French Rail Violations Leave EU Court Miffed

(CN) - France missed the deadline to bring its railways into compliance with EU law after deregulation, Europe's highest court held.

The decision comes in the wake of a flurry of similar findings against other EU countries by the Court of Justice of the European Union. Investigations by the European Commission uncovered numerous violations of the EU's liberalization of the rail industry, culminating in formal actions against 12 nations in 2010.

Liberalization of the rail industry requires member states to provide fair network access for all carriers. Whereas large railway conglomerates once performed functions such as issuing access licenses, allocating infrastructure capacities and fixing usage charges, they must now outsource these duties to independent managers tasked with guaranteeing equal and nondiscriminatory use of rail lines.

In the case of France, regulators found that the country failed to separate national railway SNCF from RFF, the organization tasked with managing rail infrastructure and allocating train paths. French authorities also missed deadlines to enact plans for equal track access and reducing usage fees.

France argued that it fully implemented the new EU rail laws by adopting new legislation in 2011. But the Luxembourg-based high court noted that French authorities missed the 2009 deadline to comply with deregulation requirements - and the new legislation does not go far enough.

"A railway undertaking may not be entrusted with conducting the technical implementation studies necessary for scrutinizing applications for train paths carried out before a decision is taken and for the last-minute allocation of train paths, because those studies form part of the definition and assessment of the availability of train paths, and because the last-minute allocation of train paths constitutes an allocation of individual train paths for the purposes of EU law; those functions therefore must be entrusted to an independent body," the ruling states.

Adopting its adviser's December 2012 opinion , the court said infrastructure manager RFF supervises rail traffic department DCF -a division of French national railway SNCF - although it appears independent.

"Contrary to what the French Republic maintains, the independence required of the railway infrastructure manager must demonstrate pursuant to EU law must be verified even where that manager is independent of the rail transport undertakings, if essential functions remain allocated to a railway undertaking," the ruling states. "Thus, as the advocate general observed, the DCF remains subject to the requirements of the law, which cannot be dissociated from one another. Otherwise, Member States would be able to evade the provisions of those directives by putting in place an infrastructure manager which, although independent, would delegate essential functions to a railway undertaking, which would be contrary to the objective to ensure for all railway undertakings fair and non-discriminatory terms for access to the infrastructure."

The judges added: "In this case, while it is supervised by RFF ... the DCF is responsible for essential functions within the meaning of the deregulation directive and forms an integral part of the railway undertaking, namely the SNCF. On that basis, in order to assume allocation functions, the DCF must also be independent of the SNCF in its legal form, organization and decision-making."

DCF lacks legal separation from SNCF, a fact which French authorities do not dispute, the court found.

France's tardy legislation also failed to implement infrastructure charging schemes designed to encourage both railways and the infrastructure manager to improve network performance, according to the ruling. Information from 2011-12, provided to the court by the French rail network, showed rail authorities only levied fees for reserving freight paths longer than 180 miles and for speeds over 40 mph.

"That scheme does not form a coherent and transparent whole which can be described as a performance scheme," the judges wrote.

RFF's experimental incentive-based contract nevertheless qualifies as a scheme to lower costs and improve performance - contrary to the European Commission's arguments, the court found.

"If the commission's view were accepted, that would amount to recognizing that a member state is under an obligation to provide the infrastructure manager with an incentive to pass on to network users, through a reduction in charges, part of the surpluses obtained as a result of an increase in its efficiency, even though it might not be in a position to recover all the costs of provision of infrastructure," the judges wrote. "That interpretation would require the member state, in consideration for passing on that benefit, to fund the infrastructure. It is clear that such an interpretation is at variance with the deregulation directive."

"Moreover, it should be noted that incentives to reduce the costs of provision of infrastructure can only have the effect of reducing the level of access charges," they added.

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