Slow train coming: Monti signals new push to get liberalisation back on track

Date: 30/05/02

Mario Monti is to crack down on bilateral agreements between state-owned rail monopolies seeking to keep rivals out of the market, writes Laurence Frost.

MARIO Monti, the competition commissioner, has declared war on state-owned railway monopolies that try to exclude rival operators from the networks, in a bid to boost faltering liberalisation efforts across the EU.

European Commission officials have begun examining the bilateral agreements between state railway monopolies that govern international services between EU countries.

'I have asked my services to become more pro-active in the anti-trust field in this sector,' Monti warned in a recent speech to rail bosses.

He also signalled that a tough line would be taken on investigations into German and Italian state railway companies, Deutsche Bahn and Ferrovie dello Stato (FS), which are in a much more advanced stage.

In the strongest indication yet that complaints against the two firms are likely to be upheld, Monti described both cases as 'a very good illustration of deficient restructuring of the industry'.

The commissioner's intervention is a sign of the increasing frustration over the slow pace of railway liberalisation, which is vital to the EU executive's ambition - outlined in its transport white paper last year - to halt the environmentally damaging shift of goods and passengers from rail to road.

Cross-border services are seen as key to improving the viability of international rail freight, whose sluggish average speed of 18 kilometres per hour offers a partial explanation for its declining market share, down from 21 in 1970 to just 8 of all freight today.

Under a railway package adopted last year, EU countries are already committed to opening up 50,000 kilometres of key freight routes from next March, with full liberalisation to follow by 2008.

A further proposal tabled by Transport Commissioner Loyola de Palacio in January would accelerate the process, bringing full and immediate freight liberalisation. Plans to begin extending market-opening to passenger services are expected by the end of the year.

However, competition and transport officials fear that on-paper liberalisation may not necessarily translate into genuine market-opening.

They believe many countries are still flouting - in spirit, if not in letter - an 11-year-old directive requiring them to separate the management and allocation of network capacity from the operation of rail services - functions which have both traditionally been carried out by a single state monopoly.

While the UK, Sweden, Finland, Denmark and the Netherlands have created free-standing infrastructure entities, France, Germany and Italy have kept to the minimum requirements by producing separate accounts, leaving network management and services under common holdings.

'A company which is engaged not only in marketing capacity on its network, but also providing its own services over that network, may find it difficult to resist the temptation to favour its own services over that of a competitor,' Monti said.

Competition officials fear infrastructure managers that still have links to service providers - particularly in France, Germany and Italy - have no shortage of opportunities to exclude rivals from their tracks.

Such possibilities include the setting of onerous technical requirements, allocating schedules that involve delays or simply over-pricing network access.

Ironically, it is because Italy and Germany have introduced measures to liberalise passenger and freight services ahead of the EU-imposed timetable - with the first stage of freight market-opening by March 2003 - that the competition watchdog is able to get involved.

By announcing the start of open competition in rail services, the two countries - along with others such as the Netherlands, the UK and Sweden - have opened the possibility of trade between member states, and with it the 'EU dimension' to justify an anti-trust crack-down.

Investigations are already well under way into Italy's infrastructure company RFI and main service provider Trenitalia, which are grouped under the FS holding.

'We have respected the law, including the directive on infrastructure separation and EU competition law,' a spokesman for FS told European Voice.

The Commission began formal legal proceedings against FS last June, acting on a complaint from German operator GVG. Since 1991, GVG has been trying to get access to the Italian network to provide services from German towns to Milan via Basle - a route on which it would be competing with Cisalpino, a joint venture between FS and Swiss operators.

FS is under investigation for allegedly failing to name a price for the train path required by GVG on its network, and for refusing to enter the partnership required under current EU law for GVG to market the service.

The Italian state operator insists infrastructure prices were made available, also maintaining that GVG could have forged alternative partnerships with smaller Italian regional operators to offer the service.

In a parallel case, the Commission is also investigating Germany's Deutsche Bahn - and its infrastructure holding DBNetz - for allegedly trying to run GVG and its Swedish partner Statens Järnvägar off the rails.

Deutsche Bahn is accused of charging the partners higher prices for the provision of locomotives than it charges other operators, and subsequently refusing to lease the engines altogether for the service between Malmö and Berlin.

It remains to be seen whether tough anti-trust enforcement will be enough to force full separation of infrastructure and services.

Monti's competition watchdog has the power to impose fines of up to 10 of a company's turnover for abuses of dominant position - which should deter the worst abuses - but not to order the sweeping structural changes reformers want to see.

Competition officials are nevertheless optimistic that anti-trust pressure can prise infrastructure and services apart - encouraged by the success of their foray into the postal sector.

Facing fines for cross-subsidising its parcels operation with revenue from its protected letters market, Deutsche Post last year responded by agreeing to split the two divisions.

Monti himself clearly believes change is already under way. 'I am pleased to say that the state-owned [operators] seem to be waking up to the fact that they do not have blanket immunity from the competition rules,' he said, adding that private operators 'appear much more ready to lodge formal complaints'.

Major feature. Competition Commissioner Mario Monti is to crack down on bilateral agreements between state-owned rail monopolies seeking to exclude rival operators from the networks, in a bid to boost faltering liberalisation efforts across the EU.