As from 1 January 2010 EU legislation requires the further opening of railway markets. All railway undertakings now have a right of cross-border access to railway infrastructure in the EU for the purposes of operating international passenger services, significantly including so-called cabotage rights.

Background

Back in 2004 the EU Commission first issued proposals for a 'Third Railway Package', designed in part to further open up European rail markets by increasing competition for international passenger services (without the need to form an international grouping, as was previously the case). These proposals followed earlier EU legislative action to open up the rail freight market, which was completed by 20071.

To this end the Commission produced a draft Directive providing for access to railway infrastructure for the purpose of providing international passenger services. Agreement on this Directive, together with a suite of other measures aimed at making rail transport more competitive and more attractive, was finally reached in June 20072.

Open access requirement

The Directive3 provides that, as of 1 January 2010, Member States shall grant all railway undertakings a right of access to railway infrastructure for the purpose of operating international passenger services, meaning those services which have as a principal purpose the carriage of passengers between stations located in different Member States. The deadline is postponed to 1 January 2012 in respect of any Member State for which the share of international carriage of passengers by train constitutes more than half of the passenger turnover of railway undertakings in that Member State.

Significantly and not un-controversially this right of access includes the right of 'cabotage', i.e. the right to pick up passengers at any station located on the international route and set them down at another station, including a station in the same Member State.

This access right is subject to the ability of Member States to impose limitations on the right in respect of certain routes in order to protect the economic equilibrium of public service contracts, and to charge a levy on international rail passenger services to compensate costs incurred in meeting public service obligations. The UK has chosen not to charge such a levy.

In addition, in some Member States, including the UK, international operators and regulators will have to consider the extent to which practical considerations such as security requirements for boarding international trains, or the frequency and speed of wholly domestic services when compared to those for overlapping international services, may affect demand for cabotage services.

UK status

In the UK, the new access right has been implemented by changes to the Railways Infrastructure (Access and Management) Regulations 2005 ("Access Regulations")4, which came into force on 1 January this year.

Other changes to the Access Regulations to implement other aspects of the Third Railway Package, in particular as to the permissible length of framework access agreements (which must be specifically justified if in excess of 5 years), had already come into force in 2009.

Consequences and opportunities

As a result of the new access rights, railway undertakings (assuming they hold the requisite licences and safety certificates) now have rights of access to UK infrastructure for the purposes of operating international passenger services. The new access rights also present the opportunity for UK based railway undertakings to obtain access to infrastructure in other Member States. Applicants denied the access which Member States are obliged to provide have a right of appeal to the relevant national authority. In the UK, the right of appeal is to the Office of Rail Regulation ("ORR") under the Access Regulations.

The ORR is also responsible for determining whether a new passenger service is in fact an international passenger service (taking into account, for example, the proportion of turnover derived from domestic and international passengers), and for assessing whether the new service would compromise the economic equilibrium of a public service contract. The ORR has issued guidance on how it will approach these issues5.

The European Commission hopes that the new access rights will offer railway undertakings and infrastructure managers fresh business opportunities, and will lead to increased competition in the provision of railway passenger transport services, both on international routes and on domestic routes where international service providers use the right of cabotage. Whether such competition will emerge in practice remains to be seen.

Antonio Tajani, the European Commission Vice-President with special responsibility for transport said in relation to the new access rights that:

"This is a new stage in the process of strengthening the European rail sector in which the European Union has been engaged for several years. International passenger market opening will benefit both the industry and the passengers. It is expected to increase choice for passengers and lead to a quality leap in the service provided and/or lower prices. This is another important step contributing to the achievement of an integrated European rail area".

Potential future developments

The European Commission is obliged to produce a report on the implementation and application of the provisions of the Directive in two years' time, including on the possibility of a further opening up of the rail market. This may potentially give rise to consideration of an opening up of the market for purely national passenger services, which was rejected at the time of the introduction of the Third Railway Package.