Regulatory Framework and Liberalization
Rail transport services in the EU, including both passenger and freight services, have been provided historically, and in the main, by publicly owned monopolies. Introducing competition into these markets began with the First Railway Package in 2001 and culminated with the Fourth Railway Package adopted in 2016. Rail freight transport has been completely liberalized and open to competition in the EU since 2007. International passenger transport by rail was liberalized in 2010. Domestic rail passenger transport is being progressively opened up to competition. As from December 2019, all subsidized rail passenger services are subject to mandatory, open tendering.
Competition investigations in the rail sector
Rail transport is the cleanest mode of transport and yet it still only accounts for a relatively low share of all transport within the EU. Compared to road transport there are significant disadvantages with road transport enjoying significantly more fluid ‘last-minute door-to-door’ connections and a simpler regulatory and technical framework. A potential entrant has many obstacles to overcome – he needs access to tracks, infrastructure, rolling stock, essential facilities such as train stations, marshalling yards and maintenance facilities. Although EU regulations provide for fair and non-discriminatory access in practice, the terms of access are not always fair to new entrants. In such cases, the competition rules may be brought into play to ensure that that new entrants are given the necessary access.
For further information - see Key Cases and Judgements in Rail
The overriding aim of the Commission’s competition policy is to make sure that, following the proposed transaction, rail passengers will continue to benefit from fair prices, sufficient choice and good quality of service.
For further information - see Key Cases and Judgements in Rail.
State aid rules to subsidise rail passenger services: Regulation 1370/2007
In that context, the legal framework for awarding public service contracts and compensating for public service obligations, as set out in Regulation 1370/2007, was updated and the mandatory tendering of public service contracts in rail entered into force in December 2019. Regulation 1370/2007 as amended represents the main instrument for public authorities to compensate rail service providers in a way that avoids any risk of overcompensation, whilst ensuring effective and non-discriminatory access to suitable rail rolling stock for operators wishing to provide public passenger services by rail. In contrast to the general State aid rules, State aid granted in the form of compensation for costs incurred by providers of rail passenger services does not need prior authorisation by the European Commission, because Regulation 1370/2007 provides for exemption from the standard prior notification procedure.
State aid rules to support rail as a sustainable transport mode: the State aid Railway Guidelines
Rail transport will play a key role in the achievement of the goals set out in the Green Deal agenda, including the reduction in greenhouse gases by 2030 by at least 55% and reaching climate neutrality by 2050. In this context, the Guidelines for State aid to railway undertakings (Railway Guidelines)1 provide a useful toolbox to support the modal shift to more sustainable transport modes, in line with Article 93 of the Treaty that provides for compatibility of aid, which meets the needs of coordination of transport. Member States are allowed to subsidise rail transport operations and intermodal transport solutions insofar as they reduce the external costs as compared to competing transport modes, as well as to reduce the additional costs for infrastructure use paid by rail transport but not by a more polluting competing transport mode. In addition, Member States are allowed to support investments improving digitisation and increasing the interoperability of rail transport, as well as investments for the noise reduction both in rail infrastructure and in rolling stock.
Since their approval in 2008, approximately 75 measures were found compatible with the Treaty on the basis of the Railway Guidelines, notably the provisions concerning State aid for the coordination of transport, with a total budget of over EUR 9 billion aimed at encouraging a modal shift from road to rail freight transport. The same rules proved extremely helpful in the context of the coronavirus outbreak, in order to maintain the competitiveness of rail freight and commercial passenger operators with respect to other modes of transport, in line with the EU Green Deal objectives: since the beginning of the pandemic, the Commission has approved 8 measures providing aid to railway undertakings in the form of reduction of charges paid to use the rail infrastructure, for a total amount of approximately EUR 1.6 billion approved budget2.
The fitness check of the existing rules against market developments and the Green Deal Agenda
When they were adopted, the main general objective of the Railway Guidelines was to accompany the sectorial policy on the way towards a full liberalisation of the rail sector and the completion of a Single European rail market in which full interoperability is ensured. To that purpose, the Railway Guidelines also introduced rules to facilitate the restructuring of a sector characterised by a high indebtedness mainly due to legacies of the past and the need to maintain capacity and to ensure continued connectivity. At the same time, they abolished the anti-competitive practice of providing unlimited State guarantees to incumbents and introduced measures to encourage the purchase and renewal of obsolete rolling stock. However, most of these rules have expired, are no longer applicable or not aligned with the major market and regulatory developments of the rail sector.
In 2020, the fitness check of the Railway Guidelines3 indeed confirmed that they are outdated and will need to be substantially revised. In addition, EU policy priorities in the context of the Green Deal have seen an increase in the importance of a modal shift to modes of transport, which are less polluting than road such as rail and inland waterways. This modal shift should contribute towards meeting the emissions reduction target set for 2050.
The ongoing revision of the State aid Railway Guidelines
Against this background, the Commission launched the revision of the State aid rules applicable to rail transport4 to bring them into full alignment with the Union’s key priorities. The revision aims to support further the shift to more sustainable transport modes, while introducing increased procedural facilitations for aid measures in the field of greener land and intermodal transport via block exemptions. To that purpose, the Commission is also considering adopting a proposal for a Council regulation that enables the Commission to adopt block exemption regulations in the field of the coordination of transport, in line with Article 93 of the Treaty5.
1 Communication from the Commission Community guidelines on State aid for railway undertakings (2008/C 184/07), OJ C 184, 22.7.2008, p. 13.
2 Figures updated to Q3 2021.
3 Fitness Check of the 2012 State aid modernisation package, railways guidelines and short-term export credit insurance
4 Rail transport – revision of State aid guidelines
5 Greener land transport – simplified state aid rules (New Land Transport Enabling Regulation)