COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the documents

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 1370/2007 concerning the opening of the market for domestic passenger transport services by rail Proposal for a Directive of the European Parliament and of the Council amending Directive 2012/34/EU of the European Parliament and of the Council of 21 November 2012 establishing a single European railway area, as regards the opening of the market for domestic passenger transport services by rail and the governance of the railway infrastructure

Disclaimer: This impact assessment commits only the Commission's services involved in its preparation and does not prejudge the final form of any decision to be taken by the Commission

TABLE OF CONTENT

1. Introduction.. 4

2. Procedural issues and consultation of interested parties. 5

2.1. Organisation and Planning.. 5

2.2. Consultation and Expertise. 5

2.3. Impact assessment Board.. 7

3. Problem definition.. 8

3.1. Overall context 8

3.2. Description of the problem.. 17

3.3. Problem drivers. 24

3.4. Root Causes. 31

3.5. Who is affected in what way?. 37

3.6. How would the problem evolve?. 38

3.7. Subsidiarity. 41

4. Objectives. 43

4.1. General objectives (GO): 43

4.2. Specific objectives (SO): 43

4.3. Operational objectives (OO): 44

4.4. Mapping problem, drivers and objectives: 44

5. Policy Options/Policy Scenarios. 45

5.1. Identification of possible policy options. 45

5.2. Pre-screening of policy options. 45

5.3. Detailed description of the retained policy options. 52

5.4. Options in the consultation of stakeholders. 55

5.5. Identification of the preferred option.. 57

6. Analysis of impacts. 58

6.1. General approach to the assessment of options and methodological constraints. 58

6.2. Analysis of impacts of the market opening options. 59

6.3. Analysis of impacts of ticketing policy measures. 90

6.4. Analysis of impacts of rolling stock policy measures. 94

6.5. Summary of assessment 100

7. Preferred policy scenario.. 101

7.1. Overall impact of the preferred policy scenario.. 101

7.2. Combined impacts of the 4th rail package initiatives. 107

7.3. Implementing provisions. 108

8. Monitoring and evaluation.. 110

8.1. Monitoring and evaluation arrangements. 111

Glossary

List of abbreviations

Annexes:

Annex 1 – The 4th Package – The 'Big' Picture

Annex 2 – Consultation analysis

Annex 3 – Problem definition – facts and figures

Annex 4 – Analysis of the national rail markets, statistics and methodology

Annex 5 – Option analysis (screening of options)

Annex 6 – Literature review

Annex 7 – Analysis of social impacts

Annex 8 – Analysis of the scope of PSC thresholds volume and transitory periods

Annex 9 – Methodological annex

Annex 10 – Summary document of the conference “The Last Mile towards the 4th Railway Package”

1. Introduction

In its White Paper on transport policy adopted on 28 March 2011 (hereinafter the 2011 White Paper), the Commission announced its vision to establish a Single European Railway Area and clarified that this objective implies creating an internal railway market where European railway undertakings can provide services without unnecessary technical and administrative barriers. [1]

Additionally, the European Council conclusions of January 2012 highlighted the importance of unleashing the growth-creating potential of a fully integrated Single Market, including measures with regard to network industries.[2] Furthermore, the Commission Communication on Action for Stability, Growth and Jobs adopted on 30 May 2012 stresses the importance of further reducing the regulatory burden and barriers to entry in the rail sector, making country-specific recommendations to that aim.[3] In the same manner, on 6th June 2012 the Commission adopted the Communication on strengthening the governance of the Single Market, which also stressed the importance of the transport sector.[4] Finally, the Single Market Act II adopted by the Commission on 3 October 2012 called for the development of fully integrated networks in the Single Market and indicated in this context the importance of the opening of domestic rail passenger services to operators from another Member State.

The EU railway market has seen important regulatory changes in the recent decade. They were gradually introduced by three legislative "railway packages" (with some accompanying acts) intended to open up national markets and make railways more competitive and interoperable at the EU level, while maintaining a high level of safety. The most recent development is the adoption of the Directive 2012/34 ("recast of the 1st Railway Package"[5]), which, in addition to legislative simplification and consolidation, reinforces existing provisions on competition issues, regulatory oversight and financial architecture of the railway sector[6].

Despite the considerable development of the 'EU acquis' establishing an internal market for rail transport services, the modal share of rail in intra-EU transport has remained modest. Therefore the Commission proposes a 4th Railway Package (cf. Annex I for further details) in order to realise the Single European railway Area by removing the remaining obstacles of technical, regulatory and economic nature and fostering thereby the performance and competitiveness of the railway sector. As announced by the 2011 White Paper, these issues will be addressed by different initiatives:

– Removing remaining administrative and technical barriers, in particular by establishing a common approach to safety and interoperability rules to increase economies of scale for railway undertakings active across the EU, decreasing administrative costs and accelerating administrative procedures, as well as to avoiding disguised discrimination;

– Opening the domestic rail passenger market, granting open access rights where appropriate while also addressing the public service contracts (PSCs)[7] award process, in order to complete the process of rail passenger market opening; accompanying measures will facilitate Member States' retaining integrated timetabling and ticketing systems where this benefits the passenger;

– Optimising the governance of infrastructure management, in particular by ensuring that the infrastructure manager performs a consistent set of functions that optimises the use of infrastructure.

This impact assessment focuses on the second point.

2. Procedural issues and consultation of interested parties

2.1. Organisation and Planning

This IA is prepared by DG MOVE to support the initiative on the domestic rail passenger market opening and further contribute to the completion of the Single European Railway Area (Agenda Planning 2012/MOVE/017 and 2012/MOVE/032). The Commission proposal in this regard will include amendments to the following legislative acts:

– Directive of the European Parliament and of the Council establishing a Single European railway area (the recast of the 1st Railway Package);

– Regulation 1370/2007/EC (Public Service Obligations)[8];

An Impact Assessment Steering Group was created in December 2011 and has been actively consulted during preparation of the Impact Assessment. This Steering Group has counted on the membership of DG CLIMA, COMP, ECFIN, EMPL, ENER, ENV, ENTR, LS, MARKT, REGIO, SANCO and SG. In May 2012, it was further broadened to include EEAS, TRADE and ELARG. The group met on 12 October (2011), 19 December (2011), 20 April, 10 May, 8 June, 29 June, 14 September and 4 October.

2.2. Consultation and Expertise

Expertise

In order to support the Commission in the impact assessment process, an external consultant was tasked to prepare an impact assessment support study[9]. The study started in December 2011 and the final report is to be delivered in September. A preparatory study[10] also took place in 2010.

Process of consultation

To ensure that the views of the full range of stakeholders impacted by the eventual measures was gathered, a broad mix of targeted consultation methods was used. Tailored questionnaires prepared by the consultant in cooperation with the Commission were sent to each group of main stakeholders - railway undertakings, infrastructure managers, public transport ministries, safety authorities, ministries, representative bodies, workers' organisations etc. The views of passengers were collected through a Eurobarometer[11] survey. Local (passenger transport) authorities were consulted with the help of the Committee of the Regions from 14 May till 18 June. 11 regions, mostly in France and Spain (but also in Austria, Poland, and Netherlands) responded to the consultation. The full consultation of social partners has also been conducted in line with the Impact Assessment Guidelines.

A strategy of targeted consultations complemented by a Eurobarometer survey was preferred to an open consultation for two main reasons:

1) A targeted consultation assured that an adequate coverage of the wide range of different interest of the sector will be achieved.

2) The questions needed to be customised depending on stakeholder group consulted, furthermore not all stakeholders (in particular passengers) could have been expected to have knowledge of the subject-matter, given the technical nature of certain questions.

3) Representativeness of responses of passengers would have not been ensured without a structured sampling of responses, and in particular the Eurobarometer offered the possibility to interview a carefully structured sample of 25.000 respondents in their own language.

Moreover, a stakeholder hearing took place on the 29th May (with some 85 participants) and a conference (with some 420 participants representing the full range of stakeholders in the rail domain) was held on the 24th September. Commission services have also met with sector representatives on an on-going basis throughout 2012 to listen to the views, in particular with CER (railway undertakings and holdings), EPTO (passenger transport operators), ETF (transport workers), EPF (passenger federations), EIM (infrastructure managers) and UITP (urban transport). Dedicated meetings with stakeholders were also organised in France, Germany, Netherlands, Poland, Sweden and UK. The external consultant also conducted face-to-face interviews with stakeholders in Germany, United Kingdom, Italy, Hungary and Sweden.

In conclusion, all relevant parties have been given the possibility to participate in the consultation and the minimal standards of consultation of stakeholders have been met.

Principal findings of consultation

The majority of stakeholders of the targeted consultation agreed that the quality of rail services and the competitiveness of the rail sector in the EU were affected by the lack of competitive incentives, inadequate regulatory oversight, discriminatory framework conditions and market access barriers for railway undertakings. Stakeholders highlighted the main factors driving those problems as being in particular infrastructure capacity, access to rail-related facilities, rolling stock availability, inadequate resources, divergent interpretation of legislation, lack of financial transparency and lack of competitive tendering.

In terms of market opening, an equal majority of respondents (60%) agreed that market integration can be stimulated by additional new open access rights, compulsory competitive tendering, or a mix of thereof. Workers representatives expect that any market opening will result in worse working conditions and more strikes.

A policy of compulsory competitive tendering rather than direct award was considered more likely than full liberalisation with open access to reduce funding for PSCs. Also, a vast majority of EU citizens (71%) support opening the national and regional rail system to competition provided that all operators meet the same safety level (Eurobarometer). Open access subject to the viability of PSCs is seen more positively than all the other options (55% of agreeing respondents) – the current arrangements supported only by 20% of respondents.

Stakeholders did not support further EU harmonisation of the procedure for awarding public sector contracts, but agreed that relevant stakeholders should be consulted on the criteria applied on public service contracts. All groups were in favour of a transition period, except Workers’ Representatives, who were against any form of competitive tendering on principle.

The Sectoral Social Dialogue Committee on railways was consulted on 26 March and 19 June, in particular on the options and the assessment of their social impact. The representatives of workers organisations were very sceptical that the opening of domestic rail passenger markets would contribute to the growth of rail traffic, the improvement of efficiency and quality of rail services. They highlighted that greater State funding of the rail sector and its infrastructure would be a more effective way to reach those same objectives. They also advocated the inclusion of social criteria in the award of contracts.

Views of the local (passenger transport) authorities (consulted via the network of the Committee of the Regions) were polarised regarding the compliance of EU criteria for PSOs with the subsidiarity principle, whereas competitive tendering was generally welcomed. Local authorities also stressed the importance of coordination and cohesion between national administrations within Member States for the delivery of public services.

More detailed overview of the consultation process, representativeness and content of responses is provided in Annexes 2[12] and 10.

2.3. Impact assessment Board

This impact assessment was reviewed by the Commission's Impact Assessment Board (IAB) that provided its opinions on 9 November 2012, 30 November 2012 and 10 January 2013. Based on the Board's recommendations, the impact assessment has been revised according to the following lines:

· The presentation of the report has been thoroughly reviewed. To ensure that there is a clear distinction between factual evidence and stakeholder opinions, references to the sources of information have been added systematically, including where relevant the references to the IA support study. To better underpin the analysis, references to all the studies used to support the IA were compiled in a dedicated annex. Conclusions and views of stakeholders have been presented in a clearer manner..

· The problem definition has been revised to strengthen the link between the existing deficiencies and the lack of competitive pressures. The report now provides more evidence on an improved performance (in terms of efficiency and satisfaction) on markets where competition has been introduced. In this context, the dynamics of a series of indicators of efficiency (productivity, use of subsidies), price, safety and quality (including availability) has been analysed in clusters of Member States reflecting their current degree of liberalisation. The presentation of the underlying methodology has been strengthened (cf. box 4a and 4b). The report emphasises limitations of comparing national railway systems because of the influence of factors such as population density, and geographic concentration and draws necessary conclusions.

· The central goal of completing the internal market was made more visible in the problem definition and objectives.

· The analysis of subsidiarity was strengthened, in particular in the area of public service obligations. Compliance with the subsidiary principle was also discussed in comparison to other fields like air transport, urban transport and public procurement.

· The presentation of policy options has been further improved by incorporating into the text the main reason for discarding certain options. As far as options on competition for PSCs and the supervision of their scope are concerned, the report emphasises EU limited competences in the domain of definition and organisation of public services.

· The assessment of impacts has been improved by reinforcing the analysis of social impacts on consumers (fares) and workers (employment, working conditions, recruitment, productivity, cf. 6.2.3.1) as well as the impacts on investment, revenues and costs. An analysis of rolling stock options has been strengthened and discussion of congestion issues was included.

· The assessment of impacts and comparison of options has been improved to underline that the main factor distinguishing each of the options is the degree of market opening, which has been quantified for each option. Furthermore, for each of the options, impacts on Member States are differentiated according to their current degree of liberalisation. For each of the impacts analysed, the report also identifies potential associated risks. In cases where the evidence base has been limited or inconclusive, the text clearly indicates that the conclusions should be drawn with caution.

· The final assessment of the preferred policy scenario has been complemented with the estimates of the combined impacts of the different 4th Railway Package initiatives, both in terms of costs, and benefits.

3. Problem definition

3.1. Overall context

3.1.1. Regulatory framework at EU level for domestic passenger rail services

As indicated in section 1, the EU has launched over the past decade an active policy for the revitalisation of rail transport based on progressively opening up of transport services to competition and on developing the interoperability of national rail systems. As a consequence, the European rail market has witnessed a range of regulatory changes to its structure and technical standards, with the aim of creation of a competitive internal market with more efficient services.

Markets for rail freight services have been fully opened to competition since January 2007[13]. Markets for international rail passenger transport services and cabotage services have also been opened to competition as of 1 January 2010.[14] On the contrary, domestic rail passenger transport in Europe (representing 94% of all passenger-kilometres in the EU) remains largely closed to foreign and national competition, independently of its typology (urban, suburban and regional services, conventional or high speed intercity services) and whether the services are provided in on a commercial basis or under PSCs. The latter cover about 2/3 of domestic rail services (cf. table 1 and Annex 9). PSCs in principle are regulated by Regulation 1370/2007EC on public passenger transport services by rail and by road, however the heavy rail sector has been excluded from the obligation to award PSCs through an open tendering procedure. Consequently, most local and regional rail services operated under PSO – that is almost all of them - are attributed to operators through direct award (cf. infra graph 4). In addition, even without PSO, rail service contracts in several countries are granted with an exclusive right – e.g. some incumbents operate as "legal monopolies" on commercial lines.

BOX 1 – PUBLIC SERVICE CONTRACTS (PSCs), PUBLIC SERVICE OBLIGATIONS (PSOs) AND LEGAL MONOPOLIES

A public service obligation (PSO) is a requirement determined by a competent authority in order to ensure public passenger transport service in the general interest.

Public service contracts (PSC) are requirements by competent authorities to perform PSOs.

"Legal monopolies" are, for the purposes of this impact assessment, rail service contracts granted with an exclusive right without PSOs (including directly awarded service concessions).

There is "open access" when no legal barriers restrict the access to the rail network.

In order to revitalise their rail sector in times of severe public budget constraints, more and more Member States have opened (or are in the process of opening) their domestic rail passenger services to competition, either through the introduction of open access rights for commercial services or through the competitive tendering of PSCs, or both. Given that there are no applicable common EU rules, a wide range of different national models is emerging in Europe, where some Member States have introduced full competition for domestic lines and others have kept their markets completely closed.

3.1.2. Market developments

Railways and their operations are an important economic sector with the total turnover and the number of persons employed estimated at 73 billion EUR[15] and 800.000 persons[16] (in many Member States railway undertakings are among the major national employers) and also absorbing substantial public funding (some 46 billion EUR of public subsidies, out of which some 20 billion EUR in 2009 were government payments for services and 26 billion EUR covered infrastructure[17]).

In the context of the goals of the 2011 White Paper, the performance of the rail sector compared to other transport modes is not yet satisfactory. The growth of passenger traffic by rail since the early 2000's has been insufficient to increase its modal share in comparison to cars and aviation. The 6% modal share for rail in the EU has remained fairly stable since the mid-nineties.

Graph 1 – Evolution of the rail modal share in passenger transport (based on number of passenger-km (p-km))

Source: Rail Market Monitoring Scheme (RMMS) 2010.

These overall trends mask however significant differences between different market segments (high-speed, long-distance/intercity, regional and commuter/suburban services) and Member States, in particular between the EU-15 and the EU-10 Member States.

The modal share of rail has remained stable because even if high-speed rail traffic (thanks to important infrastructure investment) has managed to gain market share at the expense of air transport, this increase has been offset by decrease in other segments like regional and conventional long-distance services.

BOX 2 – RAIL MARKET SEGMENTS

High-speed train services (e.g. TGV, ICE…) and long-distance conventional train services (e.g. Intercity), which often (but not always) require seat reservation, compete mostly against air transport and, to some extent, cars. High-speed trains operate (almost always) in dedicated infrastructure – since 1990, high-speed railtracks have increased 6-fold (from 1024 km to 6178km in 2009) – and generally only stop in sizeable urban agglomerations.

Medium-distance/regional train services (e.g. Inter-Regio) and suburban/commuter train services (e.g. RER, S-Bahn, Cercanias…) compete mostly with cars and have free seating. Suburban/commuter train services are often interconnected with metro networks. These services operate almost exclusively with subsidies and public service contracts and call at a high number of stations. Suburban services require very often intensive railway operations.

Market structure of EU domestic rail passenger markets

Source: UIC, Steer Davies Gleave, DG MOVE (White Paper on Transport), own calculations,

Rail passenger traffic in the EU-15 has increased by 16% between 2000 and 2009, with countries such as the UK, Sweden and Belgium experiencing growth in excess of 30%. Other Member States with growing modal share include Denmark, Germany, France, Hungary, Netherlands, Austria and Sweden. However, the increase of modal share in Spain, France and Belgium[18] is achieved only via significant investments into high-speed train infrastructure. At the same time traffic in EU-10 has fallen 25%, with falls of more than 35% in Romania, Lithuania and Bulgaria.

Graph 2 – Rail Modal Share Corrected for High-Speed Rail Construction

A wide range of external factors have in various ways contributed to these diverging trends, including economic developments, oil and petrol prices, congestion levels of roads, demographic trends, increased car ownership in EU-10 countries and on-going difficulties in securing public funding for rail services.

3.1.3. Existing market structures for passenger rail in Member States

In many Member States national incumbents are in either a monopolistic or dominant position (except in the UK, where the incumbent, British Rail, was dismantled in the nineties) and the market features many operators. In all but 2 Member States, there is an incumbent with a market share above 90%.

Graph 3 – Market share of incumbent railway operators (% p-km)

Source: Rail Market Monitoring System (2010) – includes international traffic

*-historical successors of incumbent, ** 2 incumbents, ***incumbent: largest operator in terms of p-km

BOX 3 - PRINCIPLES OF COMPETITION IN RAILWAYS

Competition in railways takes either the form of competition for the market (several operators competing for the exclusive right of a specific route or bundles of routes – either a PSC (cf. box 1) or a service concession); or competition in the market (several operators running in the same route - i.e. the so-called "open access").

Experience in liberalised markets shows that regional and suburban trains are mostly run through PSCs, whereas high-speed trains and long distance inter-city trains are often operated on a commercial basis (with or without open access rights). There are however examples of PSCs for intercity trains, especially where they serve dual purposes of providing network efficient commuter capacity within the intercity operation. The United Kingdom has opted for generalised system of competitively-tendered PSCs for bundles of lines (which are called "franchises").

Graph 4 provides an overview of market access conditions in different Member States (more details are found in Annex 4).

Graph 4 – Rail market structure of EU Member States (% p-km)

*= open access can co-exist with PSC services

**= open access can co-exist with PSC services provided it does not compromise their economic equilibrium

Source: Rail Market Monitoring System (2010), CER (2011) – cf. Annex 4

Graph 5 – Railway market structure and railway undertakings market shares

About 40% of all passenger-kilometres in the EU are so far accessible to new entrants. Only two Member States (UK and Sweden) apply a fully open market based on open access and competitive tendering. Germany will now move towards full liberalisation, further to the decision of the Bundesgerichtshof that all future PSCs will have to be competitively tendered. However, currently half of passenger-km are still based on past direct awards of PSCs to Deutsche Bahn. Nine other Member States (Italy, Poland, Austria, Denmark, Bulgaria, Portugal, Netherlands, Czech Republic and Romania) have to some extent opened their market, however new entrant operators de facto operate only in seven of these countries (Austria, Czech Republic, Germany, Italy, Netherlands, Sweden and the United Kingdom), either in PSCs or open access.

10 Member States (with asterisk), representing 20% of all passenger-kilometres, have opened markets in a way that allows commercial services in open access to co-exist with directly-awarded PSCs. Further to the Bundesgerichtshof decision (as mentioned above), Germany will not be part of this group anymore. In Estonia, Latvia, Lithuania and Slovakia, full open access co-exists with a directly-awarded PSC covering all rail services. PSCs in these countries should be de jure competitively tendered, however de facto only the incumbent participated.

As a result, some 40% of all passenger-kilometres are not open for competition, as it fall either under exclusive rights or directly awarded PSCs (that do not co-exist with open access). Exclusive rights are mostly found in large-sized[19] Member States (France, Spain, Portugal, and Finland), whereas most small-sized Member States (Belgium, Hungary, Greece, Ireland, Luxembourg and Slovenia) have covered all their rail services by a directly awarded PSC with no right to provide open access services. In Austria, Czech Republic and Portugal a sizeable part of passenger-km results from PSC directly awarded to the incumbent. Finally, the Netherlands finds itself in a hybrid situation between a "legal monopoly" and a "directly awarded PSC", as NS pays a 20 million EUR concession fee to the Dutch government for operations on the largest part of the Dutch network and the exclusive right associated to this concession remains valid till 2015.

PSO services represent some 66% of all passenger-kilometres[20], whereas commercial services either under open access or legal monopolies represent some 33% of all passenger-kilometres in the EU. In 13 Member States – mostly all small-sized in area - almost all services are covered by a PSCs. In 12 Member States there is no competitive tendering for PSCs and in a further 5 Member States attempts to tender have failed (Bulgaria, Estonia, Lithuania, Latvia and Slovakia).

Following the characteristics above, the Member States can be accordingly grouped in 5 clusters (cf. Map 1):

fully liberalised markets like UK and Sweden, where all passenger-kilometres are in open access or where all public service contracts are competitively tendered.

– largely liberalised markets like Austria, Italy and Germany where more than 33% of the passenger-kilometres are in open access or correspond to competitively tendered PSCs; new entrants have been able to successfully compete in and for the market.

– partially liberalised markets like the Czech Republic, the Netherlands and Portugal, where less than 33% of the passenger-kilometres are in open access or correspond to competitively tendered PSCs, but where new entrants have taken an important share of the liberalised traffic.

– quasi-liberalised markets like Bulgaria, Denmark, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia, where the whole market is open through "open access" - but there is no effective competition in the market - and PSCs are directly awarded. New entrants, if any (Denmark, Slovakia, Estonia), are operating the directly awarded PSCs.

– Non-liberalised markets like Belgium, Finland, France, Greece, Hungary, Ireland, Luxembourg, Slovenia and Spain, where the incumbent operates all commercial services and PSOs

Some Member States can be difficult to classify and it is necessary to distinguish between prospective analysis (future) and retrospective analysis (past). As Sweden only has abolished exclusive rights in long distance in 2011 and as Germany will introduce competitive tendering as from 2012, it makes sense to use a cluster "fully and largely liberalised" for retrospective analysis. Also, successful tendering of international PSCs suggests that Denmark could easily join the group of "partially liberalised" countries for prospective analysis. Moreover, lack of de facto competition for years in quasi-liberalised markets, make them in reality quite similar to non-liberalised markets. Finally, it is important to underline that Austria, Czech Republic, Finland, Greece and Spain have signalled that they intend to take measures to open their railway markets. In the case of Finland, it appears the contract for the suburban services of Helsinki would be competitively tendered

Graph 6 – Clusters of Member States

3.2. Description of the problem

The modal share of rail has not increased over the years. Overall growth of rail sector has not been able to keep with the pace of 25% growth in air passenger traffic further to the liberalisation in the 90's[21]. In fact, since the mid-nineties, in some Member States local and regional passenger train services have fallen in a downward spiral of continuous operational losses and subsequent diminishing of services. This decline has been exacerbated in many of the EU-10[22] Member States by the decay of old infrastructure, the wealth driven high-growth of car ownership and the success of bus transport[23]. Also, although commuter transport appears to be one of the strongest rail transport segments, cars still secure a substantial share of urban transport. 59% of Europeans never use suburban trains, a situation that contrasts with the 75% urbanisation rate of the EU27 and thereby indicates a significant development potential for suburban and regional passenger rail transport. Even if high-speed trains have managed to gain market share at the expense of air transport services, competition remains tough in lines running in parallel with aggressively pricing low-cost airlines[24].

To some extent, the inability of the rail sector to gain market share vis-à-vis other modes of transport can be explained by exogenous factors and trends such as policies and investments that have favoured road transport. In this respect, policies pursued at EU level such as the internalisation of transport externalities, the elimination of tax distortions and unjustified subsidies are part of the effort to align market choices with sustainability needs (and to reflect the economic costs of ‘non-sustainability’) and, hence, to establish a level playing field between modes which are in direct competition.

Nevertheless, there seem to be also internal shortcomings in the passenger rail sector, as reflected by customer perceptions and certain performance gaps as discussed below. Stakeholders reported during the consultation process that the passenger rail in Europe is, despite some success stories, in general not attractive and competitive enough vis-à-vis other modes of transport. More than half (54%) of respondents of the 2012 Eurobarometer survey were not satisfied with their national and regional rail system[25]. Within the Consumer Scoreboard 2011[26] the overall satisfaction of train passengers was 6.7/10, well below of the most consumer goods and services. Among consumers rail services score worse than all other transport modes (urban transport and airlines in particular scored better) and are ranked 27th out of 30 services markets, with particularly poor scores on comparability, problems in general and satisfaction[27].

Methodological constraints

In general performance indicators and efficiency measures of railway undertakings cannot be easily compared between the countries as the outcome is very much shaped by geography and population density, but also how the public support for rail is arranged.

BOX 4a –BENCHMARKING EFFICIENCY AND QUALITY IN RAIL

Profitability - a wrong indicator

In most sectors, efficiency can be measured through profitability and all deriving financial ratios. However, in rail, the level of public subsidies distorts any "profitability" indicators. The amount of subsidies varies from Member State to Member State and can be, in some instances, quite substantial. For example, in 2007 public funds represented 74% of the revenues of the Danish incumbent railway undertaking, DSB. Furthermore, some railway undertakings are part of integrated structures with freight and infrastructure management activities and profitability of different activities is not always distinguishable in financial reports. On the other hand, chronic losses over a long period can be used to spot a problem of systematic underperformance or underfinancing.

Efficiency ratios – often incomparable

Another method could consist in comparing and benchmarking non-monetary efficiency ratios (such as p-km per train-km) or cost ratios (e.g. operational costs per p-km) across several Member States. However, this process is complicated by the variety of geographic and demographic realities across Europe, which have a strong impact on the functioning of national railway systems. For instance, the urban concentration of Portugal explains why the cost per p-km in remote areas of that country is 400 times higher compared to suburban services around Lisbon (cf. Annex 3 for further details).

Consequently, there is no optimal efficiency applicable to all operators. The literature on stochastic frontiers and DEA that are used to measure and benchmark efficiency in utilities have not been able to bring forward clear-cut conclusions for European railways (cf. Annex 6 for further details).

Quality and satisfaction ratios – often incomparable

Measuring and comparing quality and satisfaction is also challenging as there no optimal rate of satisfaction (should it be 50%? 70%? or 90 %?) and the level of satisfaction with rail is influenced by satisfaction with other services. Moreover, exogenous events (e.g. snow storm, industrial action) can also influence judgements and complicate cross-Member State comparisons.

Methodological approach applied to the assessment of efficiency and quality

As explained in detail in Annex 3, this impact assessment proposes a ‘benchmarking exercise’ to consider the railway system of each Member State as a system on its own and:

– to measure if quality and efficiency indicators of each Member State have improved or worsened since the early nineties or 2000s (depending on the availability of data);

– to benchmark Member States in terms of their progression in improving the quality and efficiency indicators to identify those that have progressed systematically across all indicators;

– to observe if the values of quality and efficiency indicators between Member States have converged or diverged. If the-variance of indicators has increased, these have diverged and if the variance of the indicators has decreased, these have converged.

This information is then linked to the clusters of Member States classified according to their degree of liberalisation, to conclude whether there is evident link between the market structure and performance. The box below defines the indicators used in the analysis.

Efficiency and satisfaction indicators analysed:

BOX 4b – EFFICIENCY AND SATISFACTION INDICATORS ANALYSED

1. - Efficiency:

a) Passenger-km to train-km: compares the output (passenger-km) with the input (train-km)

b) Productivity of rolling stock - train-km to rolling stock: measures utilisation rate of rolling stock. As it can take stock of the increase of frequencies, it is also a service performance indicator.

c) Productivity of labour - train-km to staff/FTEs: measures train services produced by one employee.

d) Usage of infrastructure – measures the number of passenger-km per km of rail lines

e) Subsidy efficiency - passenger-km to PSO subsidies in EUR: measures passenger-km produced by one EUR of subsidy to public service obligations

2. –Quality:

a) Modal split: measures the progress of rail versus other modes of transport

b) Satisfaction – index based on the comparison between Eurobarometer surveys of 1997 and 2012

c) Fares - evolution of price index for rail fares as provided by Eurostat, inflation adjusted

d) Punctuality – percentage of local, regional services trains with more than 5 minutes delay and of long-distance trains with more than 15 minutes delay.

e) Safety – number of victims (killed or injured) per train-kilometre

f) Satisfaction – indexes based on the analysis of all the quality indicators of Eurobarometer 2011 (cleanliness, quality of facilities, punctuality, frequency and information on delays),

The results at the global level are presented in Table 1.

Table 1 – Growth and divergence of quality and efficiency ratios[28]

(a) 9% growth in EU15 (b) EU15 Member States only and (c) exchange rate complicate comparison across Member States

As shown in table 1, there has been overall improvement in efficiency and quality since the nineties. However, there is also growing divergence between the performance of railway systems in Member States – with the exception of safety, satisfaction and modal split, variance in ratios is diverging. The analysis below tries to identify how performance indicators have evolved in Member States with different market structures.

3.2.1. Gaps in quality and low satisfaction with service

Respondents to Eurobarometer survey found that the level of quality of rail passenger services has not kept pace with evolving needs in terms of frequency of service and quality (reliability and comfort)[29]. Passengers perceive a mismatch between the expectations of potential travellers and the service provided by railway undertakings for the fare requested[30]. In several Member States, rolling stock is more than 30 years old and has not been retrofitted[31]. Satisfaction with service frequency is below 80% in most EU Member States (EU average at 70%).

The benchmarking exercise demonstrates (cf. box 4a-4b, Annex 3, graph 8 and table 2) that, while satisfaction, modal split and safety have improved and converged, the gap between Member States has widened in terms of availability and frequency (cf. Table 1) and the satisfaction indicators appear to have been improving faster in fully or largely liberalised Member States. Table 2a lists the 6 Member States that have best performed in terms of evolution of modal split, satisfaction and rail fares[32].

Table 2a- Evolution of satisfaction indicators

At the next stage, for each indicator (growth of modal split, growth of satisfaction between 1997 and 2012, evolution of fares, punctuality, safety, detailed quality satisfaction as measured in the Eurobarometer 2011 and the overall satisfaction of Eurobarometer 2012.[33]), the first ranked Member States received grades from "6" to “1”. All other Member States have no grade (i.e. "0"). The average benchmarking points were then calculated for each cluster, as presented in Table2b The first ranked Member States receives a grade "6" till the sixth which received a grade "1" All other Member States have no mark (i.e. "0"). The average benchmarking points are then calculated for each cluster.

Table 2b – Annex 3 benchmarking points per type of cluster (satisfaction/quality indicators)

Fully Liberalised: || 17.7

Largely liberalised: || 5.2

Fully or largely liberalised || 10.2

Partially liberalised: || 5

Quasi-liberalised: || 3.4

Non- liberalised: || 6.6

While both countries with liberalised markets (Sweden, UK) score well in terms of satisfaction evolution, some Member States with non-liberalised markets, like Belgium, France, Luxembourg and Spain also score very well. Spain and Luxembourg score high on the Eurobarometer 2011 indicators, Finland tops the overall satisfaction rate of the Eurobarometer 2012, while fares have decreased in Belgium. Interestingly, non-liberalised markets score almost twice as much as quasi-liberalised markets. The next section considers the ‘price of quality’. i.e. how efficient are different rail systems.

3.2.2. Gaps in operational efficiency

Box 4 explained why the efficiency measures of railway undertakings cannot be easily compared[34]. However, there is some concurring evidence suggesting that the operational efficiency of railway undertakings leaves some room for improvement.

Firstly, the labour productivity ratio of railway transport in the EU27 was in 2007 well below the overall EU27 average (119% against 142%)[35]. The benchmarking exercise also demonstrates that the productivity of labour between railway systems has significantly diverged since the early nineties (variance has tripled). There are also overall important variations between assumingly comparable railway systems. For instance, in 2008, the ratio passenger-kilometres per staff appears to be double in the Netherlands compared to in Belgium (which has similar economic and geographic characteristics); and up to five times as large in Spain or Sweden than in Czech Republic or Romania (which have comparable population density). The latter example demonstrates that the problem of productivity of labour is particularly acute in EU-10 Member States[36]. Their railway undertakings employ 39% of all railway jobs in the EU while providing only 11% of passenger activity (in terms of p-km). This seems to suggest that labour productivity in the rail sector has room for improvement and is an important efficiency driver given that labour costs represent some 30% of all costs of rail undertakings.

Secondly, there are significant differences in asset utilisation such as rolling stock and infrastructure (cf. graph 4). The ratio of p-km to train-km is almost double in France and Sweden compared to the rest of Europe (cf. table 7a of Annex 3) and variance of this indicator has diverged by 14% between 1993 and 2008 (cf. table 1). The utilisation rates of rolling stock and that of the infrastructure, while in general significantly improved, have also diverged between the Member States – the variance has increased respectively by 45% and 58%. For instance, the Paris-Lyon high-speed line has some 17 high-speed trains an hour and the Rome-Milan some 3.5 trains-hour, while the high-speed lines between Madrid-Barcelona and Frankfurt-Munich only have 1.7 and 1.3 trains per hour (operated only by the incumbents). In Portugal, public expenditure for railways has tripled but p-km have increased by barely 5% between 2000 and 2008, whereas in Sweden (also a sparsely populated country), public expenditure has increased by 40% and p-km by 80%.

Thirdly, the rail sector absorbs a substantial level of public funding compared to other economic sectors. Between 2008 and 2010, the subsidies[37] of railways outside infrastructure were 7 times larger than all the State aid to the remaining transport sector[38] while the modal share of rail is only 6%[39]. In spite of significant public support, many railway undertakings have been making losses for several years in a row (cf. table 3), which indicates either serious efficiency problems or systematic underfinancing. In many instances, railway undertakings had to be bailed out[40], costing serious money. This perspective will become increasingly acute within the context growing government spending cuts in many countries. In Austria, the new entrant Westbahn indicated that for the same amount of subsidies provided by the Austrian government to the incumbent ÖBB in the line Salzburg-Graz it could operate 7 daily services instead of the 3 provided by ÖBB, whose personnel costs are 20% higher than that of its competitors[41].

Table 3 - Performance of EU railway undertakings (operational profit 2000-2008)

RU || 2000 || 2001 || 2002 || 2003 || 2004 || 2005 || 2006 || 2007 || 2008 || Conclusion

DB (DE) || + || - || - || + || + || + || + || + || + || +

SNCF (FR) || + || - || - || - || + || + || + || + || + || +

SNCB (BE) || + || + || - || - || - || - || - || - || - || -

OBB (AT) || - || - || + || + || + || + || + || + || + || +

PKP (PL) || - || - || - || - || - || - || - || - || - || -

RENFE (ES) || + || + || + || + || - || + || + || + || + || +

BDZ (BG) || - || - || - || - || - || - || - || + || + || -

CD (CZ) || - || - || - || - || - || - || - || + || - || -

DSB (DK) || + || + || + || + || + || + || n.a. || + || + || +

OSE (EL) || - || - || - || - || - || - || - || - || - || -

VR (FI) || + || + || + || + || + || + || + || + || + || +

MAV* (HU) || - || - || - || - || - || - || - || - || - || -

FS (IT) || - || + || + || + || + || + || - || - || + || +

LG (LT) || + || + || + || + || + || + || + || + || + || +

CFL (LU) || - || + || - || - || + || n.a. || n.a. || n.a. || n.a. || -/+

NS (NL) || + || + || + || + || + || + || + || + || + || +

CFR Calatori (RO) || n.a. || n.a. || n.a. || n.a. || + || - || + || - || + || -/+

SJ (SE) || n.a. || n.a. || n.a. || + || + || + || + || + || + || +

SZ (SI) || - || - || - || + || + || - || + || + || + || +

ZSSK (SK) || n.a. || n.a. || + || - || - || - || - || - || - || -

CP (PT) || - || - || - || - || - || - || - || - || - || -

CIE (IE) || n.a. || - || - || - || - || + || - || + || - || -

"+"= profit / "-"= losses

* MAV data 2000-2006, MAV Start data 2007-2008. No data available for the UK ATOC operators

Source: Railway time-series data. International Union of Railways (UIC), 2009.

Overall efficiency of public subsidies can be measured in terms of PSO p-km per EUR of subsidy and as shown in Annex 3 tables 9c and 9d, in these terms there are important discrepancies between the Member States. Sweden and the UK, with liberalised rail markets, are in these terms outstanding performers. However, some partially liberalised (Germany, Austria[42]) and non-liberalised (Belgium and Finland) have also achieved remarkable improvements. During the 2000-2008, Germany was able to increase its p-km by 9% while reducing the subsidies by 20%, achieving reduction in subsidy per p-km by 29%. In France, at the same time, subsidies increased by 48% but resulted only in 24% of additional p-km (increase in subsidy per km by 24%). For several EU-10 Member States the level of subsidies has doubled since 2003, while the number of p-km has remained fairly stable (graph 7a). A similar phenomenon appears to be emerging also in EU15 Member States (graph 7b).

Table 2c – Evolution of efficiency indicators

Finally, as suggested by the benchmarking exercise in Annex 3 (cf. graph 9 and table 2c), the growth of efficiency indicators has been more systematic in fully or largely liberalised markets, which figure more often among the 6 best performing countries. The average benchmarking points summarised across all the aforementioned efficiency indicators are provided in Table 2d.

Table 2d – Annex 3 benchmarking points per type of cluster (efficiency indicators):

Fully Liberalised: || 20.5

Largely liberalised: || 5.5

Fully or largely liberalised || 11.5

Partially liberalised: || 3

Quasi-liberalised: || 1.5

Not liberalised: || 6

Like for quality, the countries with most liberalised markets (Germany, Sweden and UK) score well in terms of efficiency evolution. At the same time some Member States like Belgium, Slovenia and Hungary whose markets are "non-liberalised" also score very well. Hungary has seen an important improvement of labour productivity and Slovenia of the usage of its rolling stock. Interestingly, non-liberalised markets score almost twice as well as quasi-liberalised markets.

Graph 7a – Rail Subsidy payments in EU10

Source: IA support study (2012).

Graph 7b – Rail Subsidy payments in EU15

Source: IA support study (2012).

3.3. Problem drivers

According to stakeholders, existing railway undertakings are not sufficiently responding to market trends and curbing their operational inefficiencies due to a large extent to a lack of competitive pressures and to the existence of an increasingly complex patchwork of national approaches to liberalisation of domestic passenger rail markets which prevent the emergence of a genuine internal market for passenger rail services.

Graph 8: Problems, drivers and root causes

3.3.1. Lack of competitive pressures

Some 70% of respondents to the stakeholder consultation considered that the lack of competitive pressures on the European rail market affects negatively the quality of rail services and the competitiveness of the sector.

In many Member States, national incumbents are in either a monopolistic or almost monopolistic situation. As shown in Graph 3 (cf. supra), in all but 2 Member States (UK, Estonia), there is an incumbent with a market share above 90%[43]. In the UK, the incumbent (British Rail) was dismantled, whereas in Estonia, the incumbent Eesti Raaudtee abandoned long-distance services which were directly awarded to a private operator under a PSC.

Competition in the market

Competition in the market is in general more suited for high-speed and long-distance intercity services, which represent half of all rail passenger-kilometres in the EU (box 1). 16 Member States permit "open access" (exposing half of the EU market in passenger-km, cf. Graph 4 and Table 1 in Annex 4), but only in 6 of them effective competition happens. Map 2 and in table 3 list the few lines with competition in the market. The new entrants competing in the market only have a 6% market share of the market in open access[44].

Map 2 – Domestic railway lines with competition in the market

- - - - - fringe competition ------- strong competition

Table 3 – List of domestic railway lines with competition in the market

Member State || Operator || Route || Service || Entry || Total market (est. m-pkm) (% dom pkm) || Competitor || Rolling stock || Fares, services and ticketing

Austria || WESTbahn || Vienna-Linz-Salzburg || Long distance || 2011 || Ca. 700-1000 (10%) || ÖBB || New || Tickets purchased on board More stops

Czech Republic || RegioJet (RJ) || Prague-Ostrava || Long distance || 2011 || Ca. 116 (2%) || České dráhy (ČD) Leo Express || 2nd hand || Price reduction(-30%) RJ Trains are slower than ČD Pendolinos

Leo Express || Prague-Ostrava || Long distance || 2012 || Services launched on 16 November 2012 || České dráhy (ČD) RegioJet || New || Competes on service quality

Germany || Veolia Verkehr Interconnex || Leipzig- Berlin-Rostock || Regional Long distance || 2001 || Ca.80-160 (0.1%) || DB || 2nd hand || Simple fare structure Niche service

HKX || Hamburg-Köln || Long distance || 2012 || <1% || DB || 2nd hand || Niche Late night / Week-end service

Great Britain || Grand Central (Arriva) || London- Sunderland || Long distance || 2007 || Ca. 540 (1%) || Several || Leasing || Compete with PSCs that have regulated fares

Hull trains || London-Hull || Long distance || 2002 || Several || Leasing

Italy || NTV || Salerno-Naples-Rome-Milan-Turin || High speed || 2012 || Ca.750 (2%) || Trenitalia (Frecciarossa) || New || Price reduction (-30%) Competes on service quality Uses secondary stations

Sweden || Bla Taget || Stockholm-Göteborg || Long distance || 2010 || < 2% || SJ || ? || 2x day Faster service Single Fare

Veolia || Stockholm-Malmö || Long distance || 2012 || SJ || ? || Slower service Cheaper fare

Source: Appendix K "Country fiches" of the IA support study and own estimations (Annex 4).

These routes have experienced a combination of traffic increase, price reduction and/or service innovation when new entrants have come in the market with critical mass (Italy, Czech Republic, Austria and the Stockholm-Malmö route in Sweden)[45] and a widening of services offered with 'niche' operators. Some new entrants opted for offering slower services at lower prices (Regiojet, Westbahn and Veolia Sweden) or to use quality to differentiate themselves (NTV[46], Leo Express and to some extent Grand Central and First Hull[47]). Also, some new entrants have voluntarily opted for 'niche' services (HKX and Blǻ Taget) or 'niche' routes (Interconnex). Where new entrants have come with critical mass, incumbents have also co-benefited from an overall traffic increase made at the expense of other modes. Finally, for some railway undertakings investing into new rolling stock is part of their business strategy (Italo high-speed trains for NTV and the new trains of Leo Express and Westbahn), while others have opted for second-hand rolling stock (RegioJet and the niche operators).

It is interesting to compare the Madrid-Barcelona (no competition) and Rome-Milan (competition) routes, which cover the same distance in countries with similar GDP per inhabitants: while the latter has doubled the number of trains and reduced the prices, the service characteristics of the former have not significantly changed. The business and leisure fares per km were found to be half the price between Rome and Milan than between Madrid and Barcelona (cf. table 5h of Annex 3).

However, competition is slow to expand and in some cases remains unsustainable in the long-term. Although there is formal open access in Italy since and 2001, NTV was launched in 2006 and started its operations only in 2012. In Germany open access has been liberalised since 1994, but there are just a few niche operators operating and no competition on the German trunk network Munich-Frankfurt-Köln-Hamburg/Berlin. Finally, competition in the market is not always successful: SJ, the Swedish incumbent, abandoned the route Malmö-Goteborg after the entry of a competitor and pulled out of the Copenhagen-Odense route in Denmark, and it would appear that some open access railway undertakings would operate at loss in UK.[48]

Graph 9 – Trend in DB rail fares

Source: Appendix K "Country fishes" of the IA support study.

Major air routes in EU remain domestic and are almost all exposed to (high-speed) rail competition – except for the busy routes between mainland Spain and Balearics and Canary Islands. However, except for the Rome-Milan route, there is no intra-rail competition. At the same time, there are for instance in parallel 3 airlines on the Madrid-Barcelona route. As a result, rail fares on those lines are very likely to position themselves vis-à-vis air fares or cars rather than to reflect the actual costs of operation within the dynamics of intra-modal competition[49].

Table 4 – Air-rail competition versus rail-rail competition in the main intra-EU air routes[50]

Source: Eurostat; own research, AB=air Berlin, AF=Air France, AZ=Alitalia, BA= British Airways, FR=Ryanair, IB=Iberia, KL=KLM, U2= Easyjet, UX=Air Europa, VY=Vueling, *=Eurostar intends to enter this market, **= DB a,d Eurostar intend to enter this market

Furthermore, in the quasi-liberalised Member States (Bulgaria, Denmark, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia), "open access" has co-existed in parallel with a subsidised service under a directly awarded PSO[51], most likely deterring potential new entrants. The only country with open access entry has been Denmark, where SJ, the Swedish incumbent abandoned its intercity services between Copenhagen and Odense, the third largest city in Denmark,

Competition for the market

Competition for the market is in general more suited for regional and suburban services, which are mostly exclusively run through PSCs and represent half of all rail passenger-kilometres in the EU (box 1).Two-thirds of all passenger-kilometres in the EU are operated in PSCs as several Member States cover their entire network under PSO and therefore also cover long-distance services under PSOs (e.g. UK, Belgium and Netherlands - cf. graph 4).

The intensity of competition in competition for the market depends on whether the contracts are awarded directly or via competitive tendering. So far competitive tendering is fully or partially used in 11 Member States, while in 16 contracts are directly awarded (although in Bulgaria, Estonia, Latvia, Lithuania and Slovakia, this results from failed tenders). Furthermore, even if competitive tendering is de jure a requirement, effectiveness of tender depends notably on the number of bidders for each PSC[52]. However, the number of bidders remains low in most Member States, except maybe in the UK[53]. In Sweden and Germany, two fully or partially liberalised railway markets[54], 2 to 3 bids were typical[55] and in Italy only 1 or 2 bids[56]. There are several examples of tenders that have not been able to attract a single bidder (not even from the incumbent railway undertaking), in particular in the new EU10 quasi-liberalised Member States (e.g. Bulgaria, Lithuania, Latvia, Slovakia, Poland). This means that despite the efforts and costs to organise tenders PSCs are actually directly awarded to the incumbent or its historical successor (Poland).

Graph 10 – Number of bidders in Germany in PSC tenders (1997-2010)[57]

Source: IA support study quoting Holzhey, M., Berschin, F., Kühl, I. and Naumann, R. (2011) Wettbewerber-Report Eisenbahn 2010/2011 quoted in Appendix K of the IA support study.

Finally, the benchmarking exercises have shown that the Member States with fully liberalised rail market and thus highest level of competition (UK and Sweden) have improved performance across the board (cf. tables 2b and 2d). At the same time, many railway systems run as legal monopolies, also perform well in many aspects, but each of them seems to have certain "weak points". For instance productivity of labour in Belgium and Austria is low, usage of public funds in France is high and there seems to be service undersupply in Spain. It indicates that quality improvements in non-liberalised markets have been achieved with higher price than that in liberalised markets.

3.3.2. National approaches to liberalisation prevent the emergence of a genuine Single Market for rail passenger services

As said above, more and more Member States take measures aimed at revitalising their domestic rail passenger sectors through liberalisation. The Bundesgerichtshof has recently stated that public service contracts must be awarded through competitive tendering, whereas Finland, Austria and Czech Republic, Spain are now considering legislation to open or extend the opening of their railway markets to competition (Sweden has just withdrawn the exclusive rights of SJ on long distance lines). However, in the absence of a common approach at EU level, a patchwork of national models has emerged, which, according to stakeholders, prevents the emergence of the Single European Railway Area.

Given the high entry costs, foreign rail operators (including foreign incumbents), rather than ‘green field’ new entrants, are the actual source for intra-modal competition in railways, being able to create critical mass to challenge national incumbents. However, currently rules for making business vary significantly between Member States. For instance, PSCs may be awarded for entire networks or for small bundles of lines and bidding procedures vary. In the same manner, railway undertakings may enjoy full open access rights in some Member States while in others such rights are subject to the economic equilibrium of PSCs (e.g. Italy) or depend on the existence of reciprocity (Italy, Luxembourg). In several Member States there are services under legal monopoly (long-distance services in France, Spain, Portugal and most of Finland).

Because of these diverging approaches, it is difficult for railway undertakings to develop consistent business strategies throughout the EU, as low-cost airlines have been for instance able to do, and to create critical mass to challenge the national incumbents. Only 5 incumbents have developed activities in other Member States and only one of the UK franchise operators is actively present in the continent. In an interview and during the stakeholder conference of the 24th September 2012, a UK-based railway group explained that it would be more likely to bid overseas if the EU had a more consistent approach on market access rules.

This patchwork situation acts as a drag on the creation of innovative industrial and business structures for a better exploitation of economies of scope and scale, while enforcing on operators the business logic based on national rather than EU dimension.

3.4. Root Causes

These two problem drivers – low competitive pressure and patchwork of access rules, that prevents the emergence of more efficient Single Market for passenger rail services – are the result of interplay between several root causes.

3.4.1. Access to national rail markets is restricted

As indicated above, except in few Member States, domestic rail passenger transport remains in many Member States closed to competition.

3.4.1.1. – Local access rules on domestic rail passenger markets

(a) Establishment

Except for the opportunity for cabotage within the international passenger services, EU railway undertakings do not have the freedom to provide passenger rail services in the domestic markets of other Member States under EU law. In at least 9 Member States (Spain, France, Belgium, Portugal, Luxembourg, Finland, Hungary[58], Slovenia and Greece), the incumbent appears to still enjoy a legal monopoly for the provision of domestic passenger services laid down in the national legislation.

In most Member States, access to the domestic passenger market is subject to specific conditions, such as establishment in that Member State (the exceptions are Bulgaria, Denmark, Latvia, Slovakia, Sweden and the UK are the only exceptions – the situation appears to be unclear in Finland, Spain, Portugal and Poland). In this case, foreign railway undertakings face entry barriers compared to national operators as they must first set up a subsidiary in the host Member State. Italy and Luxembourg moreover apply reciprocity clauses against companies originating in Member States that have not opened their own domestic passenger market.

BOX 5 - ECONOMIC EQUILIBRIUM OF PSCs

The question of the economic equilibrium of PSC first arose in the context of the 3rd Railway Package and the opening of domestic cabotage in international services. Article 10 (3) (b) of Directive 2007/58/EC foresees that Member States may limit cabotage if it compromises the economic equilibrium of PSCs.

The question of the economic equilibrium of PSC was further clarified in the Interpretative communication on certain provisions of Directive 2007/58/EC. The interpretative communication[59] indicated that the assessment should be made transparently and on a non-discriminatory basis, based on economic analysis and it should determine how far the PSC is impaired.

The recast of the 1st Railway Package foresees that implementing measures should lay down the details of the procedure to assess whether the economic equilibrium is compromised.

The competition between RegioJet and the Czech incumbent Česke Drahy (ČD) provides a good example of the problems of economic equilibrium of PSCs. Both compete on the Prague-Ostrava line with ČD apparently calling at some stations under the terms of its directly awarded PSC. Nonstop intercity trains are not covered by PSCs. According to ČD, the price reduction against RegioJet would have resulted in an increase of losses from 15 to 40 million EUR. In parallel, at the time of writing, RegioJet has complained to the Czech competition authority that ČD has abused its dominant position to undercut its competitor by lowering prices on the Prague-Ostrava route while increasing prices in others[60]. The Czech competition authority has launched administrative proceedings and ČD risks a fine of up 10% of its revenues. ČD argues that similar commercial offers were available in other routes that are not subject to competition.

3.4.1.2 – Legal monopolies

In Finland, France, Portugal and Spain, national incumbents enjoy exclusive rights on 17% of EU passenger-km that cover routes that fall outside public service obligations, as, for instance, AVE and TGV lines (e.g. Paris-Lyon, Paris-Bordeaux, Madrid-Sevilla and Madrid-Barcelona) and the intercity services in Portugal and Finland (cf. table5). In those circumstances, it is not possible to develop any competition for railway services, which could result in underutilising of infrastructures, as monopolists tend generally to undersupply[61].

Table 5 – Main lines falling under legal monopolies

3.4.2. Obstacles to an effective 'regulated competition' for PSCs

3.4.2.1 - Direct award of Public Service Contracts

While PSCs remain essential part of rail passenger services, this section discusses the relevance of competition in awarding PSCs (e.g. competition for the market)). While some Member States have already introduced competitive tendering for PSCs, in other Member States the domestic urban, suburban and regional services, and often also inter-city services, are provided on the basis of a directly awarded PSC. In small-sized Member States like Belgium, Denmark, Estonia, Hungary, Ireland, Netherlands, Greece and Slovakia, the whole network is covered by a single PSC which is directly awarded.

Although Regulation 1370/2007 on public passenger transport services recognised that, with appropriate safeguards, the introduction of regulated competition between operators leads to more attractive and innovative services at lower cost and is not likely to obstruct the performance of the specific tasks assigned to public service operators, it excludes the rail sector from the obligation to award PSCs through an open tendering procedure.

As a result:

– 42% of all the EU p-km are not accessible to other railway undertakings than the national incumbent.

– The long-distance services of small-sized Member States Like Belgium, Hungary, Netherlands are not accessible to other railway undertakings, but the incumbent

– The regional services of many important EU regions (e.g. Ile-de-France) are not accessible to other railway undertakings, except the incumbent (cf. table 6a)

– The suburban services of all EU main cities, but Berlin and London are not accessible to other railway undertakings, but the incumbent (cf. table 6b)

At the same time introduction of competitive tendering has resulted in significant savings of 20% to 30% for PSC contracts in Germany, Sweden and Netherlands (cf. box 7)

60% of stakeholders agreed that further market integration of the rail sector should be progressed by opening of domestic passenger service through compulsory competitive tendering of PSCs. Some railway undertakings disagreed indicating that only the availability of state funding to the railway system as a whole would provide for the success of tenders. Passenger transport authorities reported that administrative costs would increase and therefore competitive tendering should only take place if there was the assurance that it would deliver best value for money

Table 6a – Intercity services under PSOs – type of award

Table 6b – Regional services Main EU regions – type of award

3.4.2.2 – Difficulty to verify the absence of a manifest error for Public Service Obligations

The TFEU - including Protocol N°26 on Services of General Interest - gives Member States a wide margin of discretion in providing, commissioning and organising services of general economic interest. The Union’s competence in this respect is limited to checking whether the Member State has made a manifest error when defining the service as public service obligation and to assessing any State aid involved in the compensation.[62] National competent authorities have core competence in defining PSO (i.e. identifying areas where it is necessary to impose PSO for passenger transport) and establishing the necessary service conditions (e.g. fares and frequencies).

As shown in graphs 4 to 6, the scope of PSOs varies from Member State to Member State. In Finland, it appears to cover only 14% of all p-km, whereas in 16 Member States, it covers more than 80% of p-km. In some countries, PSO covers the whole territory, most likely including services that could be profitable on their own but which could have been included in PSO definition in order to contribute to financial sustainability of remaining unprofitable parts of the network.

However, in this context, there is a risk that PSO definition could lead in some cases to an excessively wide scope of the definition of PSO with the consequence of market foreclosure. In the current situation, the EU lacks a control mechanism to verify the absence of a manifest error in the definition of PSOs. At the same time any EU control mechanism should respect the core competences of national authorities in identifying areas for PSO for passenger transport.

3.4.2.3 - The size of Public Service Contracts can be too large for other bidders beyond the incumbent

In Member States like Austria, Italy[63], Netherlands or Germany[64], the whole domestic passenger network is covered by a single or several voluminous PSCs (instead of several medium-sized bundles), which have been awarded through competitive tendering, but whose operational requirements (rolling stock, staff) are so extensive[65] that only the incumbent, which has actually access to rolling stock and other recourses, can obtain the contract, thus leading to a de facto monopoly.

For instance, the railway incumbent in Germany has successfully won in 58% of all tenders between 2006 and 2010 (with all access to rolling stock being a decisive factor). In particular, all contracts larger than 5.3 million train-km[66], were awarded directly to the incumbent[67]. Yet small entrants have been able to win 65% of small contracts. This is indicative of another current obstacle for new entrants to compete on large contracts. It is inter alia related to the question of availability of rolling stock as discussed below.

3.4.3. Market distortions hurting potential new entrants

The stakeholder consultation and the in-depth analysis undertaken by the Commission has identified a series of factors creating an uneven level playing field between the different service providers in (partially) liberalised markets, thereby hampering the expansion of new entrants. While market distortions in terms of different access barriers were mentioned in consultation responses from new entrants, passenger associations and passenger transport authorities, many holding groups responding to the stakeholder consultation disagreed with discriminatory framework conditions.

Many sources of discriminations against new entrants have been identified, such as access to infrastructure, stations, key rail related services (like information display, marshalling yards shunting facilities) and maintenance services, ticketing systems and rolling stock availability. Many of those have been/will be dealt with in other legislations/proposals. The question of access to infrastructure is being dealt in the context of the initiative on the governance of infrastructure (cf. Annex 1), whereas the question of the non-discriminatory access to ticketing facilities in stations, travel information display, marshalling yards, shunting and maintenance services has been dealt with in the Recast of the 1st Package.

The core factors leading to uneven level playing field are: the discriminations in the access to ticket distribution systems and the access to rolling stock.

3.4.3.1 – Discriminations in the access to ticket distribution systems

Conceptually a distinction be made between services under PSC and open access services. In the case of PSC non-discriminatory access to integrated ticketing schemes is less of an issue, as the competent authorities decide about the existence of such schemes and their conditions of access. However, it may be interesting to establish ticket integration between services of different PSCs.

For open access services, access to ticketing is more of a problem if the new entrant wants to offer through-tickets and inter-available tickets. Therefore, the new entrants often face problems with the access to integrated ticketing systems, in particular when these are run nationwide through a de facto mandatory single system by incumbents[68]. This is the case in Germany, Denmark, Romania, Slovenia, Slovakia and the Czech Republic. 55% of stakeholders consulted agreed that it was necessary to improve non-discriminatory access to rail-related services, such as ticketing and information systems. For instance, according to an interviewed new entrant, the incumbent in one Member State takes a commission of 14% on all ticket sales, which are reimbursed to new entrants up to 2 years later (whereas in the UK, the payment is organised by ATOC, the association of train operating companies which reimburses operators within 8 days with a 1.5% commission). In the Czech Republic, although national law foresees through ticketing, the new entrant is required to pay a 25% commission on all through-tickets. There is no evidence of problems in the remaining aforementioned Member States, as there are no new entrants in open access in Denmark, Romania, Slovenia and Slovakia. However, as far as competition in international services is concerned, although DSB has the obligation in Denmark to sell tickets, the incumbent refused to sell tickets for competing services across the Oresund Bridge from Copenhagen.

At the same time, if every operator were running a different ticketing system, this would be to the detriment of the service offer from the passengers’ view-point, fragmenting the service offer and diverting costs away from improvements in service towards covering commission in ticket sales.

3.4.3.2 - Problems of access to rolling stock

Competition in and for the market is often further complicated by limited access to rolling stock that is linked to investment costs, financial risks related to its long economic life and the time needed for its acquisition and homologation. In addition, much rolling stock is adapted to the particular technical conditions or commercial needs of specific routes or networks[69]. 61% of respondents to the stakeholder consultation agreed that access to rolling stock was an access barrier for railway undertakings.

Access to rolling stock appears to be a serious problem in Germany, France, Italy, Greece, Portugal, Spain and the majority of EU-10 Member States that joined the EU in 2004 and 2007. In at least 8 Member States[70], ownership of rolling stock continues to be dominated by incumbent railway undertakings, which are unable or unwilling to make it available on commercially attractive terms to new market entrants. In Germany and Austria, it appears that the incumbent scraps rolling stock rather than putting it for sale[71]and second hand stock offered for sale typically does not meet the requirements of PSCs. In Italy, PSC tenders have been hampered due to problems of access to rolling stock by new entrants (as well as for the related requirements within these tenders[72]). Finally, in some small Member States, the pool of rolling stock is limited. Just to operate a typical suburban service, a new entrant could need up to 8% of the domestic rolling stock[73].

Emergence of rolling stock market is linked to liberalisation of services and harmonisation of technical standards. As it stands, leasing market is still immature as only 10% of passenger rolling stock is leased[74]. The short lifespan of some PSCs (10-15 years) compared to the longer operating life of rolling stock (30-35 years) discourages new entrants competing for the tender to invest into new rolling stock. In addition, new entrants do not have the bargaining power of incumbents that can place mega-orders[75].

The Member States with liberalised markets have already taken measures to ease the access to rolling stock. In Sweden and the UK, public authorities own rolling stock that they procure on behalf of railway undertakings, enjoying also economies of scale from increased bargaining power[76]. In the UK, rolling stock companies have been set up (the so-called ROSCOs), but also in non-liberalised Spain, it appears that the surplus rolling stock of the incumbent (RENFE) would be transferred to a new body with the view to facilitate the access to rolling stock by new entrants.

3.5. Who is affected in what way?

The problems described above and the measures to be proposed to address them will affect a large number of actors in the rail market and beyond. They affect primarily railway undertakings that either gain or lose business opportunities. They will also affect rail passengers who are likely to face a different offer of services, the railway manufacturing industry that will face a broader spectrum of customers and the workers of railway undertakings whose working conditions could be altered. More fundamentally, these measures will also affect the way public authorities – both at national and regional level –interact with railway undertakings and finance rail services.

3.6. How would the problem evolve?

The Commission has carried out an analysis of possible future developments in a scenario at unchanged policies, the so-called baseline scenario. The existing regulatory situation for the different aspects is summarised in the table below.

Issue || Assumption

Background || First Package Recast and other relevant legislation

Competitive tendering || Regulation 1370/2007, in which Competent Authorities may award PSCs directly or through a competitive tendering process

Open access || No domestic open access right provided under EU law, de jure monopolies can be retained

Rolling stock || No specific EU requirement

Ticketing || Implementation of the passenger rights Regulation and Recast Directive which envisage that: · Railway Undertakings and ticket vendors shall offer, where available, tickets, through tickets and reservations · Operators of ticketing services are not obliged to supply their services to all railway undertakings but when they decide to offer them to others, they shall supply them to Railway Undertakings on a non-discriminatory manner

The baseline scenario also assumes growth in demand in passenger markets in line with the projections of the Impact Assessment accompanying the 2011 White Paper. Based on these projections, the demand for rail services is expected to grow considerably in the coming years (1.8-1.9% for urban transport, 2.0-2.1% for long distance/medium rail services and 2.9%-3.1% for high-speed and international services), in particular because of increases in oil prices and congestion. In addition, whereas incumbent share in most Member States is currently 90-100%, the baseline assumes that, in the long distance and high speed markets, new open access operators will continue to increase their market share in Austria, the Czech Republic, Italy and Sweden, even in the absence of further liberalisation measures. In other markets, it is assumed that existing market shares will continue. At the same time, the variance of several efficiency ratios is likely to continue growing.

Table 4- Baseline growth in demand

Mode || Segment || 2009-2010 || 2011-2015 || 2016-2020 || 2021-2025 || 2025-2035

Rail || Urban and suburban || 0.9% || 2.1% || 1.9% || 1.8%

Medium and regional || 0.8% || 1.9% || 2.0% || 2.1%

Long distance

High speed || 2.1% || 2.1% || 2.9% || 3.1%

International

Road || All || 0.7% || 1.6% || 1.1% || 0.8%

Air || All || 1.3% || 4% || 3.5% || 2.8%

Inland waterways || All || 0% || 0% || 0% || 0%

Competitive pressures

Directive 2007/58/EC on market opening for international services has already had a small impact on the opening of domestic passenger rail services through cabotage. In addition, some Member States have decided to open their domestic rail passenger services market independently of EU decisions (e.g. Germany, Sweden), and it cannot be excluded that other Member States also introduce such measures (e.g. Spain and Finland are already considering taking measures). Member States which have already opened their domestic passenger services market but that impose restrictive conditions may also decide to remove such restrictions.

The expected growth in demand for passenger services is likely to create more pressure for the improvement of rail services and operational efficiency, precisely at a time when most Member States are undergoing a period of constrained spending.

However, if no changes are brought at the EU level to the current restrictions in access to market, some de jure national monopolies will continue to exist, preventing the development of competition in railways. In these conditions, it will be impossible to operate within a Single European Railway Area, even more so as foreign railway undertakings will still need to establish themselves in other Member States to access their markets. Also some Member States will maintain their reciprocity clauses, thus leading some railway undertakings not to benefit from market opening outside their own Member State borders, until the Member State from which they originate accepts to withdraw its monopoly on the domestic market. Finally, the development of rail services throughout the EU will be impaired by the variety of assessments of the frictions between PSCs and open access operations.

Some Member States have decided to tender the PSCs competitively despite this not being called for through EU legislation and to actually publish calls for tender in the EU Official Journal (as many German and Swedish transport authorities already do), and it cannot be excluded that other Member States also introduce such measures (as the recent decision by the Bundesgerichtshof to make competitive tendering of public service contracts mandatory). However, without the introduction of an explicit requirement, it is not expected that all Member States will do so, and nothing prevents those Member States from backtracking.

If no changes are made to the current system of direct awards, several national incumbent railway undertakings will continue to operate exclusively all PSCs. This would maintain the low level of competition and limit the market share of new entrants.. Moreover, those Member States that organise competitive tendering for whole regions or countries with high volumes of train-km will not attract railway undertakings other than the national incumbent itself. As a result, the efficiency of railways and the level of service will most likely not improve.

Finally, in parallel, low-cost airlines and bus coach operators will continue to expand their services, further grabbing modal share from inert railway undertakings. In Germany, the federal government submitted a bill in December 2011 envisaging the liberalisation of the long-distance coach market.

Market distortions

Ticketing

If substantial changes are not introduced to prevent discriminatory measures against new entrants in ticketing systems (including their clearing mechanisms), the latter will continue to be discouraged to enter new markets, at least there where integrated ticketing schemes run by the incumbent exist, further decreasing competitive pressure and therefore giving few incentives to improve the efficiency and the quality of railway systems. If they do enter the markets, the new entrants will be discouraged from offering through-ticketing, reducing the overall attractiveness of rail compared to other modes. However, in the long run, it cannot be excluded that the development of interoperability and technical through-ticketing solutions in domestic rail through the implementation of the Technical Specification for Interoperability "Telematic Application for Passenger transport" (TAP TSI[77]) ultimately provides technical solutions which will facilitate non-discriminatory access to ticketing systems in domestic rail services, although this is not a primary purpose of this measure.

Finally, the European Court of Justice will provide an interpretation of Article 8(2) of the Rail Passenger Rights Regulation 1371/2007 to determine whether real-time timetable information made available by infrastructure managers should be made available or not to all operators, including new entrants.

Rolling stock

It can be anticipated over time that market consolidation and market changes induced by the implementation of TSIs will reduce the number of vehicle types on the market, and reduce the technical obstacles to running on particular networks. Hence the pool of vehicles of each type should increase. This will have beneficial impacts on the availability of 2nd hand rolling stock markets and vehicle leasing markets. While rolling stock leasing companies are already developing their activities throughout Europe, there are no guarantees whether they will reach in all Member States. In particular, the development of leasing companies could be complicated in national stand-alone or almost stand-alone railway networks such as in Finland, Ireland, Lithuania, Latvia, Estonia, and Greece.

Member States may also undertake national measures to ease the access to rolling stock (like has happened in UK and Sweden) or should be encouraged to do this. The ERA initiative will also help to solve this problem (cf. Annex 1).

However, if no further changes are brought to ease access to rolling stock for new entrant, the latter will in many Member State continue to be de facto prevented from entering into new markets, keeping the competitive pressures low and therefore giving few incentives to improve the efficiency and the quality of railway systems.

Conclusion

Some Member States may be prompted to add competitive pressure in rail to improve its efficiency. Yet, by taking purely national measures, Member States will maintain a great variety of legal regimes preventing the emergence of true (cross-border) competition for PSCs or a real access to their domestic passenger markets.

Some Member States may for other reasons opt to keep their markets "partially or non-liberalised" which overall seems to slow down quality and efficiency improvements. As a result, competition in railways will continue to evolve at the fringe and the Single European Railway Area will remain incomplete.

3.7. Subsidiarity

3.7.1. Legal base

Articles 90 and 91 of the Treaty extend to railways the objectives of the Treaty in terms of competition and creation of a genuine internal market in the context of an EU Common Transport Policy. Pursuant to Articles 90 and 91 TFEU, the Common Transport Policy should contribute to the broader objectives of the treaties. The goal of the Common Transport Policy is to remove obstacles at the borders between Member States so as to facilitate the free movement of persons and goods. To this end, the prime objectives of the initiative are amongst others to complete the internal market for transport. In addition, Article 56 of the Treaty refers to the freedom to provide cross border services which is central to the effective functioning of the EU Internal Market. This is fully applicable to transport as recognised in Article 58 TFEU.

As far as PSOs are concerned, Article 14 of the Treaty confirms the place occupied by services of general economic interest in the shared values of the Union. The competence of the EU in this field is limited by Protocol n°26 to the TFEU to checking whether the Member State has made a manifest error when defining the service as public service obligation and to assessing any State aid involved in the compensation. Article 106(2) of the Treaty lays down that undertakings entrusted with the operation of services of general economic interest are subject to the rules contained in the Treaty, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them.

According to Article 4 of the TFEU, EU action on common transport policy has to be justified and the subsidiarity principle set out in Article 5(3) of the Treaty on the European Union must be respected. This involves assessing two aspects.

BOX 5 – SUBSIDIARITY IN AIR TRANSPORT, URBAN TRANSPORT AND PUBLIC PROCUREMENT

By analogy, the question of subsidiarity can be approached through the freedom to provide domestic air transport services in the whole internal market, competitive tendering for urban transport and public procurement policy.

Today, thanks to the opening of the domestic air transport market, several low-cost operators, most notably with from the UK (Easyjet), Hungary (Wizzair) and Ireland (Ryaniar) operate domestic routes in other Member States. NTV and Trenitalia compete with Ryanair and Easyjet on the Rome-Milan route.

The PSO Regulation is currently opening the market for for urban transport under public service contract through mandatory competitive tendering (these provisions will fully apply as from 2019).

Public procurement policy covers today some 400 billion EUR of government purchases throughout the EU and all tenders above specific thresholds are published in the TED database of the EU Official Journal (OJEU). In December 2011, the Commission adopted a proposal aiming at introducing competitive tendering for service concessions. Public service contracts for heavy rail are similar to service concessions, but do not fall within the scope of this initiative. Some 40 PSCs in railways have been already published on average in the OJEU on yearly since 2012[78], including the tender for the Berlin S-Bahn[79].

3.7.2. Necessity test

Firstly, it is important to be sure that the objectives of the proposed action could not be achieved sufficiently by Member States in the framework of their national constitutional system, the so-called necessity test.

Actions by Member States alone cannot ensure the coherence and coordination of market access rules needed for the emergence of a genuine internal market for rail transport. The absence of open access to specific rail routes and the lack competitive tendering for PSOs hinders the pan-European operations of railway undertakings. It also limits the potential of competition for international passenger services as new entrants do not have the possibility to offer integration with other services.

At the same time, it is not necessary or appropriate for EU to intervene as regards definition of PSO or conditions set to PSCs, as far as these do not carry risk of market foreclosure. The measures considered under different PSC options of this IA are therefore all assessed in terms of their compliance with the subsidiarity principle (cf. Annex 4) and geared towards maximum flexibility to be left to Member States. Subsidiarity concerns are equally high as far as different rolling stock and ticketing measures are analysed, where the Member States could at this stage be better placed for defining the appropriate solutions. For instance, it could not be appropriate to impose the creation of leasing companies or ticket distribution systems, even if those measures are were supported by stakeholders.

3.7.3. Test of EU added value

Secondly, it has to be considered whether and how the objectives could be better achieved by action on the part of the EU, the so-called “test of European added value”.

Since the 1990s, the Commission has elaborated a framework of common rules and procedures intended to open the European rail market to competition and create a common European Railway Area. The approach so far has been consistent with the objective of developing Europe’s transport sector and contributes to the achievement of Lisbon Strategy objectives. The successive related EU legislations have already recognised the EU added value when they were adopted and the arguments, which substantiate this added value, still hold.

Problems affecting the railway passenger sector involve trans-national aspects and further action at EU level should allow ensuring consistency of proposed measures and initiatives with the acquis in railway policy and the regulation of PSOs. In these terms the EU is best-placed to adopt common rules for the rail passenger market that grant the right to all railway undertakings to operate throughout Europe without discrimination. The envisaged regulatory framework will provide railway undertakings with confidence to benefit from a single consolidated legislative framework and to face predictable business conditions throughout the EU, therefore providing the ground to consolidate the Single European Railway Area.

As far as the competitive tendering of PSCs in urban and suburban networks is concerned, Regulation 1370/2007 has already recognised the EU added value when it was adopted and the arguments which substantiate this added value (cf. section 3.4.2.1) still hold.

4. Objectives

Overall, the stakeholders have supported the problem drivers of insufficient quality and efficiency of rail sector and the problem drivers as identified by the Commission, as well as the general direction of EU action. 72% of stakeholders responding to the targeted consultation agreed that access to rail-related facilities was a barrier for railway undertakings and 69% agreed that the objective of improved access to infrastructure addressed the objectives of the initiative.

4.1. General objectives (GO):

The 2011 White Paper foresees a progressive modal shift from aviation and road vehicles, so that by 2050 the majority of medium-distance passenger transport should go by rail. This modal shift will contribute to the 20% reduction of GHG emissions foreseen in the Europe 2020 Agenda for smart, sustainable and innovative growth, and to the 60% reduction in transport emissions needed by 2050 to achieve the overall 80-95% cut targeted for the EU by that date.

In this context, the general objective of the proposed initiative is to:

GO: Improve the quality of rail passenger services and enhance their operational efficiency thereby improving the competitiveness and attractiveness of rail sector vis-à-vis other modes and developing further the Single European Rail Area.

Together with the other initiatives of the 4th railway package, the present impact assessment will identify the most suitable policy option(s) that will reach the above-described general objective by addressing the problems of insufficient quality and efficiency of rail services. To this aim, the general objective has been translated into specific and operational objectives.

4.2. Specific objectives (SO):

SO1: Intensify competitive pressure on domestic rail markets

SO2: Create more uniform business conditions

SO1 aims to contribute to the withdrawal of legal barriers and to stimulate competition in markets with PSOs, whereas SO2 aims to create a more predictable business environment with similar features.

4.3. Operational objectives (OO):

There are several dependencies between the operational objectives and specific objectives. For instance, in order to intensify competitive pressure on domestic markets (SO1), progress needs to be made in terms of all operational objectives. Equally, all operational objectives contribute to more uniform business conditions (SO2). Better value for public money (SO3) can be achieved if the competition for PSCs will be made a reality; the latter however depends on the outputs defined in OO2 to OO4.

OO1: Facilitate cross-border entry into domestic rail passenger markets

OO2: Abolish legal monopolies

OO3: Open PSC market for competition

OO4: Establish a common approach to control the definition of PSOs and to define public service contracts

OO5: Facilitate the level playing field in access to rolling stock

OO6: Facilitate the level playing field in access to ticketing

The operational objectives defined above are specific and realistic. However, given the nature of the initiative, no targets have been set. The initiative aims to act as a catalyst of more competitive rail passenger market, but its effectiveness heavily depends on specific approach taken at national level. The progress will be measured according to the monitoring indicators as outlined in Section 9.

4.4. Mapping problem, drivers and objectives:

Graph 12 hereunder presents the links between:

- the operational objectives and the root causes

- the drivers and the specific objectives

Graph 12: Mapping drivers, root causes and objectives

5. Policy Options/Policy Scenarios

5.1. Identification of possible policy options

Taking into account the stakeholders' consultation and the problem analysis, the Commission has defined four broad areas for action corresponding to the different root causes identified in section 2, namely restricted access to national rail markets, absence of competition for PSCs and the remaining market distortions on liberalised markets (access to ticketing systems and to rolling stock)[80]:

- Policy options A: addressing competition for open access lines (competition in the market)

- Policy options B: addressing the competition for PSCs and the supervision of their scope (competition for the market);

- Policy options T: addressing discriminatory access to ticketing systems;

- Policy options RS: addressing discriminatory access to rolling stock.

In a second step, the Commission services have identified several policy options in each of the above areas, which have the potential to address the identified root causes. Coherence with the EU Treaty objective of achieving a common transport policy, with the Europe 2020 Strategy and its main priorities, with the priorities set in the White Paper for transport and with the results of the stakeholder consultation has provid