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UK: The “Fourth Rail Package” – Significance for the UK Rail Industry?

  • United Kingdom
  • Transport

10-08-2017

The Fourth Rail Package, which was introduced between June and December 2016, is a set of six items of EU legislation designed to increase the reliability and competitiveness of European railways in accordance with the EU’s liberalisation agenda. The package has been described as “one of the major achievements of the last ten years of rail-related legislative production” and has the aim of producing “higher levels of safety, interoperability and reliability in the European rail network”.[1][2] The Commission’s intention is that these legislative texts will complete the single market for railways, known as the Single European Railways Area or “SERA”.

The measures comprised in the Fourth Rail Package can be divided into two spheres:

  • the “Technical Pillar”; and
  • the “Market Pillar”.

The Technical Pillar (consisting of Regulation 2016/796 (on regulation of the ‘European Railway Agency’, now the ‘European Union Agency for Railways’ (the “ERA”)), Directive (EU) 2016/797 (on the interoperability of the rail system within the EU) and Directive (EU) 2016/798 (on railway safety) is principally concerned with the operational and supply side of the rail industry. The Market Pillar (consisting of Directive (EU) 2016/2370 (the “Governance Directive”), Regulation (EU) 2016/2337 and Regulation (EU) 2016/2338 (the “PSO Regulation“)) seeks to reduce the circumstances in which authorities can avoid the competitive tendering of rail public service contracts with the objective of further opening up the market for domestic passenger transport services by rail.

The Fourth Rail Package is accordingly the next step towards the EU’s objective of harmonising interoperability, opening up the European railway markets by promoting competition and reducing barriers to market entry. As the title suggests, the new pieces of legislation have built on the First, Second and Third Rail Packages introduced between 2001 and 2007, along with the Recast Directive (Directive 2012/34/EC) which amended the First Rail Package and which was implemented in the UK via the Railways (Access, Management and Licensing of Railway Undertakings) Regulations 2016.

What changes are being brought in by the Fourth Rail Package?

Technical Pillar

Under this pillar the ERA is to be given a key role in the process for obtaining vehicle authorisation and safety certification, supervising the application of national rules in Member States, and monitoring the work of the National Safety Authorities. It will also be responsible for the interoperability of European Rail Traffic Management System (ERTMS) equipment under Directive 2017/797. The ERA is to have increased powers and focus on interoperability of the European railways and will act as a “one-stop shop” for type, safety and vehicle authorisations, as well co-ordinating between the requirements of the ERA and national safety authorities and establishing information and communication systems for information on the approval process for such authorisations.

Member States have until 16 June 2019 to implement the two directives under the Technical Pillar into domestic law, but may delay transposition by one year by application to the European Commission and the ERA and the provision of a suitable reason.

Market Pillar

As noted above, the two key legislative elements to the Market Pillar are the PSO Regulation and the Governance Directive, the key aspects of which we have summarised below:

  • increases the requirement for competitive tendering of rail public service contracts;
  • limits the scope for the direct award of rail public service contracts (i.e. where operators who already run a service are awarded subsequent contracts without a tendering process taking place) to circumstances where a temporary award is justified only by exceptional circumstances; and
  • provides for the ability to limit the number of contracts to be awarded to the same undertaking.

The impact of the PSO Regulation will not be felt immediately, though, as a transition period between the old and new regimes is to be put in place. No direct awards of rail public service contracts of over 10 years’ duration will be permitted to be made after 25 December 2023 (thereby providing a six year grace period from the date of introduction of the PSO Regulation in the UK), with a requirement that all contracts in this category must be publically tendered from this date.

However, as noted above, relevant competent authorities will be reserved the ability (except where otherwise prohibited by national law) to grant:

  • direct awards of rail public service contracts of up to two years’ duration in emergency circumstances; and
  • direct awards of rail public service contracts (including those of greater than 10 years’ duration) where:
    • it considers that the direct award is justified by the relevant structural and geographical characteristics of the market and network concerned and such a contract would result in an improvement in quality of services or cost-efficiency, or both, compared to the previously awarded public service contract; or
    • the entity seeking the right to operate passenger rail services also manages the entirety or the majority of the associated railway infrastructure and that railway infrastructure is excluded from the application of Articles 7, 7a, 7b, 7c, 7d, 8, 13 and Chapter IV of the Recast Directive by virtue of Article 2(3)(a) or (b) of that Directive).

The Governance Directive

The Governance Directive, which must be brought into force in Member States through domestic legislation by 25 December 2018:

  • establishes the right for railway operators located in one Member State to operate all types of rail services (including purely domestic passenger services) in any other Member State; and
  • sets down new rules aimed at improving impartiality in the governance of railway infrastructure and preventing discrimination.

The Governance Directive requires the opening up of domestic services to competition by December 2020, although restrictions designed to ensure the continuity of subsidised services will be permitted beyond that date subject to “objective economic analysis by regulators”. It is expected that there will be further and/or supplementary legislation to define how a regulator will operate this test to determine whether a new service will disturb the economic equilibrium of a subsidised one.

How will the Fourth Rail Package be impacted by Brexit?

The legislative texts comprising the PSO Regulation and the Governance Directive are required to come into force domestically (directly in the case of the relevant regulations, and through implementing legislation in the case of the directives) before the UK is expected to formally leave the European Union. The relevant final dates for implementation of the Technical Pillar directives are expected to be after the date that the UK leaves the EU, although they may nevertheless be transposed into UK law before the date of EU departure.

Generally the Government is taking the approach through the European Union (Withdrawal) Bill of carrying across the existing body of EU law into UK domestic law and not seeking to replace or amend it. However, once the UK has left the EU (and assuming that the terms of arrangements connected to leaving do not involve continuation of its participation in the Single European Railways Area) then it is possible that this or a future government may implement, through new UK legislation, a rail policy agenda different to that embodied in the EU rail packages and applicable to EU member states.

[1]                 CER Website – 30 December 2016

[2]                 European Council – 22 April 2016

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