Franchise bidding
The relationship that emerges following Brexit negotiations will determine whether UK rail operators will be able to participate in tenders for rail services in the EU and equally whether European operators will be able to bid for future UK rail franchises.
The WTO Agreement on Government Procurement (GPA) aims to liberalise the government procurement markets of contracting states, and guarantee fair and non-discriminatory conditions for international competitive tendering. The UK is currently a party to this agreement through its membership of the EU. Following Full Brexit (and possibly Partial Brexit) the UK is likely to want to become a contracting party in its own right, to allow businesses access to procurement markets of GPA contracting states.
The UK’s liberalised rail market currently allows EU transport companies (via UK subsidiaries) to operate rail franchises in the UK. For example, Arriva Trains, which is owned by Deutsche Bahn, runs Chiltern Railways, Arriva Trains Wales and the London Overground among others.
The EU has strongly advocated the liberalisation of domestic rail passenger services and increased competition to create a single European rail area. Under the Fourth Railway Package, European train operators will have non-discriminatory access to operate passenger services in EU countries, either by competing commercially with other operators or by bidding for public service contracts (which includes rail passenger services).
The liberalisation of the European rail system presents significant opportunities for UK operators seeking to expand their operations. For example, while in Germany the state-owned Deutsche Bahn operates all inter-city rail services, 14% of German regional lines are being put out to tender over the next few years.
This has already paid dividends for UK operators. National Express was awarded contracts to operate Germany’s Rhein-Münsterland-Express and the Rhein-Wupper-Bahn in 2013, while Go-Ahead was recently appointed to operate two lots on the Baden-Wurttemberg rail network. Both companies have recently opened offices in Düsseldorf and Berlin respectively, in order to manage these existing operations and to further capitalise on these opportunities.
It is likely the UK would seek to ensure that UK companies could continue to compete in these markets after Brexit (although they would have to comply with the relevant EU regulatory and safety requirements). Reciprocity would be a bargaining tool for the UK, given the current participation of EU transport companies in the UK.
Theoretically, in the event of a Full Brexit, the UK could restrict EU transport companies bidding for UK rail franchises. However, with historically low numbers of bidders competing for the UK’s rail franchises, it is unlikely that the UK Government would opt to restrict the market in this way. Any restrictions would also be likely to have repercussions for UK transport companies operating within the EU.
Freight Network
The formal opening of the UK section of the European Rail Freight Corridor (ERFC) is scheduled for November 2016. This will complete the ‘North Sea-Mediterranean’ corridor, facilitating a continuous rail freight connection between the UK and continental Europe via the Channel Tunnel.
Initially, the corridor ran from Folkestone (via the Channel Tunnel) to Wembley in north London. A further extension was added by Regulation 1316/2013 north along the West Coast Main Line to Glasgow, although it was subject to an unsuccessful challenge by the Government, which argued that the Commission lacked the competence to make such decisions.
This initiative is part of the UK’s TEN-T commitments, intended to streamline the flow of multimodal freight across Europe. TEN-T policy was adopted following a decision of the Commission, tieing the UK’s commitment to its membership of the EU.
A Full Brexit will cast doubt over the future shape of the ERFC, as it is highly probable that European funding for TEN-T related projects will be withdrawn and (as with other EU Regulations) the underpinning legislation will cease to be directly applicable. In addition, the UK Government’s decision to mount a legal challenge to the extension of the ERFC is perhaps indicative of a willingness to avoid committing to European elements of the freight corridors.
A balance will also need to be struck with the trade opportunities offered by increased freight traffic through the TEN-T network, which should incentivise ways to be found to continue investment.
As an example, analysis carried out on behalf of Network Rail (European Rail Freight Corridor Linking UK and Continental Europe, August 2012) estimates that the potential ‘through-rail’ freight market using the ERFC could be between 3.1 million and 12 million tonnes of rail freight per year, a significant increase from the current 1.3 million tonnes. However, the long-term efficacy of these arrangements will remain subject to the approach to import tariffs and border controls.
On the regulatory side, amendments have already been made to the Network Code to accommodate the ERFC initiative. These include:
- Safeguarded time slots for international freight services.
- The creation of a ‘One Stop Shop’ in the UK, providing a single point of contact for network access to international path requests and performance review.
In the event of a Full Brexit, it is likely that the majority of existing UK-enacted EU-derived legislation would remain in place, subject to tailoring where the UK market presents particular challenges. The extension to the ERFC may be brought into question, but otherwise we would not expect the Government to make any changes to freight-specific legislation in the short-to-medium term. There are tangible benefits to trade and the incentives to trans-modal opportunities offered by the TEN-T initiative.
Safety and Interoperability
The UK railway safety regime is currently governed by the Railway Safety Directive 2004/49, as implemented in the UK by the Railways and Other Guided Transport System (Safety) Regulations 2006 (ROGS). These regulations set out the framework for operators to maintain a Safety Management System and hold a Safety Certificate, and for infrastructure managers to hold a safety authorisation.
They require, among other things, that Safety Management Systems achieve Common Safety Targets (CSTs), apply relevant parts of Common Safety Methods (CSMs), and conform with Technical Specifications for Interoperability (TSIs).
To a large extent the ROGS regulations provide a standalone framework that can survive and remain applicable after exiting the EU regardless of whether or not the UK remains within the single market. However, all of the CSMs, CSTs and TSIs are managed according to processes that operate at EU level. In the case of the TSIs they are created and managed by the EUAR.
If a Full Brexit were to apply, it would need to be decided whether it is practicable and desirable for the UK regulations to continue to apply the CSTs and CSMs, even though the UK is no longer bound into the EU-level mechanisms that create and manage them. CSMs are provided for under EU Regulations, and there would no longer be a UK law to give them effect.
Similarly, the UK would need to decide whether to continue to apply existing TSIs and/or whether to adopt any future TSIs, recognising that it is unlikely to be a member of the EUAR and therefore will have limited ability to influence them.
Advantages of going it alone with respect to safety and technical standards would include enhanced flexibility and adaptation to local conditions. It might also be possible to drive out cost (in the short term at least), by removing requirements not suitable to UK rail.
Disadvantages would include the potential for UK standards to diverge from EU standards, thereby potentially reducing incentives for cross-border investment between the UK and EU rail markets.
It is worth remembering that ‘national safety rules’, which in the UK consist mainly of Railway Group Standards issued by the RSSB, are already provided for in the EU rail safety framework. So the UK is likely to have the institutional and technical capacity already in place to take the lead in setting its own standards in future, if TSIs are no longer applied.
There is a view that the UK often benefits from compliance with the TSIs by being able to take advantage of best international practice. This contributes to the safety and efficiency of the network, while ensuring that the market remains attractive for operators and manufacturers.
In any event, the UK sector is likely to retain at least some international links - for example, memberships of the Channel Tunnel Intergovernmental Commission and international rail organisations such as the Intergovernmental Organisation for International Carriage by Rail (OTIF).
For interoperability, the introduction of new and enhanced rail systems - whether rolling stock, infrastructure or other sub-systems - is currently governed in the UK by the Railways (Interoperability) Regulations 2011 (RIRs), which once again are entirely an implementation of European Law.
It is unlikely that RIRs could operate under the Full Brexit option without significant amendments to excise the role of the EU. Among other things, compliance with TSIs is necessary to obtain authorisation, so the points regarding the continuing application of TSIs are relevant. Additionally:
- The RIRs refer to national technical rules notified to the Commission in accordance with Directive 2007/58.
- The RIRs permit safety assessment reports prepared pursuant to a Regulation to be relied on, but this Regulation will no longer apply after exit.
- The Commission has a role in deciding whether derogations from TSIs are permitted.
The technical pillar of the Fourth Railway Package has now come into effect. As well as a new regulation on the role and functions of EUAR, it includes a new railway safety directive to recast the existing Directive 2004/49 on railway safety and a new interoperability directive that recasts the existing directive 2008/57/EC.
However, there is a three-year lead time on the requirement to fully implement the new interoperability and safety rules, and it therefore appears likely that they will never become effective in the UK if the Full Brexit model is adopted, unless there is a delay in the exit process.
