains part of DB, and neither the federal government nor DB have any appetite to change this. In a joint declaration on the unity of the network issued on October 6, federal transport minister Dr Peter Ramsauer and DB CEO Dr Rüdiger Grube proclaimed: "The integrated structure will not prevent the development of competition. This is confirmed by the growing market share of DB's competitors. Future European law must therefore be designed as an open model. Efficient rail organisational models such as that adopted in Germany must remain permissible in future."

Few would question that Germany stands out as one of the more successful examples of liberalisation. But in some member states, established relationships between IMs and incumbent operators remain in defiance of the FRP. When the EC initiated infringement proceedings against all member states except the Netherlands in June 2008 for failing to fully transpose the FRP into national law, the most common violation was the failure to ensure sufficient independence of the IM, and this remains an issue in some member states.

The recast requires simply that IMs are independent of train operators, "regardless of operational structure," which means the holding company model remains valid, at least for the time being. The EC is planning new legislation with explicit proposals on unbundling, which is likely to be supported by a full assessment of the economic impact of such reforms.