EU Court Identifies Rail Issue in Spain, Hungary

(CN) - Spain and Hungary failed to implement proper equalization measures in the wake of railway deregulation, the European Court of Justice ruled Thursday.

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.

Investigations by the European Commission uncovered numerous violations of the directive, culminating in formal actions against 12 nations in 2010.

In 2012, an adviser to the Luxembourg-based high court faulted Spain, Hungary and several other European nations for failing to deliver unfettered rail access. The final ruling, released Thursday, found that Spain and Hungary had violated the law - though not in all previously suspected aspects.

In the case of Hungary, the European Commission complained that the country allowed individual railways to decide the allocation of train paths within the network based on its claim that those decisions are "fundamental functions" under the law.

Concluding otherwise , the high court wrote that "traffic management cannot be regarded as an essential function that must be entrusted to an independent entity."

"As is clear from the [railway directive], responsibility for infrastructure management outside essential functions may be entrusted to railway undertakings," the judges added. "Traffic management may therefore be assigned to an infrastructure manager which is also a railway undertaking, as is the case in Hungary."

Hungary failed to balance the accounts of its infrastructure managers - two larger railways - or to reduce access costs for smaller companies by the Dec. 8, 2009, deadline set by EU law, according to the ruling.

The country passed legislation setting rail network costs that went into effect in December 2010, the court noted.

In the case of Spain, the high court faulted the Spanish government for setting rail network use prices, rather than allowing infrastructure managers to do so. Spain also failed to set performance guidelines to minimize service disruptions and prioritize track allocations, according to the ruling.

"It is clear, as the Kingdom of Spain itself also acknowledges, that the criterion based on actual use of the network, as criterion for the allocation of infrastructure capacity, is discriminatory in so far as it leads, where there is more than application for the same train path or the network is congested, to advantages being maintained for the incumbent users and access to the most attractive train paths being denied to new entrants," the judge wrote. "The Kingdom of Spain justifies that discrimination on the ground that it pursues the objective of ensuring more efficient use of infrastructure. However, even if such an objective could justify the discriminatory nature of the fourth allocation priority, it is sufficient to point out that, in order to attain that objective, there is no need whatsoever for the measure in question to discriminate between network operators or to deny access to new entrants to the network."

European law "contains specific provisions designed to provide incentives for the efficient use of infrastructure capacity while at the same time ensuring fair and non discriminatory access to the rail network," the court wrote.

"Where the infrastructure is congested, the priority criteria are to take account of the importance of a service to society, relative to any other service which will be excluded," it added.

The European Commission failed to convince the high court, however, that Germany and Austria broke any rules in their railway sectors. Specifically, regulators complained that the two countries improperly incorporated their infrastructure managers into holding companies.

In Austria, infrastructure manager OBB Infrastruktur forms part of the OBB-Holding which, as holding company, also supervises rail undertakings. To perform charging and allocation functions, EU law requires that OBB Infrastruktur be independent of OBB-Holding in its legal form, organization and decisionmaking functions.

The court rejected claims that the two entities lacked a true separation.

"It is the commission's responsibility to place before the court the information needed to enable the court to establish that the obligation has not been fulfilled, and in so doing the commission may not rely on any presumptions," the court wrote. "The commission has, however, failed to provide any concrete evidence to show that OBB Infrastruktur is not independent of OBB-Holding as regards its decision making arrangements. As a consequence, the commission has not established that it was necessary for the Republic of Austria to take positive measures in order to guarantee that the infrastructure manager entrusted with essential functions listed in [the directive] was independent in its legal form, organization and decision making functions of the rail undertakings."

Regulators similarly failed to convince the high court of a lack of independence between German infrastructure manager DB Netz and the holding company of which it is a part, DB AG. The court also found nothing illegal about the German government's pricing scheme, which relies on markups to recoup infrastructure costs.

"The member states are to establish a charging framework, while the determination and collection of the charge are tasks to be performed by the infrastructure manager," the ruling states. "However, as the advocate general stated ... the state may recover infrastructure costs in full by means of mark-ups, if the market can bear this and if in so doing it does not exclude the use of infrastructure by market segments which can pay at least the cost that is directly incurred as a result of operating the railway service, plus a rate of return."

"In the present case, the national provision in question allows full recovery of the costs incurred and gives the infrastructure manager the option of distinguishing between long-distance passenger services, short-distance passenger services and rail freight services, and also between market segments within those services," the judges added. "However, as the advocate general observed ... [the law] does not requires member states to lay down more detailed rules on charging."

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