EUROPEAN COMMISSION Brussels, 8.12.2016 COM(2016) 780 final REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Fifth report on monitoring development of the rail market {SWD(2016) 427 final}



REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Fifth report on monitoring development of the rail market 1.Introduction The rail sector makes a substantial contribution to the EU economy, directly employing about 900 000 people. Rail transport is also critical to the EU strategy for improving environmental performance of the transport sector, economic and social cohesion and connectivity within and between Member States. This report is the fifth edition of rail market monitoring reports submitted by the Commission to the European Parliament and the Council pursuant to Article 15(4) of Directive 2012/34/EU (‘the Recast Directive’). The purpose of this report is to provide an overview of main developments in rail markets in the context of EU rail market policy objectives. It covers a broad range of topics such as the evolution of the internal market in rail services and services to be supplied to railway undertakings, the framework conditions including for public passenger transport services by rail, the state of the Union railway network, the utilisation of access rights, barriers to more effective rail services, infrastructure limitations and the need for legislation. A full analysis is presented in the accompanying staff working document. This report is based on data and contributions from various sources, including Member States’ responses to the rail market monitoring survey (RMMS), the statistical pocketbook ‘EU transport in Figures’, reports of the European Union Agency of Railways, Eurostat and various other resources. In July 2015, the Commission adopted an Implementing Regulation for rail market monitoring, establishing a new mandatory data collection mechanism which should lead to more consistent and coherent reporting in future. 2.The state of the Union railway network The total length of rail network in 2014 was about 220 000 kilometres, which is about 2 % more than in 2009. Since 2009, 2 800 km of electrified lines have been added, while their proportion in all lines has increased by 1.6 percentage points. For the coming years Banedanmark (the Danish infrastructure manager) and Network Rail (the UK infrastructure manager) have launched large-scale projects for the electrification of major parts of their networks. There are major differences between Member States in terms of travel speeds. Significant investment has been made to modernise the rail network in eastern Europe and to develop high speed lines in western Europe. The higher speeds have improved the attractiveness of rail for passengers. However, there are still regional passenger networks in eastern Europe where maximum permitted speed is 120 km/h or even less. As regards the travel speed of freight trains, in some national networks and international rail freight corridors it is 50-60 km/h. However for the most of international freight trains, especially in central and eastern Europe, the average speed is between 20 and 30 km/h. On some international routes freight trains run at an average speed of only around 18 km/h. 3.The evolution of the internal market in rail services Despite an unfavourable economic climate since 2009, rail passenger volumes in terms of passenger-kilometres were hardly impacted. By contrast, rail freight volumes in tonne-kilometres dropped heavily in 2009, the low point of the economic crisis and have not yet fully recovered. Total passenger and freight train-kilometres have not increased. Passenger traffic Figure 1 –Evolution of rail passenger traffic volumes Source: RMMS Passenger rail demand in the EU has increased between 2009 and 2014 by 30 billion passenger-kilometres, representing an average growth rate of 1.5 % per year. The largest relative increases were observed in the United Kingdom, the Czech Republic and Luxembourg, while during the same period in Croatia reported passenger traffic halved. About only 6 % of passenger traffic in 2014 was international and the number of international passenger-kilometres has been broadly constant since 2011.



Figure 2 –Passenger land transport modal split (%) Source: Statistical pocketbook 2016, Eurostat While traffic volumes have grown, the modal share of passenger rail in land transport in the EU has since 2009 shifted only by a half a percentage point from 7.1 % to 7.5 %. Behind this EU level average there are marked differences in the performance of individual Member States — strong improvement in the Netherlands and the United Kingdom and decline in Latvia, Slovenia, Bulgaria and Croatia.

Freight traffic Figure 3 –Evolution of rail freight traffic volumes Source: RMMS Outputs in tonne-kilometres, while still being 7 % lower than the 2007 peak levels, reached 417.6 billion tonne-kilometres in 2014 showing a 3 % average annual increase rate. More than 50 % of freight traffic in 2014 was international, giving rail freight a much stronger European dimension than is the case for passenger traffic.

Figure 4 –Freight land transport modal split (%) Source: Statistical pocketbook 2016, Eurostat In 2014 the modal share of rail freight in inland freight transport was 18 %, which is almost the same as 10 years ago. Similarly to passenger transport, there are widely diverging trends at the Member State level: the increase being strongest in Slovenia, Romania and Hungary. The total tonne-kilometres in comparison to 2009 have declined only in Croatia, Slovakia, Greece and Estonia. 4.Services to railway undertakings The Recast Directive introduced a set of new rules for service facilities and rail related services with the aim to improve transparency on conditions and charges applied and to ensure non-discriminatory access for operators. The market of service facilities (stations, freight terminals, marshalling yards, train formation facilities, maritime and inland ports, etc.) is characterised by a large number of different owners and operators of various sizes. Mapping and defining the facilities is an ongoing challenge for national regulatory bodies and for the Commission services. According to available RMMS data, in 2014 there were about: 30 000 passenger stations; 3600 freight terminals; 1700 marshalling yards; 28 500 storage sidings; 1300 maintenance facilities; 650 maritime and port facilities; and 650 refuelling facilities. 5.The evolution of framework conditions in the rail sector 5.1.Infrastructure charging The EU rail legislation aims to reduce the infrastructure charges at the best possible infrastructure quality with a three-pronged approach. Firstly, the modalities of calculating the direct costs of infrastructure use, being the basis for the minimum access package, have been harmonised in the new Implementing Regulation (EU) 2015/909. Secondly, mark-ups can be applied on top of the direct cost charges only in segments being able to pay such higher charges. Thirdly, the infrastructure managers are encouraged to exploit the incentives inherent in certain charging components, such as scarcity, reservation, possession, environmental charges and performance schemes, to optimise the use of infrastructure.

As a result of this and other factors, the level and approach to charging may vary both within the charging scheme of one infrastructure manager as well as between Member States. Figure 5 –Track access charges for different categories of trains (EUR per train-km, applicable 2016) Passenger charges higher, mixed or equal Freight charges higher Source: RMMS

Notes: HR, DE 2014 charges, LV arithmetic mean of 2015 min/max charges, EL, IE no data Figure 5 illustrates the different situations in Member States. In most Member States charges for freight trains are higher than for passenger trains, but in Germany, Spain, Belgium, France, Luxembourg and Portugal the situation is the other way around. In Austria, Italy, Sweden and Denmark there are no big differences or the results are mixed. Freight charges in the Baltic States are particularly high, which is to some extent justified due to higher permitted axle-loads. The intercity charges in Belgium, Germany, Spain and France are relatively high because these include the charges for dedicated high speed lines. Suburban charges are most volatile (varying between EUR 0.17 in the United Kingdom and EUR 11.50 in France) because their levels depend on national approaches to public service contracts and rail financing. In France, for example, the regions themselves (rather than railway undertakings) pay the so-called ‘redevance d’access’ to the infrastructure manager for the rail services they provide under public service contracts. As regards the evolution of charges, the developments are mixed. 5.2.Capacity allocation and infrastructure limitations In the United Kingdom, Luxembourg, Denmark, Austria, Belgium and Germany the network utilisation rates are about 60 % higher than the EU average. Beyond this, the Netherlands has by far the most saturated network running about 50 000 train-kilometres per each line-kilometre per year. In all these Member States rail demand continues to increase. Figure 6 –Network utilisation rates (thousand train-km per line-km, 2014) and relative change since 2009 Source: Eurostat and Statistical pocketbook 2016 (based on UIC, IRG annual market monitoring reports, national statistics and estimates) RMMS data for 2014 shows that 10 Member States had declared some parts of their network congested. To manage capacity in constrained conditions, infrastructure managers use scarcity charges and various priority rules. The Commission has specified the criteria for awarding and amending framework agreements to ensure optimal use of infrastructure in an implementing regulation in 2016.



5.3.Infrastructure expenditure and funding Figure 7 –Evolution of infrastructure expenditure and proportion of maintenance and renewal expenditure Source: RMMS Despite a popular perception of declining public support, infrastructure expenditure has constantly increased from EUR 29 billion in 2011 to EUR 45 billion in 2014. The maintenance expenditure has fluctuated, while investment into renewal and enhancements has continuously increased. At least EUR 7 billion (or 16 % of total expenditure) was spent on high speed lines. Maintaining the existing network, in order to uphold its safety and operational performance and to ensure reliable service, presents a constant and costly challenge to many infrastructure managers. The total infrastructure expenditure was highest in the United Kingdom and in France, where the infrastructure managers have to catch up with the years of under-investment having at the same time significant enhancements projects ongoing. In Germany, the infrastructure expenditure in 2014 also increased significantly. The EU can co-finance or support rail investment projects through the Cohesion Fund, the European Regional Development Fund, the Connecting Europe Facility, the European Investment Bank and the European Fund for Strategic Investments. More than EUR 33 billion in grants under the current EU financial framework (2014-2020) has been allocated to rail investment. 5.4.Prices and quality of passenger services Given the diversity of services and fares it is challenging to assess the overall evolution of rail prices at EU level. Fares applied to passenger services vary widely across Member States, ticket-types and booking horizons and are often regulated.



Figure 8 –Harmonised Index of Consumer Prices: rail transport compared to total transport Source: Steer Davies Gleave study Prices and Quality of Rail Passenger Services, analysis of Eurostat’s Harmonised Index of Consumer Prices

Overall, rail fares have increased relatively more quickly than in other modes (see Figure 8). However, there are examples where open access competition (e.g. in Austria, the Czech Republic, Germany, Italy and Sweden) has led to fare reduction on certain lines. Having comparable punctuality data across the Member States remains a challenge. It seems that the best performing Member States have small passenger networks or low network utilisation rates. Punctuality may be hardest to maintain on busy lines, particularly if they carry a mix of long-distance and regional passenger services and freight services. The punctuality of long-distance services tends to be worse than regional and local services. Regarding reliability, in western or central European Member States no more than 3 % of regional or 5 % of long-distance services were cancelled in 2014. Cancellation rates were higher in some eastern European Member States. Regarding safety, rail remains one of the safest modes of transport. According to the European Union Agency for Railways (‘the Agency’) there were about 1000 rail fatalities in 2014 in Europe. Railway safety continued to improve between 2010 and 2014, with fatalities, serious injuries and significant accidents all decreasing. In 2013, the fatality risk for a rail passenger was 16 times lower than for a person travelling by car. 5.5.Rail transport services covered by public service contracts More than two-thirds of passenger services in 2014 were operated under public service contracts, used mainly to serve regional and suburban lines. In most Member States public service obligation related compensation per train-kilometre was higher than EUR 5 and the total support provided was around EUR 20 billion. The proportion of the fare-box revenue in total revenue differs between more than 90 % in Lithuania, the Netherlands and the United Kingdom and less than 20 % in Hungary. 5.6.Licensing The number of active railway undertakings varied in 2014 between 323 in Germany and 1 in Finland. Compared to 2013, the number of active railway undertakings was increasing in Poland, France, Germany and Hungary and had slightly decreased in Bulgaria and the Netherlands. Fees for licensing can range from none to EUR 70 000, depending on Member State and content of application. EU rail policies aim to: curb the fees due for licensing; speed up the time-to-licence; increase transparency of valid licences; and ensure that accident cover is provided on market-conditions without discrimination. To that end, it adopted an implementing act on licensing in 2015. Furthermore, the Fourth Railway Package proposes the creation of a one stop shop as a digital single entry point in Europe for vehicle authorisations and safety certifications. The aim is to simplify the procedures and ensure equal treatment for applicants across Europe. The Agency will also have a greater role in the process becoming an EU-wide authority for safety certification. 5.7.Degree of market opening and utilisation of access rights Opening of the rail freight market in 2007 coincided with the economic crisis hitting freight transport services hard in all modes. Given that there has been a steady increase in the market share of competing rail operators almost in all Member States, it seems that the new entrants have coped relatively better with the challenges of the crisis. On average the market share of competing freight operators (15 % in 2006) had more than doubled by 2014. At the end of 2014, rail freight transport was 100 % in the hands of national incumbent still in Finland, Greece, Ireland, Lithuania and Luxembourg. Figure 9 –Market share of competitors in the freight market (2014, % of tonne-kilometres)

and evolution 2011-2014 (in percentage points) Source: RMMS, 2011- 2014 except SE (2010 data used for 2011), PT and SI (2012 data used for 2011), LU (2010 data used for 2011 and 2012 data for 2014), IT 2014 data from IRG Rail Annual Market Monitoring Report (2016) Market shares of competitors in passenger markets are lower, given the different stage of market opening, being well below 20 % in all Member States except in Poland and the United Kingdom. Open access competition has developed in Austria, the Czech Republic, Germany, Italy, Slovakia, Sweden and the United Kingdom, with different degrees and results. At least in 15 Member States competing operators have entered the rail passenger markets. Figure 10 –Market share of competitors in the passenger market (2014, % of p-km)

and evolution 2011-2014 (in percentage points) Source: RMMS, 2011-2014, except for IE (2013 data used for 2014), PT (2012 data used for 2011), LU (estimates) IT data from IRG Rail Annual Market Monitoring Report (2016); NL and SE confidential.