22 IRJ March 2018

IMPROVING the quality and cost-effectiveness of rail transport is a corecomponent of European Union

transport policy. Between 2001 and2016, four legislative packages wereadopted with the aim of opening up railtransport services for competition,enhancing interoperability betweennational networks, and building aframework for the development of theSingle European Railway Area (Sera). The outcome of nearly five years of

political discussion and debate, theFourth Railway Package is perhaps themost ambitious of these legislativeinstruments, encompassing extensivestructural and technical reforms whichare intended to break down many of theremaining barriers that stand in the wayof realising Sera. According to the European

Commission (EC), the Fourth RailwayPackage has four core aims:= standards and approvals that work,cutting administrative costs for railwaycompanies, simplifying market entry fornew operators, and centralisingresponsibility for vehicle authorisationsand safety certification with the EUAgency for Railways= a structure that delivers,strengthening the role of infrastructuremanagers (IMs) by giving themcomplete operational and financialindependence from train operators= opening domestic passenger marketswith mandatory competitive tenderingfor public service obligation (PSO)contracts and open-access on profitableroutes, and= maintaining a skilled rail workforce,recognising the need to attract newtalent to the industry and improvingprotections for staff when PSO contractstransfer to new operators. To achieve these diverse goals, the

package is divided into the technicalpillar and the governance or marketpillar. The technical pillar was approved by

the European Parliament and theCouncil in April 2016 and came into

force on June 15 2016. It comprises oneregulation and two proposals, whichupdate existing pieces of legislation: = Regulation (EU) 2016/796 on theEuropean Union Agency for Railwaysand repealing Regulation (EC) 881/2004= Directive (EU) 2016/797 on theinteroperability of the rail systemwithin the European Union (Recast ofDirective 2008/57/EC), and= Directive (EU) 2016/798 on railwaysafety (Recast of Directive 2004/49/EC).Member states have until June 16

2019 to transpose the interoperabilityand safety directives into national law,with an option to request an extensionof up to a year. The technical pillar aims to increase

harmonisation between Europe’snational networks by drasticallyreducing the number of national rules(more than 11,000) which theCommission considers a hindrance tointeroperability. Regulation 2016/796 gives the EU

Agency for Railways sole responsibilityfor issuing authorisations for railwayvehicles, safety certificates for trainoperators, and authorisations fortrackside control-command andsignalling systems, with the aim ofstreamlining procedures and achievinga significant reduction in costs. It alsomakes the Agency responsible formonitoring national rules and theperformance of National SafetyAuthorities (NSAs) and strengthens itsrole as the systems authority for thedevelopment of ERTMS. The timeline for the implementation of

the technical pillar gives the Agency justthree years to plan and execute thistransition, ensuring that by June 16 2019it is in a position to issue vehicleauthorisations and single safetycertificates for operators. By this time,EU Member States should havetransposed the technical pillar intonational law, providing a legal basis forthe transfer of responsibilities fromNSAs to the agency.This transfer is facilitated through the

so-called Implementing Acts, secondarylegislative acts used where nationallegislation must be consistent across allMember States. Implementing Acts aresubject to input from and voting by theMember States through specificcommittees. Most of the 25 secondarylegislative acts in the Fourth RailwayPackage concern the technical pillar,emphasising the need for a uniformapproach to the transition at theMember State level.In June 2017, the European Commission’s

Railway Interoperability and SafetyCommittee (Risc) approved theImplementing Act for the Single EuropeanSafety Certificate in June 2017, and thecommittee subsequently adopted theImplementing Act for Vehicle Authorisationin November 2017. The Implementing Actfor the fees and charges levied by theAgency was approved in January. Thesepositive votes followed an extensiveconsultation between the agency, memberstates, and industry stakeholders acrossEurope on both the transition phase andfuture arrangements for authorisations.At the core of the new system is the

so-called one-stop shop (OSS), an ITtool which will funnel all applicationsfor safety certificates and vehicleauthorisations through a unified onlineportal. A key milestone for the OSS wasachieved in September 2017, whenfunctional specification was approvedby the agency’s management board,which is composed of representatives ofthe EC and the 28 Member States. Theagency has recently shown a mock-upof the OSS to stakeholders in Italy andGermany to gain initial feedback on theuser interface. The OSS must be fully-functioning and online by February2019 in readiness for the June switchover. “There are three major challenges in

the transition phase,” explains theagency’s executive director, Mr JosefDoppelbauer. “Preparing ourselves,preparing stakeholders, and, mostimportantly, preparing the entireecosystem for a period of uncertainty.Member States have to announce by

IRJ Insights | The Fourth Railway Package

Magic bullet or missed opportunity? More than five years in the making, the Fourth Railway Package is a broad raft ofreforms that seeks to significantly improve the competitive position of rail transportacross the European Union. Keith Barrow assesses the contents of this key legislationand looks at the challenges facing its implementation.

IRJ March 2018 23

December whether they will transposethe legislation by June 2019, and theyhave up to a year after that if they needsome extra time. We have to beprepared for this.” Doppelbauer observes that there is

huge variation in stakeholderpreparedness for the extensive changescoming next year. “We need to continueinvesting in dissemination, and gettingthe message out there,” he says. “Thereare big companies, big member stateswho have been in the workshops fromthe very beginning, and then there aresmaller stakeholders who have only avague notion of the consequences of theFourth Railway Package. This is the mostimportant change in railway legislationever, so the industry needs to be readyand we are in continuous communicationabout what will change.”Doppelbauer says the agency is on

course to begin the second phase of thetransition - shadow running - in July.This involves testing the integrity of theOSS through the so-called learningcases, where agency staff will workalongside their counterparts from theNSAs on vehicle authorisations andoperator safety certifications. In eachlearning case, the existing processes ofthe NSA will run in parallel with theagency’s new methodology and theOSS. “This should allow us to learnhow to deploy new processes and doany fine-tuning,” Doppelbauer says. “Itwill also enable us to establish how weinterface with the NSAs’ IT systems,and linking our IT portals is a key taskin the shadow running phase.”

Around 40 agency staff are workingon the learning cases and Doppelbauersays the industry response has beenpositive, with more than 20 applicationsfor learning cases. “Shadow runningmeans that there is some additionaleffort on the part of the applicant,because they have to submit a secondset of documents and use the OSS,”Doppelbauer explains. “We wanted todo this on a voluntary basis and the

applicants get pre-engagement free-of-charge. The selling point for suppliers isthat they can try out the system for free.I’m optimistic that we have the stronginterest we need from key stakeholders.In the short-term, the transition clearlyrequires investment from all actors, butin the long-term, everyone benefitsfrom a process that is simpler, faster,and consistent throughout Europe.”Another benefit is the centralisation

of knowledge, with the creation of a200-strong pool of experts. “The poolingof expertise from across Europe makesus more flexible and means there willbe fewer situations where expertise isnot available,” Doppelbauer says.

Mr Libor Lochman, executive directorof the community of European Railwayand Infrastructure Companies (CER),says the industry accepts a degree ofshort-term upheaval in the safetycertification regime as a price worthpaying for the anticipated long-termefficiency gains. “The overall cost ofcertification will certainly be higher inthe next three-four years, but we shouldstart to see a reduction in authorisation

costs after 2022,” he says. “If this hasn’tbeen achieved within that timescale, ithas failed. So the next few years are notgoing to be normal practice, but theindustry is ready to invest in thetransition to see the benefits at the end.” The interoperability directive extends

the agency’s remit to include theauthorisation of ERTMS tracksideequipment. While processes for vehicleauthorisations and single safetycertificates already exist, theauthorisation of ERTMS tracksideequipment is a completely newprocedure. According to the Group ofRepresentative Bodies (GRB), agrouping of European railway

This is the most important change in railway legislationever, so the industry needs to be ready and we are incontinuous communication about what will change. Josef Doppelbauer

“

A CAF New Generation Sprinter for NS undergoes dynamic testing at theVelim test circuit in the Czech Republic. The technical pillar aims to vastlysimplify the authorisation of new rolling stock. Photo: Quintus Vosman

24 IRJ March 2018

associations which supports the railsector’s input into the Agency’s workprogramme, IMs will need to preparefor the administrative and costimplications of this change. Some IMshave agreed to participate in learningcases to help define this process andtherefore find ways of minimising thecost impact. However, the GRB saysthese cases will not be completed intime for the intended legislative act onERTMS trackside component approval,which is due to be adopted in May.

Market pillarApproved by the European Parliament

and the Council in December 2016, themarket pillar comprises: = Regulation (EU) 2016/2338 amendingRegulation (EU) 1370/2007 on theaward of public service contracts fordomestic passenger transport servicesby rail (the so-called PSO Regulation)= Directive 2016/2370/EU amendingDirective 2012/34/EU, which dealswith the opening of the domesticpassenger rail transport services marketand the governance of the railwayinfrastructure (the ‘GovernanceDirective’), and= Regulation (EU) 2016/2337 repealingRegulation (EEC) 1192/69 on thenormalisation of the accounts of railwayundertakings.The PSO Regulation is designed to

allow Member States a degree offlexibility in how they proceed. Directawards will still be allowed undercertain circumstances, albeit with strictcontractual requirements for servicequality, frequency, and capacity. Therewill be a 10-year transition period forentry into force of the new rules on PSOcontracts directly awarded beforeDecember 2022, which means somelarge-scale direct award contracts couldcontinue until 2034. Open-accessoperators will be permitted to runservices in competition with theincumbent operator on domestic routesfrom December 2020, subject to analysisof the economic impact on PSO services.The EC says it expects competition to

bring “substantial benefits forpassengers, railway undertakings, andtaxpayers alike: more quality of service,greater choice, innovation, cost-effectiveness, and customer-orientation.”In contrast with the technical pillar,

which enjoyed a relatively frictionlesspassage through the legislativeprocedure, the market pillar was thesubject of intense debate and politicalwrangling between the EC and theMember States, primarily over the

provisions of the Governance Directive. One of the EC’s core aims in the

market pillar was to end the naturalmonopoly of the vertically-integratedrailway through the compulsoryunbundling of incumbent trainoperators and IMs. In 2010 the EC took13 member states to court for failing tofully enact European legislation onrailway reform. However, the courtrejected the EC’s case against Austriaand Germany, ruling compulsory andcomplete separation of IM and trainoperator was not required under theFirst Railway Package or any other EUlegislation. Crucially, this alsoconfirmed that IMs existing within aholding company structure could beregarded as independent.

In February 2014, MEPs introducedamendments at the first reading of thesix legislative proposals of the FourthRailway Package in the EuropeanParliament which would give MemberStates greater flexibility in their choiceof governance model. This votequashed the mandatory unbundlingproposal and forced a compromise inthe Governance Directive thatmaintains indefinitely the integratedholding company structure in some ofEurope’s key rail markets. Naturally, this has caused

consternation among open-accessoperators. The European Rail FreightAssociation (Erfa) argues that thediscussion around the market pillar hasbeen “dominated by national andmonopoly player egoisms,” reinforcingthe historic status of state-ownedrailways at the expense of customers. “We’ve ended up with the second-

best option on unbundling and this partof the legislation has been heavilywatered down,” says Erfa secretarygeneral, Mrs Julia Lamb. “It’s naturalthat if you have infrastructure andoperations in the same company youwill try to use that to your competitiveadvantage. This may be enough to deterprospective new entrants, who areconcerned about discrimination andprivileges favouring incumbents. Wewant the IM to be working towards thesuccess of the whole railway system,not just one operator. Unless you

believe you can attract more customersto rail through monopoly services, anIM that works in the interests of oneoperator is clearly not working in theinterests of healthy competition.” Mandatory unbundling was opposed

by CER, which argues the FourthRailway Package includes adequateprovisions to protect the interests ofnew entrants in countries where theholding company structure persists.“There are sufficient safeguards in thelegislation to ensure non-discriminatoryaccess to infrastructure,” Lochman says.“Without system integration a railwaysimply cannot function, and you can’tseparate the infrastructure manager offwithout ensuring you maintain propersystem integration. The Fourth Railway

Package is an opportunity to ensurethat this is implemented in the propermanner. We don’t need the pressure forfull vertical separation.”With unbundling no longer on the

agenda, Lamb says the pressure is nowon regulatory authorities to ensure thata level playing field is maintained incountries where incumbent operatorand IM remain under the umbrella ofthe same holding company. Indeed, asregulation of the market matures, thoseresponsible for policing it are beginningto show their teeth. In January, the EC’s Directorate General

for Competiton (DG Competition)announced it is launching an investigationinto the use of restructuring aid for Polishstate-owned train operator RegionalRailways (PR). Last year the EuropeanCourt of Justice (ECJ) ruled that theGerman government had failed toensure proper transparency in theseparation of accounts betweeninfrastructure and operating units ofGerman Rail (DB), while the DutchAuthority for Consumers and Markets(ACM) fined Netherlands Railways(NS) for abusing its dominant positionin the passenger market. LithuanianRailways (LG) was fined É27.87m forbreaching EU competition law byremoving a section of track on a cross-border link with Latvia to force acustomer to continue using a morecircuitous route, while French railregulator Arafer issued a negative

IRJ Insights | The Fourth Railway Package

There are sufficient safeguards in the legislation toensure non-discriminatory access to infrastructure.Libor Lochman“

opinion on the government’s newinvestment and performance contractwith IM SNCF Network. “DG Competition is taking a renewed

interest in rail and is playing a proactiverole, particularly around illegal state aidand abuse of competition,” Lamb says.“This is symbolic because it shows awillingness by competition authoritiesfor a crackdown on monopolisticbehaviour. “There is an acknowledgement here

that Member States have not achievedwhat they should have done in the railsector. We saw how difficult the [FourthRailway Package] discussions were atEU level, and how challenging it is todiminish the power of incumbents.Legislation alone will not be enough -we need to see external pressure fromcompetition authorities and we needthe rail sector itself to become moreaware that it risks losing market share ifit doesn’t embrace reform.”

EquilibriumThe EC’s Directorate-General for

Mobility and Transport (DG Move) ispreparing three implementing acts forthe market pillar, which are intended tocomplete the legislative framework formarket opening. These comprise:= the implementing act on ServiceFacilities, which aims to give newentrants fair and non-discriminatoryaccess to rail-related services andfacilities (adopted on November 22 2017)= delegated decision on the schedulefor the allocation process, which setsdeadlines for establishing workingtimetables, sets rules for integratinginformation on upcoming capacityrestrictions into the scheduling process,and enhances coordination between IMsand their customers, and = the implementing act on theEconomic Equilibrium Test (EET),which will define the conditions underwhich Member States can restrict accessto their domestic rail infrastructurewhere a new open-access service mightcompromise the economic equilibriumof a PSO contract. The Alliance of New Rail Entrants

(AllRail) says it is concerned thatMember States could use the EET as amechanism to block new open-accessservices, arguing that narrowing thescope of the test to focus solely on theprofitability or net cost of the PSOcontract increases the risk. “This is a big worry, especially in

instances where the Member State inquestion might want a high-frequencyPSO offering in urban areas,” explains

26 IRJ March 2018

IRJ Insights | The Fourth Railway Package

IN September 2017 the EC adopted aproposal for a revision of the RailPassenger Rights Regulation (EC

1371/2007) with the aim of improvingconsumer protections for passengerswhile taking into account the burdenon train operators. The EC argues that passengers are

currently unable to fully exercise theirrights when using rail services due tothe extensive exemptions MemberStates have granted for certaindomestic services, outdated provisionsfor passengers with reduced mobility,and issues with through-ticketing. The recast will also include a force

majeure clause, meaning trainoperators will no longer need tocompensate passengers for delays orcancellations caused by naturaldisasters or extreme weather. AllRail sees an opportunity in the

recast to address some of the perceivedshortcomings in the Fourth RailwayPackage. “The Fourth Railway Packagedoes not give new entrants fair accessto distribution systems,” Brooks says.“There has to be through ticketing by2022, but in reality this means the ECwill give the incumbent operators until2022 before it starts looking into what’sgoing on, with another two-three yearsto investigate and legislate. So in realityit’s going to be at least another sevenyears before open-access operators arepart of through ticketing. How manyopen-access operators will go bankruptbefore then? “Incumbent operators have a huge

advantage in their inherited brandequity, but DB won’t sell the tickets ofoperators not aligned to the DB Groupand in Sweden, Saga Rail can’t getaccess to SJ’s booking system, whichhas a dominant position. We needthrough ticketing as soon as possible -

it’s already technically possible, andindependent ticket providers such asTrainline and Loco2 are doing it, butthese companies don’t have the brandequity of the big incumbents. TheFourth Railway Package is pretty weakwhen it comes to addressing this issue.This kind of dominance in the operatorfield is exported downstream to the railretail market, unless you have a fairsystem of through ticketing.”Brooks also hopes the recast will

challenge the incumbents’ dominanceof other sales channels, such as ticketoffices. “People think the ticket office isneutral, especially when it has thesame brand as the taxpayer-fundedinfrastructure manager, and it’s atrusted, familiar brand,” he says. “Thisproblem was not addressed in theFourth Railway Package. We are tryingto get it addressed in the passengerrights recast, but this is likely to be ourlast chance for a while.” CER is calling on the EC to provide

the “legislative stability” needed todeliver improvements in ticketing.“Existing provisions on through-ticketing should not be changed as theyunderpin the ongoing business-drivenprogresses of railways and ticketvendors,” CER says. “Customer-friendlyinformation on through-ticketing isessential, but EU requirements shouldbe realistic. Railway undertakings whichhave not committed to, and are notaware of the intended connection of apassenger between two or more trainsshall not be required to fulfil theobligations under this Regulation.”CER also argues new delay

compensation requirements for passesand season tickets are “disproportionateand unrealistic to implement.” Consultation on the proposals

concluded in November 2017.

Passenger Rights Regulation recast

AllRail board director, Mr Nick Brooks.“This means the opportunities for open-access operators to get paths that are inany way commercially useful simplywon’t be there. There are countrieswhere we are concerned about this,where there will be such a high level ofPSO service that the network simplywon’t support open-access.” AllRail fears that the application of

the EET to direct award PSO contracts,

which under the Fourth RailwayPackage can continue until 2034, couldstifle the ambitions of new entrants. CER argues that the EC will not be

respecting the legal basis of the RecastDirective and the Fourth RailwayPackage if it differentiates between howdirectly-awarded and competitively-tendered PSO contracts are treated in

the EET. “With this proposal, the EC iscreating a presumption that directlyawarded PSO contracts are unlawful,”CER says. “PSO contracts should besubject to the same level of scrutinywithout creating any discriminationbetween the two awarding proceduresadopted by European legislators.”A deadline of December 16 has been

set for the implementing act to definehow regulators will be expected to run

the EET procedure, and what thecontents of the test will be. The debate over these final legal acts

in the Fourth Railway Packagedemonstrates how much is at stake forestablished players and newcomers,and the impact of the changes nowbeing implemented, which will reachinto every corner of the rail sector of

every Member State. The governancepackage became a battlegroundpitching a few large Member Statesagainst those seeking a clear breakbetween incumbent operators and IMs.Arguably, it marks a pause in a two-decade march towards unbundling, asthe Commission’s vision for Sera comesup against the resilience of establishedstructures and the interests of MemberStates, but the debate may not be over.The Fourth Railway Package puts the

emphasis on competition to deliver theefficiency and innovation that will drivea modal shift to rail. The question nowis whether compromising on thegovernance model will limit thecapacity to meet these goals. Like the market pillar, the significance

of the technical pillar cannot beunderstated. Vehicle authorisation hasbeen a costly, cumbersome process thathas hindered progress in the rail sectorfor too long. The Europe-wide solutionto this problem is ambitious, and thetimescale for implementation is short. Asuccessful transition will depend on astrong spirit of cooperation between theEU Agency for Railways, the NSAs, andthe broader rail industry. IRJ

IRJ March 2018 27

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DG Competition is taking a renewed interest in rail and isplaying a proactive role, particularly around illegal stateaid and abuse of competition. Julia Lamb“