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Topics: Single European railway area
Organisations: CER

Railways

CER position on the revision of Directive 2012/34/EU

and replies to the critiques moved against it

Brussels, 25 February 2014

One - CER main positions on Directive 2012/34/EU

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In the context of the revision of Directive 2012/34/EU CER calls for market opening.

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CER also calls for a regulatory framework that leads to functioning competition in the railway market and promotes the railway sector’s efficiency. To achieve these goals it is essential to guarantee non-discriminatory access to the railway infrastructure which is strictly controlled by powerful and independent Regulatory Bodies.

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Besides fully consenting to the regulatory acquis reached in the current legislation CER has therefore proposed new provisions to strengthen the Regulatory Bodies with new ex post and and ex ante powers and increase transparency in the market. The CER proposals were widely welcomed by Parliamentarians and adopted by the TRAN Committee in December 2013.

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Evidence from Railway Markets suggests that different governance structures work best in different circumstances, possibly even including different parts of the same country where traffic characteristics vary (different traffic density, different mixes of passenger and freight traffic, many local networks or one national network). Imposing one model on all Member States would thus be detrimental to the competitiveness of railway undertakings and the railway ector in some countries.

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Therefore CER proposes to keep up the principle of model neutrality of European railway law that allows both completely separated and holding structures. Nevertheless, in its proposal CER integrates numerous provisions that considerably boost the structural framework and enhance transparency, in particular as regards financial flows.

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CER’s views on the revision of Directive 2012/34 therefore cannot by any means be considered as a step back compared to the Directive currently in force as alleged in recent statements of Mofair and Rail Freight Group sent to Parliamentarians.

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In the CER concept the right to determine railway policy stays clearly with Member States.

Two - Excerpt from the analytical conclusions of the EVES-Rail tudy

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Misalignment issues are important and need to be paid much more attention

There is evidence from the literature that vertical separation leads to additional transaction costs and costs from misalignment of incentives of separated market players. Whilst the former appears only to add around 1% to total rail system costs, the latter appears to be more important, with estimates of up to 20% for particular case studies.

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There is no clear evidence that additional measures are needed to prevent discrimination in the holding company model

Given that we find no evidence that the holding company model is currently inferior to complete vertical separation in terms of competition and market share, there is no evidence that existing legal obligations to prevent discrimination are inadequate. These include a requirement for the regulator to deal with problems of discrimination and a clear eparation of essential functions.

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There is no evidence that vertical separation is necessary in order to obtain the benefits expected from competition.

There is no evidence in practice that vertical separation leads to more intra-competition than the holding company model, nor that it leads to a higher rail modal share for either freight or passenger traffic.

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The most effective model in terms of its impact on costs differs with circumstances

Our econometric evidence, based on data that has been subject to more checking and upplementation than previous studies, finds strong evidence that vertical separation raises costs for higher density systems. Our findings also implicitly indicate that there could be cases where switching models could be beneficial, either from a holding to vertical separation, or from vertical separation to a holding.

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Overall, different structures work best in different circumstances

We do consider our evidence to suggest that different structures work best in different circumstances, possibly even including different parts of the same country where traffic characteristics vary (different traffic density, different mixes of passenger and freight traffic, many small operators or one main operator).

Three – Replies to the critiques moved against CER’s position

Separate financial flows “According to the new amendments of CER, the IM shall be entitled to contract loans and pass them on to the holding company. The same applies for RUs contracting loans for IMs.” (Source: RFG, 18 Feb 2014)

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The statement is not correct. CER is not asking for RU to be able to grant loans via the IM.

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CER is asking for keeping the possibility for the IM to raise capital via the holding: in this way, loans would be given at better (lower) rates for the benefit of the infrastructure and whoever runs trains on that infrastructure. CER is not asking for RU to be able to grant loans via the IM.

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What the CER proposal asks is that

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The infrastructure manager may grant loans only to its own subsidiaries.

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Within the vertically integrated undertaking loans to the infrastructure manager may only be granted by the holding company and shall be subject to monitoring by the regulatory body.

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The holding company shall demonstrate to the satisfaction of the regulatory body that the loan is granted at market price.

“CER, the state railways’ association, is trying to take a backwards step, as they would like to get back to the rules that were in place before the adoption of the 2012 Recast.” (Source: MoFair, 19 Feb 2014)

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The statement is not correct. CER’s suggestion today contains support for many new elements that go much beyond the existing 2012 Recast. For example, CER accepts and supports the key wording in the first sentence of the (newly proposed) Article 7a(3), i.e. the fact that revenues of the infrastructure manager should not finance other entities within the vertically integrated undertaking. Such a afeguard is new. It does not exist in the Recast Directive, let alone in the older legislation. CER has concerns about the modalities of that provision, not the principle.

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Furthermore, CER deserves credit for proposing entirely new powers for the Regulatory Bodies. Those ideas were warmly welcomed by MEPs. They were taken up by the Rapporteur and the corresponding Compromise Amendments won the TRAN vote with large majorities and with CER’s full support.

Dividends of the IM “CER goes one step further by trying to indirectly limit the powers of the Member States in determining whether an IM shall pay a dividend or not. However, it is surely up to the member states to determine whether an IM shall pay a dividend or not.” (Source: RFG, 18 Feb 2014)

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The statement is not correct. The powers of the Member States are not limited.

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CER is asking that the IM can decide to distribute dividends according to EU corporate law and beyond: so not only to its direct owners but also to its ultimate owner, i.e. the government.

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Also CER is asking that in order to avoid cross-subsidization of any kind, such dividend payments are earmarked to infrastructure investments.

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The only exception to earmarking should be then when the ultimate owner is a private investors in a PPP, who shall be able to retain dividends with no earmarking.

Management independence of the IM “CER do not only want to prevent the financial independence of the IM but also of its taff, as it proposes to keep the management and the supervisory board of the IM under the control of the holding company. This means that those not being part of the integrated group, such as new entrants (incl subsidiaries of state railways in other countries) will be clearly disadvantaged when running on a network de jure belonging to a holding which protects the interests of its operational subsidiaries.” (Source: RFG, 18 Feb 2014)

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It is not correct that the holding can exercise “unlimited control” over the IM.

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The overall management structure and the corporate statutes of the infrastructure manager must ensure that none of the other legal entities within the vertically integrated undertaking shall determine, directly or indirectly, the behavior of the infrastructure manager in relation to train path allocation and infrastructure charging.

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It is essential for CER that the regulatory body shall approve or request changes to the arrangements concerning the implementation of the provisions above with the aim of ensuring the independence of the infrastructure manager.

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CER also welcomes the setting up of a Coordination Committee that brings together the IM and all operators running trains on its infrastructure, and suggested to add planned and non-planned maintenance to the items on which the Committee exercise its powers. The amendments were adopted by the TRAN committee in December.

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However, the IM management independence should not prevent the holding from performing all functions which it is normally allowed under corporate law: this is essential to guarantee that the possibility of a business-oriented management of the infrastructure.

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At the same time the overall management structure and the corporate statutes of the infrastructure manager shall ensure that none of the other legal entities within the vertically integrated undertaking shall determine, directly or indirectly, the behavior of the infrastructure manager in relation to train path allocation and infrastructure charging – which are the functions (so called “essential functions”) where potential for discrimination lies.

“In this respect, it cannot be stressed enough that the Fourth Railway Package will in no way constrain the ability for employees of integrated companies, such as Deutsche Bahn, to move jobs between the infrastructure manager and the railway undertaking.” (Source: MoFair, 19 Feb 2014)

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This statement is incorrect. The Commission’s proposal, with its so-called ‘Chinese Walls’, would place constraints on free movement of staff, e.g. with cooling-off periods.

Cooperation agreements “The CER proposal to form alliances within integrated companies opens all doors to the illegal cross-financing between the IM and RU.” (Source: RFG, 18 Feb 2014)

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The statement is not correct. CER suggests that cooperation agreement shall be possible between separated IMs and RUs but also between an integrated IM and any other RU. The regulatory body shall give its prior approval to the cooperation agreement, demand its modification or reject it if the above conditions are not fulfilled. It may require the agreement to be modified at any stage throughout the duration of the agreement.

Efficiency “ ‘Prior to the introduction of competition, state railways did not even remotely meet private and commercial customers’ demands for high-performing and attractive railway ervices, nor did they meet the demands of the state and hence the taxpayers, for an efficient operation.” (Source: MoFair, 19 Feb 2014)

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This is why CER agrees that market opening is a good idea. CER has never suggested to try to reverse the market opening that has been achieved to-date, i.e. in the freight and in the international passenger segments.

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CER also publicly called for full opening for commercial services, i.e. Open Access ervices, for all EU domestic markets. CER’s position on the market opening part of the Governance proposal is more liberal and more business-friendly than the Commission’s proposal.

Document Info

  • Language: en
  • Author: MMU
  • Created: February 24, 2014 7:01 PM
  • Last Modified: February 24, 2014 7:01 PM
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