Communication from the Commission to the Council and the European Parliament on the implementation and impact of Directive 91/440/EEC on the development of the Community's railways and on access rights for rail freight
Date: 1998-03-31
Institutions: European Commission
Subjects: carriage of goods, common transport policy, competitiveness, rail transport, transport market

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 31.03.1998 
COM(1998) 202  final 

COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT 

ON THE IMPLEMENTATION AND IMPACT OF 
DIRECTIVE 91/440/EEC ON THE DEVELOPMENT 
OF THE COMMUNITYS RAILWAYS 

AND ON ACCESS RIGHTS  FOR RAIL FREIGHT 

SUMMARY 

1.  Directive  91/440/EEC on the development  of  the Community's  railways  is the most  important 
Community measure to improve the competitiveness of rail transport. Its main aims are to create 
railways independent of the State and managed on commercial lines and to begin the integration 
of the market for  rail transport services. There have been calls for the Commission to report on 
the implementation  and  impact of the Directive to help discussion of further  measures, and  for 
that reason it presents this communication. 

2.  The first obligation  of  the  Directive  is to  grant  railways  a  status  independent  of  the  State and 
management  independence.  The  report  finds  the  provisions  of  the  Directive  have  been 
implemented  and  considerable  progress  made  in  increasing  the  autonomy  of  railway 
management.  However, while there are legitimate reasons for the public authorities to intervene 
in  certain  areas,  they  still  restrict  independence  to  an  unjustified  extent.  Until  their  informal 
practices  change, the aim of  real  autonomy  will  not be achieved.  There are, nevertheless,  wide 
differences  between Member States in relations between the authorities and the railways. 

3.  Second,  the  Directive  requires  Member  States  at  least  to  separate  the  accounts  of  transport 
services  and infrastructure  management,  although  they  can go further  and separate into  distinct 
legal entities. The aim is to further  efficient  operation of two different  activities, to make the use 
of aid transparent,  to create a basis for  infrastructure  charges, and to ensure fair  treatment of all 
railway undertakings when it comes to the utilisation of infrastructure.  The communication finds 
the situation  unsatisfactory  in the  case of  the  railways  that  remain  integrated  enterprises,  with 
transport services and infrastructure  management  provided by the same entity. In the first place, 
it seems  that  only  profit  and  loss  accounts  are  separated  and  not  balance  sheets; this  does  not 
allow the degree of financial transparency  required.  In the second,  integrated  railways  are still 
responsible  for  functions  that  can  determine  the  entry  of  competitors  into  the  market;  this 
situation constitutes an abuse of dominant position. 

4.  Third,  the  Directive  obliges  Member  States  to  reduce  railway  debt  to  a  level  that  does  not 
impede sound financial  management and to improve railway finances.  The communication finds 
that  railway  finances  came  under  increasing  pressure  in  the  1980's.  Although  Member  States 
injected  equity  on  a  large  scale,  debt  increased  in  absolute  terms,  leading  to  higher  interest 
payments and hence operating costs. The situation varied greatly, however, from  one railway to 
another.  In  the  early  1990's  many  States  began  to  restructure  railway  finances,  often  under  a 
major  reform  of  the  sector.  However,  while  balance  sheets  were  strengthened,  the  burden  of 
interest payments increased. The differences  between Member States were again considerable. In 
1995,  the  railways  in  five  States  faced  serious  debt  problems,  but  since then  four  States  have 
restructured  railways finances,  although the results do not yet show up in the available statistics. 
The Commission  intends to report on railway debt again in three years time. 

5.  The  fourth  requirement  of  the  Directive  is  to  establish  certain  access  rights  to  railway 
infrastructure  for  railway undertakings  established  in the Community. The communication finds 
that very  few  railway  undertakings  have exploited  these rights,  including  in the Member  States 
that implemented  them  several  years ago. On the one hand this is because of high start-up costs 
and  strong  competition.  On  the  other,  the  Community  has  not  completed  the  framework  for 
access; the Commission  intends  rapidly to propose guidelines for  infrastructure  charges  and  for 
capacity  allocation, which should fill the main gaps. In addition  it is necessary to ensure that all 
railways  are  treated  fairly  when  seeking  access.  If  integrated  railways  retain  responsibility  for 
activities  like  setting  charges,  allocating  train  paths,  licensing  and  safety  certification,  they 
determine  the  conditions  under  which  their  competitors  enter  the market  and  do business.  The 
Commission  intends to make proposals to remove such conflicts of interest. 

6.  Besides, with the exception of combined transport, the access rights of the Directive are limited, 
particularly  by the obligation  to find a partner undertaking  in another Member  State to form an 
international  grouping,  when  in  practice  the  only  partner  is  usually  the  national  railway.  The 
communication  discusses  how best to continue the opening  of the market,  but  in  a progressive 
way  that  avoids  disruption  in  the  spirit  of  the  Commission's  Communication  on  services  of 
general  interest  in  Europe  (1996).  Thus, the Commission  is of  the opinion  that  further  market 
opening  should  be  taken  in  steps  and  concentrate  on  the  rail  freight  sector.  As  a first step,  it 
would  not disrupt the main business of the incumbent  railways, if the Community were to open 
5% of  the freight  market  in  each  Member  State  immediately  and  to  continue  liberalisation  by 
stages to reach 25% after ten years. 

7.  Employment  in  the  railway  sector  has  been  in  serious  secular  decline  since  the  1980s.  It  is 
difficult  to  attribute  this  directly  to  the  Directive,  not  only  because  of  the  different  causes but 
also because many Member  States have only  implemented  it recently  and little real  competition 
has yet emerged for the incumbent railway undertakings. Nevertheless, the future  of the industry 
and  its  ability  to  meet  the  challenges  of  adapting  to  the  new  conditions  will  depend  on  its 
modernisation but also on maintaining the employability  and adaptability of the workforce.  The 
Commission will continue to monitor employment trends in this critical sector. 

L  INTRODUCTION 

1.  Directive  91/440/EEC1  is  the  principal  measure  that  the  Community  has  taken  to  raise  the 
competitiveness of rail transport. It is a first step in establishing railways independent of the state 
and managed  on commerçai  lines and  in  creating an  integrated  and  competitive market for  rail 
transport services. Various Member  States and interested parties have called on the Commission 
to report on the implementation  and  impact  of  the Directive  in order  to  advance  discussion  of 
further  measures,  including  those  proposed  in  the  Commission's  white  paper  "A  strategy  for 
revitalising the Community's railways"  of 1996. 

2.  Among other things, Directive 91/440/EEC obliges Member  States to help reduce the railways' 
debts  and  improve  their  finances;  in  its  white  paper,  the  Commission  undertook  to  report  on 
progress  made.  It  then  decided  to  integrate  the  report  in  this  general  communication  on  the 
implementation  and impact of the Directive, in order to give an overall view of the situation. 

3.  The Directive covers four areas of policy: 

-the management independence of railway undertakings. (Articles 4 and 5) 

-the separation  of  infrastructure  management  and  transport  operations,  at least  in the accounts. 
(Article 6) 

-the reduction of debt and improvement of finances. (Article 9) 

-access rights to railway infrastructure.  (Article 10) 

This  communication  deals  with  each  area,  and  also  with  the  effects  of  the  Directive  on 
employment because of concern about the continuing fall  in railway employment. The Directive 
leaves the Member  States  considerable  scope  for  implementing  measures  in ways that  fit  their 
circumstances, so a central  theme of this report  is the differences  between  the solutions  chosen 
by the Member States. 

1 Council Directive of 29 July  1991 on the development of the Community's railways (91/440/EEC). O.J. No. L237, 
24.8.91. 
2 COM (96) 421 final, 30.7.1996. 

4 

4.  The  Commission  has  based  the  communication  on  two  independent  studies  and  on  other 
material  available on the implementation  of the directive, but has come up against certain  limits 
to  the  exercise.  First,  various  Member  States  have  combined  implementation  of  the  directive 
with a general reform  of the rail sector. This means that it is difficult  to disentangle the effects  of 
the directive from  those of other policies. Second, the time period is short. Member  States were 
supposed to have transposed the Directive by  1st January  1993 but most were late in doing so, so 
shortening the period  for judging  results. Nevertheless the Commission  has found  it possible to 
draw valid conclusions for policy, which are presented at the end of this communication. 

II  MANAGEMENT  INDEPENDENCE 

5.  The Directive obliges  Member  States to give the railways  independent status from  the State, to 
allow them  to work  according  to commercial  principles  adjusting  their  activities  to the market, 
and  to  make  them  responsible  for  their  business  plans  (Articles  4  and  5).  All  Member  States 
have transposed the relevant articles of the directive by either setting up independent entities or, 
when they existed, by increasing their autonomy and transforming  them into enterprises. In most 
Member  States  transport  services  are  now  run  by  publicly  owned  joint-stock  companies,  in 
France,  Ireland  and  Spain  by  state  enterprises  with  commercial  status  and  in  the  United 
Kingdom  by  privately-owned  companies.  In  the  1990's  there  has  been  a  clear  move  towards 
enterprises with  independence and responsibility for their commercial  future. 

6.  The situation  is more complex  on the side of  infrastructure  management.  Some Member  States 
have  maintained  integrated  companies,  including  both  transport  operations  and  infrastructure 
management;  a  majority  has  gone  further,  some  creating  separate  entities  which  are  usually 
public agencies or enterprises with limited commercial  freedom  and subject to close guidance by 
the  state;  and  at  least  one  presently  integrated  company  will  evolve  in  this  direction.  These 
organisations may have regulatory functions  as well as that of managing assets. This implies that 
greater  public  intervention  may  be  justified  in  infrastructure  management  than  in  transport 
operations and that Directive 91/440/EEC may need modification  to reflect that  difference. 

7.  While the  Directive  lays  down  rules  on  management  independence,  there  remain  wholly  valid 
reasons  for  the  public  authorities  to  intervene  in  rail  transport,  which  Community  legislation 
allows. The first  is to ensure the provision of public services that transport operators would not 
supply if looking only to their commercial  interests. All Member  States require public services, 
for  example to reduce pollution and congestion caused by private cars, or to help  disadvantaged 
social groups. Community legislation allows Member States to impose public service obligations 
on railway undertakings, as well to contractualise services, so long as they compensate correctly 
for the financial  burden  involved. 

Prognos : Examination of the implementation and impact of Directive 91/440/EEC on the development of the 
Community's Railways. Study for the European Commission (DGVI1) and the International Union of Railways 
(IUC); March  1998.  ' 
Mercer Management Consulting : Public contributions to Railway Finances  1996; Update and Supplement 1997. 
Prepared for DGVIL European Commission. 

c 

8.  Although  Member  States  are free  to provide  the services  they  consider  in the  public  interest,  the 
means  by  which  they  obtain  these  services  can  make  a  great  difference  to  management 
independence.  There  is a difference  between  imposing  public service obligations  and  negotiating 
contracts  between  the  public  authorities  and  the  transport  operator.  Although  many  Member 
States  now  have  contracts  of  some  kind  with  railway  undertakings,  present  rules  do  not  require 
the  use  of  contracts  and  are  not  sufficiently  precise  clearly  to  define  the  obligations  and 
compensation  to  be  negotiated.  The  Commission  intends  to  propose  in  1998  the  revision  of 
Community  rules on public services  in land transport,  to generalise the use of contracts, to  define 
better their content and to ensure that they are awarded  fairly. 

9.  The  second  reason  for  public  intervention  is  to  develop  railway  infrastructure;  indeed  this  is  a 
requirement  of  Directive  91/440/EEC  (Article  7).  However,  governments  have  often  promoted 
infrastructure  investments,  for  reasons  of  overall  transport  policy,  which  have  been  the  main 
cause  of  the  debt  that  railways  accumulated  until  the  1990's.  Servicing  this  debt  reduces  the 
resources  available  to  management  and  limits  its  real  autonomy.  Since  the  early  1990's,  many 
Member  States have restructured  finances,  relieving the railways of  debt and  of  debt service  and 
taking  over  responsibility  for  financing  infrastructure.  This  may  lift  the  financial  burden  from 
infrastructure 
operators  of 
management. 

transport  services,  but  may  not  change  State 

influence  on 

10.While  these  are  legitimate  forms  of  intervention,  States  still  tend  to  limit  managerial 
independence  to an unjustified  extent.  For  instance, they  may  heavily  restrict  a railway's  area of 
commercial  freedom,  by  treating  all  passenger  transport  as  a  public  service  and  so  subject  to 
obligation  or  contract;  or  they  may  regulate  all  passenger  fares,  as  several  Member  States  do. 
They  may  also  control  investment  decisions,  and  management  appointments  below the top  layer 
and  influence  procurement  decisions,  none of  which  they  need  to  do  to  protect  their  interests  as 
shareholders.  Conditions  of employment  are often  more tightly  regulated  than  in other sectors. 

11.It  follows  that  management  independence  is  not  just  a  matter  of  formal  rules  and  structures, 
important  as they  are, but also of the  informal  practices  of  public  authorities.  Until  this  changes, 
the  objective  of  management  autonomy  will  not  be  achieved.  The  situation  varies  greatly 
between  Member  States;  some  allow  real  autonomy,  others,  while  meeting  the  formal 
requirements  of  the  directives,  closely  supervise  their  railways.  The  independent  study  on  the 
implementation  of the Directive gives this  classification: 

-the highest  degree  of  management  independence  is probably  found  in Finland,  Sweden  and  the 
United  Kingdom,  followed  by Austria,  Germany  and the Netherlands. 

-less  autonomy  is  granted  in  Belgium,  France,  Luxembourg  and  Spain,  where  governments 
control  long term  aims and  approve key decisions. 

-railways  appear  to  have  least  independence  in  Denmark,  Greece,  Ireland,  Italy  and  Portugal, 
where governments  intervene continually  at different  levels and  in different  ways. 

The  recent  reforms  in  several  Member  States  may  well  increase  autonomy  but  it  is too  soon  to 
assess their  effects. 

III.  SEPARATION  BETWEEN  INFRASTRUCTURE  MANAGMENT  AND  TRANSPORT 

SERVICES 

12.The  Directive  requires  Member  States  to  separate  the  accounts  of  transport  services  and  of 
infrastructure  management  (Article 6). They can go further  and  create distinct  divisions  within 
an  undertaking  or  separate  entities  altogether.  Separation  of  accounts  was  intended  to  serve 
several  purposes. One was to promote the efficient  development and operation of two activities 
that were  linked  but different,  particularly  so far  as commercial  orientation  and public  purpose 
were concerned.  Another  was financial,  to make aid more transparent,  to  clarify  use of  public 
funds,  and to provide a basis for infrastructure  charges that were fair and non-discriminatory. 

13.While all Member States have taken certain measures to separate accounts, a majority  have gone 
further  and separated  the two activities. This was to help achieve greater financial  transparency 
at  a  time  of  growing  pressure  on  public  expenditure,  adapt  organisational  structures  to  two 
different  activities  and  deal  with  special  situations  in  Member  States  like  Germany  and  the 
United  Kingdom.  Other  have  maintained  integrated  railways  because  they  considered  this 
important for technical and safety reasons or to maintain national services and institutions. 

14.To  simplify,  three  different  approaches  have  emerged.  First,  complete  separation  into  two 
distinct  legal  entities.  This  was  first  done  by  Sweden  and  the  United  Kingdom,  followed  by 
Denmark,  Finland,  France,  Portugal,  and  the  Netherlands.  The  United  Kingdom  conceded 
infrastructure  management  to  a  privatised  company,  while  the  other  States  created  public 
agencies.  In  the  Netherlands,  companies  are  responsible  for  infrastructure  maintenance  and 
development,  capacity  allocation  and  traffic  control,  which  work  more  like  public  agencies. 
France and Finland  have organised things in a different  way, creating separate public bodies for 
financing  and developing  infrastructure,  while conceding or contracting the actual  management 
to the national railway undertaking or a related enterprise. 

15.The second approach was to maintain an integrated enterprise but to form  distinct business units 
within  it,  each  with  some  autonomy  and  certain  financial  responsibilities.  Austria,  Germany, 
Italy  and  Spain  restructured  their  national  railway  companies  into business  units  several  years 
ago,  while  Belgium  has  done  so  recently.  Typically  this  went  beyond  a  division  into 
infrastructure  management  and  transport  operations,  to  a separation  between  freight,  long  and 
short  distance passenger  services,  infrastructure,  stations, real  estate and so on.  However  there 
are great  differences  between  these  structures.  Business  units  are organised  in  different  ways, 
from  divisions responsible for the whole process of planning, producing and marketing services, 
with their own  personnel  and  assets, to units responsible for  planning  and  market  services  but 
"buying" most of their  inputs from  other units and so having little control  over production  and 
costs. Their real autonomy varies greatly and will change over time; several states, like Germany 
and Italy intend to go further  in separation. 

16.The third  option  was  to  maintain  a fully  integrated  railway  with  separate  accounts.  This  was 
taken  by  Greece,  Ireland  and  Luxembourg,  which  have  much  smaller  railway  networks  than 
other Member States, though important flows of traffic  pass through Luxembourg in transit. 

17.Except  for  the  railways  that  have  been  divided  into  separate  entities,  the  separation  of  accounts 
has proved  unsatisfactory.  The accounts of an enterprise have several  parts, and  include at least a 
profit  and  loss  account  and  a balance  sheet;  an  enterprise  has  to  present  and  have  both  audited. 
-According  to  the  Commission's  study,  although  all  Member  States  have  transposed  this 
requirement  of  the  Directive,  no  integrated  railway  has  prepared  or  published  separate  balance 
sheets.  Moreover  it appears  that  only  the  railways  of  Austria,  Germany,  Ireland  and  Spain  have 
prepared  profit  and  loss  accounts,  which  RENFE  (Spain)  alone  has  published.  In  Belgium, 
Denmark,  Greece,  Italy,  Luxembourg  and  Portugal  either  separate accounts  are not yet ready  or 
no  solid  information  is  available  on  the  situation.  It  should  be  recalled  that  the  separation  of 
accounts  is  the  minimum  degree  of  separation  possible  and  that  several  Member  States  have 
managed  to  achieve  complete  separation  of  transport  services  and  infrastructure  management, 
since the implementation  of the Directive. 

18.The  separation  of  accounts  is  very  important,  since  a  clear  and  full  financial  statement  is 
essential  for  effective  management  of  both  transport  operations  and  infrastructure  management; 
although  linked,  they  produce  different  services  and  differ  in  the  extent  to  which  they  are 
commercially  orientated  or  serve  public  purposes.  It  is  also  necessary  to  make  transparent  the 
use  to  which  public  support  is  put,  as Member  States  provide  public  money  to  compensate  for 
public services, balance  exceptional  social  costs,  support  infrastructure,  provide  equity  and  fund 
operating  deficits.  Another  reason  for  separating  accounts  is  to  create  a  solid  foundation  for 
infrastructure  charges  through  clear  identification  of  cost  and  of  present  revenues  from 
infrastructure.  Consequently,  the  Commission  intends  fully  to  clarify  the  legal  situation,  by 
amending  Directive 91/440/EEC to require the preparation  and publication  of separate profit  and 
loss account and balance sheets for  transport service and infrastructure  management. 

IV.DEBT REDUCTION  AND  FINANCIAL  IMPROVEMENT 

19.The unsound  state  of  railway  finances  became  increasingly  clear  throughout  the  1980's  as  debt 
, rose  and  debt  servicing  became  a  burden  on  finances.  If  the  railways  were  to  be  managed 
independently,  operate in a commercial  manner  and face  up to competition,  their finances  had  to 
be put on a sound basis. The Directive therefore  required  Member  States to help  reduce debt to a 
level  that  did  not  impede  sound  financial  management  and  to  improve  the  financial  situation  of 
the  railways.  In  its  White  Paper,  "A  strategy  for  revitalising  the  Community's  railways";  the 
Commission  undertook  to  report  regularly  on  progress  in  reducing  debt  and  in  improving 
finances  This section  deals with  debt and  debt service and the measures  taken  by Member  States 
to tackle the debt problem,  which was the focus  of Article 9 of Directive 91/440/EEC.  Of  course 
railway  finance  has many other aspects, and governments  support the railways  in different  ways. 

Trends in the  1980's 

20.Raiiway  finances  were  under  pressure  in  the  1980's  for  several  reasons.  Railways  invested 
heavily  in  new  assets  in  an  attempt  to  make  their  product  more  attractive  and  stem  losses  in 
traffic.  Revenue  fell  considerably,  primarily  because  of  a  slump  in  freight  revenue  and  yields. 
Although  they  cut  costs,  the  reductions  did  not  balance  the  fall  in  revenue,  so  that  operating 
losses  continued  to  be  heavy.  Reductions  in  government  support  of  railways  in  many  countries 
led to unfunded  losses, which  put further  pressure on accounts. 

21.There  was  a  striking  increase  in  capital  employed  and  hence  in  asset  intensity.  This  resulted 
principally  from  infrastructure  investment,  especially  in  high-speed  lines,  from  investment  in 
new  rolling  stock,  largely  for  high-speed  and  long  distance  passenger  services,  and  from  the 
automation  of various processes. Over the decade total  capital  employed by Community  railways 
increased  in  real  terms  from  ECU  142  billion  to  ECU  189  billion,  a  rise  of  33%, while  asset 
intensity  grew from  1.9 to 2.9. 

22.lt  is  sometimes  thought  that  the  increase  in  investment  in  the  1980's  was  funded  primarily 
through  debt.  In  fact  the  main  source  of  capital  was  government  contributions,  which  appeared 
on  balance  sheets  as  equity.  Consequently,  although  total  liabilities  and  both  equity  and  debt 
increased  significantly  in  absolute  terms,  the  proportion  of  total  liabilities  represented  by  debt 
decreased  considerably.  While  from  1980 to  1990 total  capital  employed  rose to  189 billion,  as 
said  , debt  increased  from  97  to  108 billion  (+11%)  and  equity  from  45  to  81  billion  (+80%). 
This  meant  a  considerable  decline  in  the  ratio  of  debt  to  equity,  from  2.15  in  1980  to  1.34  in 
19905.  (See table  1  for  information  on each railway). 

23.Higher  levels  of  debt  in  absolute  terms,  nevertheless,  led  to  increased  interest  payments;  these 
added  to operating  costs  and  absorbed  a greater  proportion  of  income,  even  when  interest  rates 
were  related  to  government  stock  rather  than  at  full  commercial  level.  On  average  interest 
payments  increased  as  a  proportion  of  operating  costs  from  7%  in  1980  to  11%  in  1990,  and 
were  well  above  that  level  in  the  case  of  three  railways.  This  represented  a  serious  and 
unsustainable burden on enterprises that were already  in financial  difficulties  for other reasons. 

24.These  general  trends  concealed  large  differences  in  financial  performance.  Certain  railways 
maintained  historically  low  ratios  of  debt  to  equity  and  of  debt  service  to  operating  costs 
throughout  the  period,  in  particular  DSB  (Denmark),  VR  (Finland),  ÔBB  (Austria)  and  NS 
(Netherlands).  The  fact  that  the  State  took  much  responsibility  for  investment  in  the  network 
contributed  to  this.  In  contrast  debt  : equity  ratios  were  high  and  increased  in  the  case  of  CEE 
(Ireland),  CP  (Portugal),  DB  (Germany),  RENFE  (Spain)  and  to  the  greatest  extent  SNCF 
(France).  Debt  service  was  a  particular  burden  on  the  finances  of  CP,  FS,  RENFE  and  the 
SNCF.  The  debt  :  equity  ratios  of  BR  (Great  Britian),  FS  (Italy)  and  SNCB  (Belgium)  fell 
markedly,  while those of CH (Greece) and  SJ/BV (Sweden) rose substantially from  a low level. 

Trends since  1990 

25.In the  early  1990's governments  started  to restructure  railway  finances,  often  as  part  of  a  major 
reform  of  the  sector.  Significant  improvements  were  made  in  the  ratio  of  debt  to  equity  on  the 
balance  sheet,  but  the  burden  of  debt  service  on  costs  and  income  continued  to  grow.  Between 
1990 and  1995, total capital  employed  increased from  ECU  189 billion to  199 billion  (+5%), but 
debt  fell  from  108  to  101  billion  (-6%)  (after  reaching  130  billion  in  1993),  while  equity  was 
raised  from  81  to  97  billion  (+20%).  Overall,  the  debt  :  equity  ratio  fell  from  1.34  to  1.04, 
around  unity,  and  debt  service  decreased  slightly  relative  to  operating  costs,  from  11%  in  1990 
to  10%  in  1995  because  of  financial  restructuring  in  Germany.  (See  table  2  for  information  on 
each  railway).  Since  1995, the  last year for  which  statistics were  available,  several  governments 
have reorganised  railway  finances,  so further  improvements  in the debt situation  should  show up 
in later  figures. 

Asset intensity is the number of units of capital required to support one unit of operating costs. 
The debt. equity ratio is that between debt (both short and long term) and equity. Equity is expressed as 1, so a debt 
equity ratio above  1  shows that there is more debt than equity in the balance sheet. 

<? 

26. Again,  the differences  in performance  were great. The reduction  in debt between  1990 and 1995 
was  largely  the  result  of  action  in  three  countries,  Germany,  Italy  and  the  Netherlands.  In 
Germany,  the government  wrote  down  assets  and transfered  debt  to the Federal  Railway  Fund 
(Bundeseisenbahnvermogen)  as  part  of  general  reorganisation  of  the  sector,  transforming  the 
accounts.  The merger  of  DB and DR (Deutsche  Reichsbahn)  makes  comparison  difficult  but in 
1994 the new DB AG emerged  with  a healthy  balance  sheet that showed  a debt  : equity  ratio of 
0.53, while debt service fell  to an insignificant  level. In Italy, the financial  restructuring of FS in 
1994 had a major  impact on the level of debt and of debt service. FS' debt has been transfered  to 
the  State,  which  is paying  the interest  and is eventually  to  repay  the debt  itself.  After  growing 
from  ECU 31 billion  in  1990 to ECU 42 billion  in  1994, debt fell to 30 billion in  1995, and there 
was  a  sharp  fall  in  the debt:  equity  ratio  from  1.1  in  1990 and  1.04  in  1994, to  0.69  in 1995. 
Debt  service  payments,  however,  increased  from  21%  of operating  costs  in  1990 to no less  than 
29%  in  1995  but  are  expected  to  fall  sharply  under  the  debt  reduction  programme.  In  the 
Netherlands,  the  State  has  funded  a  large  proportion  of  capital  requirements  through  equity 
injections  and, as part of a general  organisation,  removed  infrastructure  from  NS' balance  sheet 
to take direct  responsibility.  The debt  equity  : ratio fell  from  0.58 in  1990 to 0.42 in  1995, while 
capital  employed  was reduced  by about one half. 

27.In  some  other  Member  States,  railway  debt  increased  heavily  between  1990  and  1995, 
particularly  in  Greece,  Portugal,  Spain,  Sweden  and  France.  In  Greece,  CH's  debt jumped  by 
125%o, and the debt  : equity  ratio  rose  from  0.58 to 0.93, near  to the Community  average.  Debt 
service  grew  from  9 to  15% of  operating  costs.  These  trends  are mainly  the  consequence  of  a 
large, unfunded  operating  deficit  (71%  of operating  costs  in  1995). The financial  situation  of CP 
(Portugal)  deteriorated  more than of any other railway, from  an already  difficult  position,  largely 
because  of  a growing  unfunded  operating  deficit.  Since  1990, accumulated  losses  have  almost 
eliminated  equity,  resulting  in a debt:  equity  ratio of  12.86 in  1995; over the period  debt  service 
virtually  doubled  as a proportion of operating costs, from  16% in  1990 to 30% in  1995. RENFE 
(Spain)  has had a high  level  of debt for years,  much  incurred  in the  1970's and  1980's,  although 
it  has  not  increased  greatly  over  the  last  decade,  the  government  having  injected  equity  on  a 
substantial  scale. The debt  : equity  ratio  is now high  but fairly  stable  at 2.46. Interest  payments 
on  the other  hand  have  risen  from  19% of  operating  costs  in  1990 to 32% in  1995, the highest 
level  in  the  Community.  The present  contract  between  RENFE  and the  State  provides  for  the 
latter  to  repay  some  debt  and to  cover  part  of  interest  payments.  It remains  to be seen  how far 
this will  improve RENFE's financial  situation. 

28.In  Sweden,  substantial  investment  in  rolling  stock  and  in  infrastructure  has  led  to  a  large 
increase in SJ/BV's  assets and debts in the  1980 and  1990's. The debt;  equity  ratio rose from the 
low  level  of 0.49  in  1980 to  1.56  in  1990, followed  by a very  large  rise  to 3.35 in  1995. Debt 
service  also  increased  several  times  over,  but only  reached  7% of operating  costs  in  1995.  The 
State  has  recently  changed  the financial  arrangements  of  both  organisations,  so  their  situation 
will  need  to be reassessed  at a later  stage.  Finally,  in France  the  SNCF  invested  heavily  in the 
1980's  and  1990's,  largely  to  build  the  high-speed  network.  Much  of  this  investment  was 
financed  by  debt  (and unfunded  operating  deficits  between  1992 and  1995 added  to  debt). The 
SNCF's  debt  increased  by  30% between  1990 and  1995, after  growing  by  65% between  1980 
and  1990. A  restructuring  in  1991  reduced  debt  by  21%, but  it  then  rapidly  increased  and in 
1995  was 29% above  the  1990  level.  Because of equity  injections  the debt  : equity  ratio  in  fact 
fell  from  4.82 in  1990 to 3.46, but this  is still  a very  high  level  and to be compared  with  1.22 in 
1980.  Debt  service  remained  at  around  13% of  operaing  costs,  in  1995 as  in  1990. In  1996, 

^£p 

however,  the  State restructured  the finances  of the SNCF, transfering  70% of  debt to  the  Reséau 
Ferré de France. 

An  assessment 

29.The  financial  situation  of  five  railways,  CH  (Greece),  CP  (Portugal),  RENFE  (Spain),  SJ/BV 
(Sweden)  and  SNCF  (France)  was  serious  in 1995;  since  then,  States  have  acted  to  relieve  debt 
and  improve finances,  but  it is too soon  to judge whether  debt has been reduced  to a manageable 
level.  CP  (Portugal)  remains  in  grave  financial  difficulty.  Taking  the  Community  as  a  whole 
however,  the debt situation  has improved,  and  the debt  : equity  ratio  declined  to  around  unity  in 
1995.  Debt  service  remains  a serious  burden  on  finances  for  enterprises  that  lose  money  or  are 
marginally viable. 

30.This  leads  to  the  question  of  whether  present  levels  of  debt  represent  "sound  financial 
management",  the term  of  Directive  91/440/EEC.  It  is possible  to give some  indications  but  not 
a  definite  answer.  First,  the  figures  for  railway  debt  have  to  be  seen  in  the  context  of  normal 
commercial  practice.  It  is usual  for  enterprises,  whether  privately  or  publicly  owned,  to  take  on 
debt  to  finance  investment  (fixed  assets  and  working  capital),  because  under  certain  conditions 
this  is more  advantageous  than  raising  equity.  Asset  intensive  companies  typically  bear  a  higher 
level  of  debt  than  companies  with  less  assets, because  the  assets  can  be  used  as  security.  While 
comparisons  are of  limited  value,  it  is nevertheless  interesting  that  in  1997 the North  American 
railways  had  a  debt  :  equity  ratio  of  0.72,  lower  than  the  Community  average 
in  1995  but 
similar to that of a number of European  railways. 

31.The second  consideration  is whether  an  investment  produces  an adequate return  and whether  the 
investing  company  can  afford  to  service  the  debt.  Many  railways  have  not  been  subject  to 
normal  commercial  disciplines  as  regards  investment,  at  any  rate  not  until  recently,  and  much 
investment  since  1980  is  considered  to  give  a  low  or  negative  return.  Moreover  five  railways 
faced  in  1995 interest  payments  above  10% of operating  costs  : CH (Greece),  CP  (Portugal),  FS 
(Italy,  RENFE  (Spain)  and  SNCF  (France).  For  three,  debt  service  had  reached  around  30% of 
operating costs (CP, FS and RENFE), clearly  not a sustainable  situation. 

32.Overall,  the  debt  position  of  the  Community's  railways  improved  considerably  between  1980 
and  1995. Further  improvements  are to be expected when later figures  become  available.  Overall 
only  the  position  of  CP  (Portugal)  still  appears  critical.  This  does  not  mean,  however,  that  the 
financial  situation  of  the  railways  can  be  taken  as  totally  sound.  Debt  service  remains  a  heavy 
burden  for  some  because  of  large  scale  investments  in  the  years  before.  In  addition  there 
continues  to  be  a  serious  problem  of  operating  deficits,  mainly  caused  by  stagnant  revenue, 
inadequate  gains 
insufficient 
compensation  for  public  services  rendered.  At  the  policy  level,  the  Community  has  not  yet 
created  a framework  for  railway  finances  that  clearly  defines  the  reponsibilities  of  the  State  and 
of the railways.  Many  aspects  remain  obscure,  including  the  real  use to which  public  support  is 
put.  Once  the  Community  has  established  a full  set  of  rules  for  financial  relations  between  the 
State and the railway,  it should become clearer whether  railway  finances  are on a sound  footing. 

in  productivity  and  hence  excessive  costs,  and  possibly 

si/? 

V.ACCESS  RIGHTS 

33.The  Directive  established  access  rights  for  groupings  of  railway  undertakings  to  operate 
international  services  between  the  Member  States  where  the  constituent  enterprises  are 
established  and  for  railways  undertakings  to  operate  international  combined  transport  services 
throughout the Community.  All Member  States have transposed  these rights with the exception 
of  Italy  and  Luxembourg  (as  of  1st  March  1998),  and  the  Commission  is  taking  infraction 
proceedings against them under Article  169 of the Treaty.  In  1995 the Community adopted two 
complementary Directives intended to lay down the conditions of access, one on the licensing of 
railway undertakings 6 and the other on the allocation of infrastructure  capacity and the charging 
.  These  should  have  been  transposed  by  27th  June  1997 but  as  of  1st 
of  infrastructure  fees 
March  1998  only  four  Member  States  have  notified  transposai  and  the  Commission  is 
conducting  infraction  proceedings  against  the  others.  This  means  that  even  the  limited 
framework  provided by these two directives is not yet in place; and there is wide agreement that 
it does not adequately define conditions of access. 

34.So far, only two groupings offer  services under the access rights of Directive 91/440/EEC, while 
another  plans  to  do  so  in  the  immediate  future,  according  to  the  information  available  to  the 
Commission.  Of  course,  in  recent  years  the  national  railways  have  developed  cooperative 
ventures  to  launch  new  international  services  and  various  freight  ventures  include  transport 
undertakings other than the national  railways. In several Member States, new entrants have won 
the right to operate regional or local services. However these developments are not based on the 
access rights of the Directive;  indeed domestic services are completely  outside the scope of this 
part  of  the  Directive.  This  means  that  so  far  the  national  railways  face  almost  no  real 
competition and can behave like monopolies. This is particularly serious in the freight  market, as 
there is an urgent need for rail services that can compete with road transport and win back some 
of  the  market  share  that  has  been  lost.  One  consequence  of  the  lack  of  new  entrants  is weak 
pressure  to  charge  prices  that  are  as  competitive  as  possible;  experience  has  shown  that 
competition with other transport modes has not forced  the railways to offer  the lowest prices and 
the best quality service of which they are capable. This lack of  incentive is well  illustrated by a 
recent example of an international service run by two railways. One, seeking to make the service 
more attractive,  reduced  its price  unilaterally  by  30%. Instead  of  responding  positively  to this 
attempt to widen the market, the other  increased  its price by 60%. If access to the market were 
effectively  open, it would not have been able to behave in this manner. 

35.Why have so few  railway undertakings  used the access rights of  Directive 91/440/EEC; indeed 
why  are there  so few  new entrants  in general?  Here  it  is  important  to  distinguish  between  the 
economics of railway operation  and barriers to the market of a regulatory  nature. A new entrant 
to the railway  sector faces  high start-up costs, having to buy or lease traction  and rolling stock, 
find  experienced  management  and  qualified  train  crews  and  maintenance  personnel,  conduct 
negotiations with infrastructure  managers and obtain the different  authorisations needed. All this 
is to enter a market where competition  is fierce, from  other often  dominant railway undertakings 
and  other  modes  of  transport.  It  is  therefore  natural  that  there  has  not  been  a  flood  of  new 
entrants. The national  railways do not face  these obstacles, but clearly  prefer  to cooperate with 
their  counterparts  in  other  Member  States  rather  than  to  compete  with  them  on  what  they 

6 Council Directive 95/18EC of  19 June 1995 on the licensing of railway undertakings. O.J. L143, 22/6/95. 

Council Directive 95/19/EC of  19 June 1995 on the allocation of railway infrastructure  capacity and the charging of 
infrastructure  fees. O.J. LI43, 22/6/95 

It 

consider  their territory;  indeed they see such cooperation  as the way to  improve  international  rail 
transport. 

36.As  for  conditions  of  access,  there  is  a  wide  agreement  that  the  framework  is  not  complete 
(leaving  aside  the  question  of  late  implementation  of  existing  directives).  It should  set the  main 
conditions  for  access  to  infrastructure,  for  charging  and  capacity  allocation  in  particular.  It 
should  guarantee  that  all  railway  undertakings  are treated  fairly  and  without  discrimination  and 
prevent  possible  abuse  of  dominant  position  by  the  integrated  railways-,  that  both  supply 
transport  services  and  manage  infrastructure,  in  conformity  with  the  Community's  competition 
rules.  It  should  also  respond  to  a  perception  by  potential  new  entrants  that  the  integrated 
railways  do  not  and  will  not  treat  them  fairly,  when  it  comes  to  allocating  capacity,  setting 
charges and,  in some cases, regulating  safety. 

37.In  fact  the  integrated  railways  face  a  conflict  of  interest.  On  the  one  hand,  through  the 
management  of  infrastructure,  they  determine  the  conditions  under  which  potential  competitors 
enter  the  market  and  conduct  their  business.  In  exercising  this  responsibility,  they  should  treat 
equitably  and  without  discrimination  all  transport  services,  that  is their  own  and  those  operated 
by  their  competitiors.  On  the  other,  every  part  of  an  integrated  railway,  including  its 
infrastructure  manager,  is  naturally  supposed  to  advance  the  interests  of  the  enterprise  as  a 
whole.  It  therefore  has  an  incentive  to  favour  its  own  transport  operations  over  those  of  a 
competitor,  in  the  ways  mentioned.  The  study  on  the  implementation  of  Directive  91/440/EEC 
found  that fear  of  unfair  treatment  was  widespread  and  a major  reason  for  not  considering  entry 
to the market. 

38.Directive  95/19/EC  lays  down  general  principles  for  infrastructure  charges  but  these  are  too 
loose  to  be  an  adequate  basis  for  setting  charges.  Indeed  there  remain  fundamental  differences 
between  national  approaches  to  charging  and  no  consensus  yet  on  how  charges  should  reflect 
costs  or  take  account  of  intermodal  competition.  Also  the  lack  of  precise  Community  rules  has 
made  it  difficult  for  some  Member  States  to  develop  charging  systems.  So  far,  only  Austria, 
Denmark,  Finland,  France,  Germany,  Netherlands 
,  Sweden  and  the  United  Kingdom  have 
explicit  charging  systems.  While  the  creation  of  a  charging  system  is  certainly  a  step  forward, 
wide  differences  remain  between  the  national  systems  and  these  usually  do  not  take  sufficient 
account  of  competition  from  other  modes  of  transport.  Moreover  in  certain  Member  States 
charges are structured  in such a way as to disadvantage  small operators,  and  new entrants tend  to 
operate on  a small  scale  . For example,  Austria and  France apply two part tariffs  with high  fixed 
charges,  which  may  reflect  their  costs  of  infrastructure  management  but  not  the  economics  of 
transporting  relatively  small  quantities  by  rail;  in  Germany  discounts  are  given  for  train  -
kilometres  operated  and  duration  of  the  order.  Such  practices  favour  incumbent  railway 
undertakings  and  deter  new  entrants,  and  lead  to  lower  quantities  being  carried  by  rail.  There  is 
also the question of whether they are compatible with the Community's  competition  rules. 

39.The  way  train  paths  are  allocated  is  also  crucial  to  a  new  entrant.  The  process  needs  to  be 
transparent  and  fair  to  all  railway  undertakings,  to  respond  rapidly  to  demand  and  to  make  best 
use  of  capacity;  there  have  to  be  clear  procedures  for  resolving  problems  of  scarce  capacity.  In 
addition  it  should  be  implemented  by  an  organisation  independent  of  dominant  suppliers  of  rail 
transport  services,  as  there  is  a  conflict  of  interest  and  risk  of  unfair  treatment  if  capacity 
allocation  is  done  by  an  infrastructure  manager  that  also  operates  transport  services.  At  present 
there  is  an  independent  allocation  body  only  in  Denmark,  Netherlands,  Sweden  and  the  United 

The Netherlands has set a zero charge until 2000, except for the Freeways. 

11 

Kingdom,  although  apparently  other  Member  States  are  planning  to  establish  them.  In  two 
Member  States,  according  to  the  information  available,  capacity  is  reserved  for  the  national 
railway,  although  Directive  91/440/EEC  does  not  limit  access  rights  in  such  a  way.  Another 
distinct  issue  is  whether  the  right  to  book  and  purchase  train  paths  should  remain  reserved  to 
railway  undertakings,  that  is undertakings  that ensure traction, or extended  to other undertakings. 
There  is  no  obvious  reason  to  restrict  this  right,  particularly  as  other  operators  may  carry  some 
of  the  financial  risk  for  the  provision  of  a  service.  It  must  be  emphasised  that  this  is  different 
from  the  right  of  access  to  railway  infrastructure,  that  is  the  right  to  provide  rail  transport 
services.  Because of  the  expertise  needed  to  operate  trains  efficiently  and  with  a high  degree  of 
safety,  this  must  continue  to  be  reserved  to  railway  undertakings.  The  Commission  intends  to 
propose guidelines on infrastructure  charges and on capacity  allocation  in the immediate  future. 

40.The  right  regulatory  arrangements  contribute  to  fair  competition  in other  ways.  For  example,  to 
prevent  safety  certification  becoming  a barrier to entry, there  is a need  for  clear rules, whether  at 
national  or  Community  level,  and  for  independent  bodies  to  certify  conformity.  Information 
about  the  characteristics  of  infrastructure  should  be  equally  available  to  all  operators  and  not 
withheld  on  the  grounds  of  commercial  sensitivity.  Procedures  for  licensing  should  be  wholly 
independent  of  all  undertakings  supplying  rail  transport  services.  Facilities  essential  for  the 
operation  of  transport  services  should  be  made  available  without  discrimination  to  railway 
undertakings.  Some  facilities,  that  are  not  infrastructure,  are  at  present  only  provided  by  the 
incumbent  railways,  because  of  the  monopoly  they  have  had  for  a  long  period  of  time,  for 
example  freight  terminals,  stabling  facilities,  maintenance  workshops  and  training  schools.  The 
national  railways clearly  dominate the supply of these services, but this should not be a barrier  to 
entry. These are issues that the Commission  will  consider at a later stage. 

41.Finally  the  access  rights  of  Directive  91/440/EEC  are  limited  and  conditional  which  reduces 
their  attraction  and  helps  explain  their  small  effect  on  the  ground.  Under  the  Directive,  except 
when  offering  international  combined  transport  services,  a  railway  undertaking  established  in 
one  Member  State  has  to  find  a  partner  established  in  the  Member  State  to  which  it  intends  to 
operate services, and form  an  international  grouping  with  it.  In practice the only  possible  partner 
may  be the  national  railway.This  may  consider  it against  its  interest  to  compete  against  another 
national  railway  through  an  international  grouping,  because  it  could  lead  to  competition  on  its 
own  home  market  and  because  it  would  go  against  a  long  tradition  of  cooperation  with  other 
railways.  Consequently  the condition  of  forming  on  international  grouping  is  likely  to  deter  new 
entrants  and  is perceived  as a serious obstacle to entering the market. 

42.The  Directive  creates  access  rights  for  operating  international  not  for  domestic  services.  This 
distinction  ignores the realities  of the  market,  particularly  for  wagon  load  freight,  which  matters 
enormously,  as the majority  of  international  rail  freight  is hauled  in wagon  load  quantities.  Very 
often  a  wagon  is  moved  within  a  Member  State,  for  instance  from  the  loading  point  to  a 
marshalling  yard,  before  being  joined  to  an  international  train;  or  it  may  make  a  domestic 
movement  after  the  international  journey,  or  both.  It  follows  that  a  railway  undertaking,  when 
exploiting the access rights of the Directive,  must rely on the incumbent  railway for  the  domestic 
legs  of  the  operation.  It  cannot  provide  a  point  to  point  service,  as  the  incumbent  can,  nor 
compete  on  service  qualitity  and  price over  the whole  route.  Consequently,  the  limitation  of  the 
access  rights  to  international  services  artificially  divides  and  distorts  the  market  and  deters  new 
operators from  competing. 

.' "t 

43.The  current  arrangements  may  also  hamper  the  development  of  cross  border  traffic,  for  which 
there  is a large  potential  as  many  centres  of  population  and  of  economic  activity  lie within,  say, 
100  kilometres  from  a frontier.  When  traffic  originates  close  to  the  border  of  a  Member  State, 
the first  part of  the journey  is carried  out  by  a railway  undertaking  established  in  that  State.  On 
arrival  at the border,  the train  would  then  be handed  over to a railway  undertaking  established  in 
the  second  Member  State.  However,  because  the  distance  to  the  frontier  in  the  first  Member 
State is short,  the charge for  the haul  on  that  leg would  be  disproportionately  high,  as in  general 
the  charge  per  kilometre  falls  as  the  length  of  the  trip  increases.  The  high  charge  for  the  first 
stage to the border  tends  to discourage  railway  undertakings  from  offering  cross border  services 
or  leads  them  to  charge  a  high  price,  so  restricting  demand.  The  present  set  up  may  distort  the 
supply  of  transport  services  in  other  ways.  For  instance,  it  is  in  the  interest  of  each  railway 
undertaking  to  ensure  that  it  moves  as  much  traffic  as  possible  itself,  in  order  to  receive  the 
largest  proportion  of overall  revenues. The requirement  to form  an  international  grouping  means 
there  is  little  an  individual  railway  undertaking  can  do  to  influence  such  decisions  and  offer  a 
more  direct  service  at  lower  cost.  There  are  numerous  cases  of  traffic  being  carried  by  road, 
when  there  is  potential  for  a  competitive  rail  service,  because  one  operator  was  not  allowed  to 
supply the whole service from  origin  to destination  or,  more generally  to design  the best  product 
for the  market. 

VLEMPLOYMENT  EFFECTS 

44.The newly  signed  Treaty,  in  its Employment  Title,  states  that  "a high  level  of  employment  shall 
be  taken  into  consideration  in  the formulation  and  implementation  of  Community  policies  and 
activities.  " (Article  127 § 2)  The Amsterdam  European  Council  decided  to  make the  provisions 
relating  to  the  Employment  Title  immediately  effective  and  the  Extraordinary  Luxembourg 
European  Council  agreed  upon  an  overall  strategy  which  includes  "the  harnessing  of  all 
the  Treaty."  The 
Community  policies 
Commission,  in  its  Communication  on  Growth  and  Employment  in  the  Stability-Orientated 
Framework  of  EMU,  has  subsequently  dealt  extensively  with  the  employment  challenge,  thus 
effectively  mainstreaming  employment  in  its  treatment  of  macroeconomic  issues.  Policies 
relating  to  the functioning  of  the single  market,  sectoral  policies  and  labour  market  reforms  are 
to incorporate the same employment  concerns. 

in  support  of  employment 

in  accordance  with 

45.Employment  in European  railways  has been  declining  continuously  since  1980 when  it stood  at 
1.668.000.  The  work  force  fell  by  21% (to  1.320.000) between  1980  and  1990  with  almost  all 
Member  States experiencing  declines during this  period,  and with the U.K.  and  Sweden  showing 
the  largest  drops  (-44%  each), followed  by  Ireland  (-35%),  Belgium  (-31%),  Spain  (-30%),  and 
Finland  (-30%).  The  decline  intensified  from  1990  to  1996  with  an  overall  fall  of  31%  (to 
around  907.000). The heaviest falls  were  in Germany  (-47%),  Portugal  (-41%),  Italy  (-38%),  the 
U.K.  (-30%),  Finland  (-26%),  Spain  (-25%)  and  Denmark  (-24%);  employment  in  Sweden 
recorded  an increase over the period (+6%). 

46.Railway  undertakings  and  railway  trade  unions  are  concerned  about  the  effects  of  Directive 
91/440/EEC  on  employment  on  the  railways.  This  is  easy  to  understand  as  employment  has 
already  dropped  heavily,  from  1.668.000  in  1980  to  around  967.000  in  1995,  and  907.000  in 
1996. It  is sometimes  argued  that the Directive  has  caused  employment  to  drop  in two  ways:  by 
requiring  management  of  railways  on  commercial  lines  and  by  creating  competition  for  the 
established  operators from  new entrants that require less staff  to do the same job. 

ff 

47.The reasons  for  the decline  in  railway  employment  would  however  seem  to  lie  in  a multitude  of 
factors:  rises  in  productivity  as  new  techniques  were  being  deployed,  stagnant  demand  for  rail 
transport  as competition  from  other  modes grew stronger,  and  pressure on  public funds  available 
to  compensate  for  public  services,  meet  operating  losses  and  maintain  higher  levels  of 
employment  than  needed  for  efficient  operation  within  the new overall  competitive  environment. 
It is necessary  to distinguish  these factors  contributing to the decline  in employment  from  effects 
directly  linked  to Directive 91 /440/EEC. 

48.Probably  the  best  way  to  assess  the  impact  of  Directive  91/440/EEC  is  to  see  whether  the 
decline  in  employment  began  before  its  implementation,  or  whether  it  accelerated  when  the 
Directive was put into effect.  In other words, was there a break  in trends when the Directive was 
introduced?  The answer would  give some indication  of the impact of the Directive but would  not 
be definitive,  because  it  is necessary  to  assume that other  factors  do  not  change greatly.  Table  4 
gives  changes  in  employment  in  the  fifteen  national  railways  of  the  Community  over  different 
periods  of  time.  It  shows  both  the  average  annual  decrease  in  employment  (the  absolute 
numbers)  and the percentage change over each period  of time. 

49.The table  makes  it clear that  employment  was  already  falling  heavily  in the  1980's,  long  before 
the  adoption  of  the  Directive.  Decline  accelerated  in  the  early  1990's  as the  cut  in  employment 
in  Deutsche  Reichsbahn  began;  excluding  DR,  the  quantity  of  job  losses  was  similar  in  the 
1980's  and  in  the  early  1990's.  However,  to  trace  the  impact  of  the  Directive  more  precisely, 
trends  should- be  compared  before  and  after  the  implementation  of  the  Directive.  It should  have 
been  transposed  by  1993, but most  Member  States were  late. However  a number had  done so by 
1994,  so  this  is  an  appropriate  date  to  take;  still  it  gives  a  very  short  time  series  and  various 
Member  States  had  not  yet  implemented  the  Directive  by  that  date.  The  table  shows  a  steeper 
decline  in  employment  after  1994;  the  higher  numbers  leaving  the  industry  between  1994  and 
1996,  compared  with  those  in  the  preceding  three  years,  are  largely  accounted  for  by  the 
reduction  in DBAG's  employment  following  the merger  of  DB  and  DR..  Leaving  aside  DBAG, 
employment  fell  by  32.000  per  annum  between  1990  and  1994  and  by  34.000  per  annum 
between  1994 and  1996, compared  to 31.000  in the late  1980's. Job  reductions  were  particularly 
serious  in FS and  in BR prior to  privatisation. 

50.As  cost  and  debt  pressures  are  nevertheless  expected  to  continue  to  force  rationalisation  within 
the industry for  some years to come, it is essential  to assess the  employment  effects  according  to 
the  different  situations  in  the  different  Member  States.  Equally,  it  is  important  for  the  change 
towards  running  the  EU  railways  on  a  more  commercial  basis  to  be  assessed,  as  far  as 
employment  is  concerned,  not  only  in  quantitative  but  also  in  qualitative  terms  (job  profiles, 
educational  levels etc.). 

51.If  it  is  too  early  and  complex  to  identify  an  employment  impact  directly  attributable  to  the 
Directive  91/440/EEC,  it  is accepted  that the  long term  employment  prospects  in  the  sector  will 
ultimately  depend  on  its  modernisation  and  its  competitive  position.  The  know-how,  skills  and 
adaptability  of  its  workforce  can  greatly  contribute  to  a  market  orientation  of  the  sector.  The 
Commission  will  in this respect  continue to encourage discussion  of appropriate  policy  measures 
to  improve  the  adaptability  and  employability  of  workers  affected  by  the  secular  employment 
decline whether  caused  by long term  productivity  trends or by specific  factors  such as changes  in 
ownership  and  management structure. By the same token  the Commission  will  continue to  invite 

reflection  on  staff  training  needs  and  human  resource  investment  requirements  arising  from  the 
structural  changes  in the sector 

52.In conclusion,  it seems that the decline  in  employment  began  long before  the  implementation  of 
Directive  91/440/EEC,  which  so  far  has  had  no  clear  effect  on  long  term  trends.  It  is  possible, 
however,  that  in  future  the  Directive  will  have  an  impact,  particularly  if  new  entrants  began  to 
exploit  access  rights  on  a significant  scale.  To  make  a fair  assessment,  it would  be  necessary  to 
balance  the  reduction  in  employment  in  the  incumbent  railways  caused  by  competition  against 
the  employment  created  by  the  arrival  of  new  entrants  and  the  expansion  of  the  market  if 
competitiveness  improves.  At this stage  it  is worth  repeating  a  point  made  in the  Commission's 
white paper "A  strategy  for  revitalising the Community's  railways"  : 
"only  a dramatic rise  in 
performance  will  guarantee  the  long-term  future  of  rail  transport  and  employment.  The  aim  of 
Community  policy,  as  explained  in  this  white  paper,  is to  bring  about  such  a change.  Failure  to 
act  will  inevitably  cause  further  deterioration  in  the  position  of  the  railways  on  the  transport 
market,  and  could  jeopardise  their  presence  in  major  segments.  Vigorous  action  to  restore 
competitiveness  is the only way to stable  employment". 

VII.POLICY  CONCLUSIONS 

Debt reduction  and financial  improvement 

53.The  railways'  debt  situation  has  improved  substantially  since  1990,  as  Member  States  have 
reduced  debt  and  restructured  finances,  but  this  does  not  mean  that  the  situation  is  yet 
satisfactory.  The  Commission  intends  closely  to follow  trends  and  to  report  again  in  three  years 
time  on  the  debt  situation  of  the  railways.  More  generally,  the  Community  needs  a  clear 
framework  for  railway  finances.  Later  this  year  the  Commission  intends  to  revise  the  rules  on 
public  services  and  on  State  aid  for  land  transport,  and  so  provide  a  solid  basis  for  structuring 
railway  finances. 

Infrastructure  : framework  conditions 

54.The communication  shows  that  Directive  91/440/EEC  does  not  ensure  the  degree  of  separation 
needed  in  order  to  achieve  efficient  management  of  the  two  activités,  provide  a  basis  for 
infrastructure  charges  and  ensure  transparency  about  flows  of  public  money.  The  Commission 
therefore  plans  to  propose  the  modification  of  Directive  91/440/EEC  to  require  the  separation 
both  of  profit  and  loss  accounts  and  of  balance  sheets  between  infrastructure  management  and 
transport  services. 

55.The  Community  has  not  fully  defined  the  conditions  of  access  to  the  market.  There  is  a  wide 
consensus,  that  includes  railway  undertakings,  that  the  Community  must  establish  more  precise 
rules on  charges  and  on  capacity  allocation,  in order  to ensure  efficient  use of  infrastructure  and 
fair  treatment  of  all  railway  undertakings.  The  Commission  intends  to present  in  the  near  future 
a package of measures  concerning the utilisation  of  infrastructure.  This  would  include  guidelines 
on infrastructure  charges  and guidelines on the allocation  of infrastructure  capacity. 

56.There  is  a  risk  that  new  entrants  will  not  receive  fair  treatment  from  infrastructure  managers, 
when  these  are  a part  of  an  integrated  railway  undertaking  that  also  operates  transport  services. 
Infrastructure  managers  will  have an  incentive  to  advance the  interests  of  the whole  undertaking 
including  its  transport  service  division.  This  could  lead  them  to  favouring  their  own  operations 
over  those of  competitors,  when  it  comes  to  setting  charges,  allocating  train  paths,  or  licensing 

/ ~V 

and  certifying  safety  when  this  is  their  responsibility.  The  Commission  intends  to  propose 
measures  to  remove  such  conflicts  of  interest  in  its  infrastructure  package.  Safety  certification 
could  be  a  barrier  to  entry,  if  clear  rules  are  not  set  and  if  conformity  is  not  certified  by 
independent  bodies.  At  a  later  stage  the  Commission  will  consider  this  and  other  potential 
obstacles to entering the market. 

Access to infrastructure  : wider rights 

57.The  Commission  believes  that  extending  the  access  rights  created  by  Directive  91/440/EEC 
would  valuably  build  on  the  progress  already  achieved.  The  communication  suggests  that 
advancing beyond the access rights created by Directive 91/440/EEC, and in particular removing 
the  requirement  to  form  an  international  grouping,  would  enormously  enhance  the  rights' 
effectiveness.  It  is  vital  to  continue  opening  access  to  railway  infrastructure,  especially  for 
freight  transport  which  has been  losing market share for  decades.  Opening  access would  allow 
new enterprises  to enter  the  market  offering  new and  better  services;  although  their  operations 
would  remain  marginal  in  scale  for  a  long  time  because  of  high  start-up  costs,  new  entrants 
would identify  fresh  business opportunities and stimulate the incumbents to perform better. 

58.In  1995 the Commission  proposed  opening  access  for  the  operation  of  international  passenger 
services and for  all freight  transport, domestic and international  . While there was wide support 
for  liberalisation,  particularly  from  the users  of  rail  transport,  the  Commission's  proposal  was 
criticised  on two grounds  : for  introducing  liberalisation  immediately  not progressively  and  for 
lacking  the  accompanying  measures  needed  to  define  the  conditions  of  access.  The  European 
Parliament took this view  in its resolution 
on the white paper "A  strategy for  revitalising the 
Community's railways" : 

rail 

liberalisation 

"E.  whereas 
transport  and 
telecommunications,  proceed  in  stages  in  conjunction  with  the  parallel  implementation  of  the 
necessary accompanying  measures, although  this should  not mean that the ultimate objective of 
extending  free  market  rules  to  rail  freight  and  the  international  transport  of  passengers  by  rail 
should be unnecessarily slowed down". 

should,  as  with  maritime  and  air 

4...."takes  the view that  liberalisaion  should be progressive, beginning with the liberalisation of 
international  freight  transport  and  followed  by  domestic  freight  tranport  and  international 
passenger transport". 

"7. Takes the view that the Commission should submit proposals in order, firstly,  to give railway 
undertakings  the right of free  access to railway  infrastructure  on the basis  of  an  amendment  to 
Article  10(2)  of  the  Directive  91/440/EEC  for  the  operation  of  international  freight  transport 
and,  secondly,  in  order  to  facilitate  the  simultaneous  elaboration  and  implementation  of 
accompanying measures 

". 

Communication from the Commission on the development of the Community's railways, COM(95)337 final 
19.7.95. 
Resolution on the Commission's white paper "A strategy for revitalising the community's railways" and the 
Commission communication on the trans-European freeways.  A4-0412/97, 13.1.98. 

i% 

59.The Commission  recognises the need to phase market opening, beginning with the freight  sector, 
and  accepts  that  there  is  a  strong  case  for  progressivity,  in  the  spirit  of  the  Commission's 
. This would give incumbent railway 
Communication  on services of general  interest in Europe 
undertakings time to adjust  to an open market, after  a long period of monopoly, and provide the 
stability  needed  for  the  long  term  investments  usual  in  the  railway  sector.  Moreover  it would 
reflect  the economics  of  rail  transport  : because  of  high  start-up  costs  and  economies  of scale, 
existing operators will most probably continue to dominate the freight  market for the foreseeable 
future.  This  is what  is  happening  in  the  more  open  markets.  Competitors  to  the  incumbent  in 
recently  liberalised  railway  markets such as Germany,  Sweden, the Netherlands  and the United 
Kingdom have significantly  less than 5% of the freight  market. These markets have also recently 
seen  significant  expansion  in  total  rail  freight  operations.  This  suggests  that  market  opening 
tends  to  expand  the  market  rather  than  to  take  business  away  from  the  incumbents.  The 
Commission  also  accepts  the  second  point  emphasised  by  the  Parliament,  the  importance  of 
accompanying  measures,  and believes that the proposals  it intends to make in  1998 will  fill  the 
main gaps in the  framework. 

60.A possible  approach  would  be  to  open  the  freight  market,  without  distinguishing  between  the 
domestic and  international  sectors because domestic operations often  feed  international  services 
and every link in the chain must be strengthened, but to do so partially and by stages. This might 
be  achieved  by  at  least  opening,  5% of  the  freight  market  immediately,  progressing  by  equal 
steps to  15% after  five  years  and then  continuing to reach  25% after  ten  years; and  at the half 
way point there could  be a review mechanism  to check that the levels were still appropriate. In 
more precise terms, the Community  would  progressively  extend  the rights  of  access to railway 
infrastructure  for  the  operation  of  freight  services  by  railway  undertakings  other  than  the 
incumbent  operator  in  each  Member  State,  so  that  an  increasing  proportion  of  infrastructure 
capacity is made available to these undertakings. 

61.One way of implementing this would  be to measure capacity by the freight  train kilometres run 
in each Member State during the preceeding year. Capacity would be allocated between  different 
railway  undertakings  on  a  fair  and  non-discriminatory  basis,  following  the  principles  and 
processes  laid  down  by  the Directive  95/19 on  the allocation  of  railway  infrastructure  capacity 
and the charging of infrastructure  fees, and following the guidelines that the Commission intends 
to propose. Capacity  not claimed  by a new entrant would  be offered  to the incumbent  operator 
for the timetabling period in question. Such an approach would stimulate a rapid improvement in 
performance, while avoiding disruption of the market and allowing experience to be gained. The 
Commission intends to consult widely on this idea before deciding on a proposal. 

n  COM (96)443,  11.9.96. 

f 

Table 1 

RAILWAY  DEBT 1980 TO 1990 

Debt: equity ratte 

ir~ 

M I I I I I I MM 
BR (Great  Britain) 

CFL  (Luxembourg) 

CH  (Greece) 

CDE (Ireland) 

CP  (Portugal) 

DB  (Germany) 

DSB  (Denmark) 

FS  (Italy) 

NS  (Netherlands) 

OBB  (Austria) 

RENFE  (Spain) 

SJ/BV  (Sweden) 

SNCB  (Belgium) 

SNCF  (France) 

VR  (Finland) 

2.18 

0.92 

0.19 

1.91 

2.12 

1.58 

0.12 

3.31 

0.77 

0.15 

1.14 

0.49 

1.39 

1.22 

0.02 

0.93 

0.91 

0.58 

2.14 

2.28 

1.90 

0.15 

1.10 

0.58 

0.14 

2.26 

1.56 

0.67 

4.82 

0.15 

30 

11 

16 

10 

21 

19 

13 

0 

11*1111 

\œ&xœ& 

Mm 

'•••'•'•&•* 

• —• 

Source: Mercer Management  Consulting. 

Ratio of debt (long and short term) to equity; equity =1. 
Interest payments as percentage of operating costs. 

<l* 

Table 2 

RAILWAY DEBT 1990 TO 1995 

BR (Great  Britain) 

CFL  (Luxembourg) 

CH  (Greece) 

CEE (Ireland) 

CP  (Portugal) 

DB  (Germany) 

DSB  (Denmark) 

FS  (Italy) 

NS  (Netherlands) 

OBB  (Austria) 

RENFE  (Spain) 

SJ/BV  (Sweden) 

SNCB  (Belgium) 

SNCF  (France) 

VR  (Finland) 

0.93 

0.91 

0.58 

2.14 

2.28 

1.90 

0.15 

1.10 

0.58 

0.14 

2.26 

1.56 

0.67 

4.82 

0.15 

2.52 

0.76 

0.93 

1.72 

12.86 

0.54 

0.06 

0.69 

0.42 

0.51 

2.46 

3.35 

1.00 

3.46 

0.26 

15 

30 

29 

32 

16 

10 

21 

8 

19 

13 

13 

111! 

•Hi 

,..tp 

Source: Mercer Management  Consulting. 

Ratio of debt (long and short term) to equity; equity =1. 
Interest payments as percentage of operating costs. 

ai 

Table 3 

RAILWAY DEBT EVOLUTION  1980 TO 1995 

.... 

N' 

*,  %'  '•£•,,* 

BR (Great  Britain) 

CFL  (Luxembourg) 

CH  (Greece) 

CIE (Ireland) 

CP  (Portugal) 

DB  (Germany) 

DSB  (Denmark) 

FS  (Italy) 

NS  (Netherlands) 

OBB  (Austria) 

RENFE  (Spain) 

SJ/BV (Sweden) 

SNCB  (Belgium) 

SNCF  (France) 

VR  (Finland) 

-14 

12 

149 

104 

-24 

12 

31 

-16 

16 

20 

52 

297 

-14 

10 

485 

rYï*À'ï  #''$$&*&*' 

' 

/  , 

' 

: 

*" 

,  - 

•€*  s, 

'  '  > ' J"-? 

••", 

'y'- 

y 

yviSs'w 

Source: Mercer Management  Consulting. 

121 

25 

125 

129 

-72 

-52 

-35 

152 

27 

41 

39 

37 

91 

v}  *v)  m 

Table 4 

EMPLOYMENT CHANGE 1980-1996 

^MW^ 

31 

-9 

41 

-13 

70 

-21 

P1P 
^ fc^l^^i 

34 

-10 

- 

• 

69 

-13 

Average annual 
decrease 
(thousands) 
Percentage 
change 
over  period 

N.B. Including former Deutsche Reichsbahn. 

EMPLOYMENT LEVELS 1980-1994 
(thousands) 

^#111111 
1.450 

•n... 

1.284 

juw..r  ! 
1.082 

:  vm-
985 

WW-  -
1.034 

:...-..'...j?Tf.fm, 

* 

967 

}$'$$$&< 
907 

1.688 

1.531 

1.320 

1.123 

-

-

-

^4M»..,....?.....<t<'.f<..,.fti;-. 
All  Member 
States 
plus 
Deutsche 
Reichsbahn 

Source : Union Internationale des Chemins de Fer; Mercer Management Consulting. 

Table 4a 

EMPLOYMENT  BY  RAILWAY  1980 -  1996 

Employment  (1000s) 

Change {%) 

1980 

1990 

1996 

19*0-1990 

1930  ~tm 

BR (Great  Britain) 

241.9 

135.3 

CFL  Luxembourg) 

4.2 

CH  (Greece) 

CIE  (Ireland) 

CP  (Portugal) 

12.1 

18.1 

24.7 

3.5 

13.3 

11.8 

22.1 

94.61 

3.2 

11.7 

11.0 

13.0 

DB (Germany)z 

566.9 

482.3 

256.7 

DSB  (Denmark) 

22.1 

20.4 

15.6 

FS (Italy) 

220.7 

200.4 

123.4 

NS  (Netherlands) 

OBB  (Austria) 

RENFE  (Spain) 

SJ/BV  (Sweden) 

SNCB  (Belgium) 

26.9 

72.5 

71.5 

37.5 

66.7 

26.2 

66.9 

49.7 

20.8 

45.2 

24.0 

57.0 

37.4 

22.0 

41.4 

SNCF  (France) 

254.4 

202.1 

177.9 

VR (Finland) 

28.7 

20.2 

TOTAL 

1668 

1320 

14.9 

907 

- 44 

-17 

+ 9 

- 35 

-10 

-15 

-8 

-9 

-3 

-8 

-30 

- 44 

-31 

-21 

- 30 

Sources:  Union  Internationale  des Chemins de Fer,  Eurostat 

1  U.K. Government estimate 
2  Including Deutsche Reichsbalm 

- 30 

-9 

- 12 

-7 

-41 

-47 

- 24 

-38 

-8 

-15 

-25 

- + 6 

-9 

- 12 

-26 

•  '-31 

•*i 

^ 

. 

-i 

;  O 

1 

Table 5 

BASIC INDICATORS 1980-1995 

$li$£l$$£^ffi.W$$i$& 

^^^§ff^mmm 

WM$m$^ffi&M&4^& 
i^^^^^MTmr^iW^W^' 

^'WM^^^^Mi^^M^M. 

Passenger-
kilometres 
(billion) 
Tonne-
kilometres 
(billion) 
Traffic units 
(billion) 

Traffic units 
per employee 
(000) 
Operating costs/ 
1000 traffic 
units 

1980 

237 

232 

469 

1980 

323 

160 

1985 

238 

220 

457 

1985 

356 

155 

1990 

253 

215 

468 

1995 

263 

222 

484 

1990 

432 

137 

1995 

498 

134 

Table 5 (continued) 

INCOME  STATEMENT 
(1995  ECU;  millions) 

Total operating 
costs 
Financial and 
exceptional 
costs (net) 

Total operating 
income (without 
government 
support) 
Government 
support (operations 
+ infrastructure1 ) 

75,167 

70,439 

^^^2I^^'i^31f^SÊ. 

* HN 

63,952 

mammm 
i«e 

65,002 

3,601 

6,245 

8,001 

3,585 

IKÊÊSÈ&S* 

43,720 

39,411 

Vi* ' &,  * 

38,619 

43,821 

27,152 

31,140 

28,537 

20,089 

*****  'l&eW^As, 

mm 
gray  ^••wa..a^y<rjag«gf.«*.< 

<vlip^31 

[in i il il 11111 n 1111 « i n 1111 ij 111 n 11 • i ii« i rti 111jiii 

34% 

40% 

wmmmmmwm 
40% 

64% 

62% 

62% 

29% 

50% 

Government 
support as 
percentage total 
costs 
Staff costs as 
percentage total 
operating costs 

Source: Mercer Management Consulting. 

1 Infrastructure support excluding capital injections. 

0 6 / 04 

'98  MIN  10:29  FAX  32  2  2959321 

CECAN6010173--31 

@004 

ISSN 0254-1475 

COM(98) 202 final 

DOCUMENTS 

EN 

07  12  13 

Catalogue number  : CB-CO-98-231-EN-C 

ISBN 92-78-33086-8 

Office for Officiai Publications of the European Communities 

L-2985 Luxembourg