Supplementary memorandum by the Rail Freight Group

Transcription

1 Supplementary memorandum by the Rail Freight Group Summary this paper covers in more detail the history of the Channel Tunnel and commercial arrangements for rail freight, and expressed the concerns about the present situation there, which is serious and complex enough to put off most commercial companies. We also describe the extraordinary actions of SNCF (French Railways) in ignoring even the basic principles and legislation of the First Railways Package. Finally, we comment on the rail regulatory regimes of the Channel Tunnel Rail Link, the Channel Tunnel and France, noting how many are neither fir for purpose or compliant with the above legislation. Introduction 1. This paper provides supplementary evidence beyond that sent on 3 April and to Lord Berkeley s oral evidence on 1 May As requested by the Committee, this paper concentrates on the Channel Tunnel issues and the structure and operations of rail regulators in other member states. Channel Tunnel rail freight 2. Rail freight volumes through the Channel Tunnel continue to fall, and there remains between two and four trains daily in each direction. This is due both to the poor service quality experiences by customers but also by the uncertainty over the pricing structure. The situation is complex and requires some background information. 3. When the Channel Tunnel was being developed, the two state railways, BR and SNCF (the Railways), signed an agreement with Eurotunnel to allow the railways half of the total capacity of the Tunnel in return for the railways paying access charges for around 50 years as set out in the agreement. In addition, probably as a means of helping Eurotunnel finances, the railways agreed to pay a minimum charge each year for using the Tunnel, regardless of how many trains actually used it. This was known as the Minimum Usage Charge (MUC). The MUC ended on November 2006) 4. Finally, the railways agreed to pay a fixed amount each year (about 6.5m each) as a contribution to Eurotunnel s operating costs. 5. Some years later, the UK Government sold the BRB part of the operation (Rail Freight Distribution) to EWS Railway, but retained responsibility for the payment of the MUC and operating costs until November At that time, EWS were liable to take over the

2 payment of the operating costs to Eurotunnel, unless all rail freight ceased. In that case, the British Government would take over liability for the payment of the operating costs. EWS negotiated with the UK Government at the end of 2006 that, since the UK Government would be liable for the operating costs if services ceased, it should continue to pay them whilst services ran. This was agreed by the Department for Transport. 6. The result is that from December 2006, EWS had to start to pay the access charges for the use of the Tunnel as set out in the Usage Agreement, but the UK Government continued to pay the 6.5 m operating costs. 7. On the French side, SNCF has always been responsible for the MUC and the payment of the operating costs on that side, since the French Government ahs refused to fund any of them. Eurotunnel as an operator 8. Eurotunnel recently announced its intention to become a freight train operator by the formation of their subsidiary Europort 2. This company would offer competitive traction for freight trains through the Channel Tunnel, and has bought five Class 92 locomotives from Eurostar to enable this; the locomotives are currently being refurbished. Eurotunnel would use its own 50% of the capacity not allocated to the Railways; it is free to do this using paths not used by its own shuttle services. 9. However, to comply with the regulations and directives, Eurotunnel will have to separate the accounts of its train operations from its infrastructure management, as well as set up an independent body to allocate capacity. It has not yet done any of these. Regulations 10. The Channel Tunnel is exempt from some of the provisions of Directive 2001/14. The shuttle service is completely exempt, but some of the other provisions of this Directive are not applicable to this and other major infrastructure projects. 11. The Usage Contract was signed before the above directive came into force and of course many of the provisions are in conflict. In particular, the Usage Contract reserves for two railways undertakings the monopoly of 50% of the Channel Tunnel capacity. This is illegal under 2001/ Charges for the use of the Tunnel by rail freight in the Usage Agreement were fixed over 20 years ago and have failed to take into account the competition with the ferries and the shuttle service itself. Draft charges for the use of the Tunnel for rail freight using the

3 Eurotunnel paths were different, but still much higher than the market could bear. The latest situation 13. A draft Memorandum of Understanding between SNCF, Eurotunnel and the British Railways Board (Department for Transport) is currently in preparation. We understand that the intention is that the paths through the Tunnel in the Usage Agreement will be merged with those spare paths available from Eurotunnel s unused ones and treated in the same way. 14. The parties are likely to agree that the charge for taking a freight train through the Tunnel using one of these paths in an intermediate time period will be 3,000. This charge is lower than some of those proposed by Eurotunnel in its draft Network Statement but still too high for many types of traffic to diver to rail. There is no evidence to support here 15. We also understand that EWS and Europorte 2 have agreed that the charge for traction of any freight train through the Tunnel will be 400. This charge to include security and safety checks but not the actual use of Dollands Moor or Calais Frethun. Unanswered Questions on the Channel Tunnel 16. Although the agreement is still in draft form, and may not be accepted by SNCF, RFG has a number of concerns: 17. Term of agreement. We understand that this might be for the duration of the concession or the Usage Contract (2052), but Art 2 of the UK Regulations (Channel Tunnel (International Arrangement Order) 2005 limit such agreements, which we assume to be Framework Agreements, to five years. This needs clarifying. 18. An agreement between Europorte 2 and EWS to charge the same price for hauling a train through the Tunnel might be interpreted as creating a cartel since there is in practice no other company with the necessary equipment to operate freight trains through the Tunnel. Such an agreement might be contrary to competition law and Art 81 and 82 of the Treaty of Rome. 19. Quantum of infrastructure charges. Art 11 (2) of the above Regulations states that The charges shall be established in accordance with the charging principles set out in Chapter II of Directive 2001/14/EC above, and in particular article 8.2, with the exceptions listed to those principles, and to the permitted discounts and adjustments, taking into account performance and the possibility of reservation charges.

4 Art 8.2 of Directive 2001/14 states that For specific investment projects (such as the Channel Tunnel) the infrastructure manager may set out or continue to set higher charges on the basis of the long term costs of such projects if they increase efficiency and/or cost effectiveness and could not otherwise have been undertaken Art 8.3 states that to prevent discrimination, it shall be ensured that any given infrastructure managers average and marginal charges for equivalent use of his infrastructure are comparable and that comparable services in the same market segment are subject to the same charges. The Infrastructure Manager shall show in the Network Statement that the charging system meets these requirements 20. We interpret these clauses to mean that Eurotunnel can charge what it likes for infrastructure access but are required to publish evidence in its Network Statement to justify that these charges are comparable with other services. For freight, we believe this should refer to competition in the freight segment with road freight either by ferry or le shuttle. This comparator information is not available in the draft Network Statement, and we doubt whether such charges quoted above would comply with this requirement. As such, we do not believe that any of the charging options described above are compliant with the regulations. 21. In our opinion, the charges should not exceed 2,500 per single journey at the intermediate period of the day. Eurotunnel is also reported to be seeking substantially higher charges at peak periods, which are thought to be between 1400 and 2300 daily. It is hard to imagine a peak period after about 1900; such an extended no-go time slot will very much disadvantage freight. Again, no evidence has been provided by Eurotunnel to support this extended peak period. Channel Tunnel regulatory body 22. Art 12 of the Regulations states that the Intergovernmental Commission is the regulatory appeal body in respect of Eurotunnel s Network Statement, the level or structure of charges. We remain concerned that we have not yet had any response to our response to Eurotunnel s Network Statement sent to the IGC in January. We would have expected them to take action to ensure compliance by Eurotunnel with the various regulations applicable, and for the IGC in particular to accept its albeit limited role in economic regulation as summarised in paragraph 19, particularly in respect of charges for using the Tunnel. RFG is writing to the IGC formally on this issue. 23. We believe that there is merit in making the rail regulators or both the UK and France responsible for regulation of all aspects of the Channel Tunnel regulation. The ORR in the UK has developed an excellent track record in regulating the UK domestic rail network and has gained the confidence and respect of the industry, and hopefully Government

5 as well. This is not the case with the IGC. Of course, the French Rail Regulator would also have to be involved and, as discussed below, it is not yet fit for purpose. However, this has to change to comply with the First Railway Package legislation; when it does, then a joint venture between two regulatory bodies, would be very much preferable to the present situation. 24. Who can appeal to the regulatory body? Either an international grouping or a railway undertaking. (Art 12)? We understand that EWS appeal is at present suspended. RFG and some of its members and associates are considering a formal appeal to the IGC. Channel Tunnel Rail Link regulation 25. There is also a confusing situation on the regulation of the Channel Tunnel Rail Link which is also designed to take freight. Although the Office of Rail Regulation has the responsibility for access arrangements and disputes, the regulation of the access charges is done by the Department for Transport. The arguments for this division of responsibility are, we believe, historical, relating to the current status of the CTRL as being a public sector project, although it appears from the outside that the private shareholders and lenders (guaranteed by the British Government) appear to make the decisions for the UK Government. 26. Such a split of responsibility again fails to make use of the undoubted expertise of the ORR and requires train operators wishing to operate between the UK and France to deal with yet another regulatory structure making fours different ones between London and, say Lille. SNCF (French Railways) 27. Alongside the proposed charges through the Channel Tunnel, SNCF recently announced increase in charges for using the Calais Frethun rail freight terminal. This is the French equivalent of Dollands Moor. Both are used for security checks on freight trains entering the Tunnel and for locomotive and/or crew changes or to wait for suitable paths. 28. Both terminals are outside the Eurotunnel concession and therefore part of the UK and French rail networks. Dollands Moor is operated by EWS Railway and Calais Frethun by SNCF, but both are open access terminals under the relevant sections of the First Railway Package 29. On 19 April 2007 we received information from one of the customers using the Tunnel, Norfolk Line, that SNCF proposes to increase its charges for the use of Calais Frethun terminal from the present level which we understand to be about Euro 1,500 per single journey to over Euro 6,000 per single journey (see attached copy of e mail Appendix A)

6 30. Norfolk Line is one of a number of our Rail Freight Group members will be affected by this increase, which is so great as to make it very likely that rail freight services through the Tunnel will cease completely. 31. It has always been our understanding that Calais Frethun terminal is an open access terminal and therefore covered by the various provisions of the First Railway Package which states that charges for the use of terminals should reflect no more than the actual costs of providing and operating the particular facilities and should be open to all operators on a non-discriminatory basis (Art 5 of 2001/14). 32. In the case of Calais Frethun terminal, we are unaware of any changes to the costs of operating the terminal from 1 July 2007 which would justify a four times increase in charges. 33. Secondly, Norfolk Line, has also been informed on the attached e mail that, if the company chooses to use an operator other than SNCF for traction across France, SNCF will put an additional charge of about Euro 5,000 on such trains using the Calais Frethun terminal. 34. This appears to us not only to contravene the First Railway Package but is also an abuse of dominant position contravenes Art 81 and 82 of the Treaty of Rome. 35. We have informed the European Commission DG TREN of our concerns about these new charges, and have written to the chairman of SNCF requesting information about the legality of them. 36. RFG with others is also submitting an official complaint to the French Rail Regulator, the MCAF, on these issues. The French Rail Regulator. 37. The First Railway Package generally requires there to be a regulatory body independent of Government. Its role, among other things, would be to act to ensure fair allocation of capacity to track and terminals, fair charging and also to be the appeals body for disputes within the industry. It would therefore be ideally suited to decide on the fair charges for the use of the Calais Frethun terminal (part of the French rail network) and whether an operator who owned a terminal could charge a premium for use of the terminal to those who wanted to use different operators across France. 38. Unfortunately, the present rail regulator comprises just one person, Mme Eliane Martignolles, Secretary General. Even more serious, the MCAF is unable to take action on any such issue since its remit it only to advise the French Department for Transport. Thus, we believe that the whole regulatory structure set up for the railways in France is not fit for purpose as well as non compliant with the First Railway Package. Consequently, we believe that urgent action is required by the

7 European Commission, and RFG is writing to Mr Matthais Ruete, Director General, asking for the Commission to take action. Conclusions 39. On the Channel Tunnel issues, RFG remains deeply concerned that a Memorandum of Understanding may be signed effectively between both Government and Eurotunnel which fixes charges for the next 45 years, whilst providing no effective regulation of grounds for appeal if circumstances change as they have done in the last 25 years! 40. We believe that pursuing the path of seeking an agreement on a MOU is an easy way means of avoiding Eurotunnel taking legal action against SNCF and/or BRB or the two Governments. However, any legal action by Eurotunnel to increase charges would result on traffic ceasing altogether with a consequent reduction in Eurotunnel s revenue. 41. Add to this the quite extraordinary behaviour of SNCF is not only seeking to quardulple its charges for use of Calais Frethun terminal, but abusing its still dominant position in France by seeking to charge a premium to any customer who uses a competitor of SNCF, and it may not be so surprising that so few customers want to continue to use this service. 42. The two Government have crucial roles to play in this alongside the European Commission to facilitate traffic growth of a very environmentally form of transport. Nowhere else in Europe is a major rail link operating at probably one fiftieth of its potential, whilst the parallel roads carry the equivalent of 200 freight trains a day. 9 May 2007

8 Appendix A - To tony Berkeley and others Gentlemen, Further to our conversations yesterday, having received a little more information from EWS, I'd thought I'd just clarify the position we find ourselves in. We have been advised that SNCF will increase their charge associated only to the Channel Tunnel portion of our business from 5080 to per round trip effective 1st July An increase of more than 150%!!! This is in addition to the 4000 increase we received 1st December 2006 when UK Government subsidies ceased. Furthermore, we are advised that if we are able to find an alternative to SNCF for the Channel Tunnel and French portions on our service, (which we can) then we will be charged 22,000 per round trip for the use of the Frethun terminal. We find ourselves in a position where not only do SNCF not want to do our business they don't want any one else to do it either. Unless we find a quick solution to this matter we will be forced to cease our Channel Tunnel operations. Any assistance you can give would be greatly appreciated. regards Graham Stephen Norfolkline BV 26 April 2007

9 21 January 2007 Introduction Rail Freight Group Response to Eurotunnel s draft Network Statement 2007, dated 10 November This paper comprises the response of the Rail Freight Group to the above Network Statement published by Eurotunnel on 10 November Paragraph numbers in ( ) refer to those in the Eurotunnel document. The statement (2.1) that Eurotunnel wishes to see a major development in freight and passenger train traffic between the UK and continental Europe is welcome. However, in stating that the capacity available in the Tunnel allows for that development, in particular for trains that would operate at around 140 kph, effectively negates the first statement, since there are very few freight trains currently capable of operating at 140kph. Eurotunnel s charges for such trains are the lowest of the group, compared with higher charges for 120kph trains and higher still charges for 100kph trains of which there are still a number. It will take many years before 140 kph freight trains are viable and widely used. In the mean time, if Eurotunnel were serious in wishing to see a major development in freight traffic as it states, then it should set its charges to attract such traffic as can operate now using conventional equipment. Capacity allocation We note that in (5) Eurotunnel states that it, as manager of the Channel Tunnel rail infrastructure, has a body for allocating capacity which ensures that train paths are allocated on a fair and non-discriminating basis. The European Railway Packages and legislation transposing them into domestic legislation and regulations for the Channel Tunnel (referred to here as the texts), specifically state that the body which allocated capacity must be independent of any train operator. Eurotunnel has announced that it intends to operate freight trains as Europorte 2. RFG had welcomed this as having the potential for bringing much needed competition to rail freight services through the Tunnel. However, since Europort 2 is a subsidiary of Eurotunnel, it follows that, to comply with the law, the capacity allocation body for the Channel Tunnel must be completely separate from the company. We shall be urging the Intergovernmental Commission to investigate this further, but we also urge Eurotunnel to take the necessary steps to comply with the law as a matter of urgency. The Company proposed to give priority to 140 and 120 kph trains over 100 kph trains and proposes a charging regime which is already highly discriminatory against the slower trains. We cannot see why it is necessary

10 further discriminate here in priorities, especially at a time when there are so few trains using the Tunnel. It is also surprising that there is no statement of giving priority for 140 kph trains over 160 kph trains. If such a priority is permitted, then the same should apply to faster as well as slower trains, since they both take up slightly more capacity than 140 kph trains which is apparently the standard path adopted by Eurotunnel.. Allocation Process Disputes Resolution Process As we have noted above, it is unacceptable and probably illegal to propose a process of disputes resolution to be conducted by the same party (Eurotunnel) that also plans to operate freight trains through it is subsidiary, Europort 2. Charging regime for freight (7) We note the comments in this section about the general framework of charges. We do not believe that these comply with the European texts. Components of charges The charges comprise an administration fee, a reservation fee and an access fee. The Administration fee is, for some offers, Euro 7,500 for freight and Euro 4,600 for passenger trains. We do not see any justification for charging higher administration fees for freight than passenger trains We would be glad to understand Eurotunnel s reasons for proposing this. It is unclear over what timescale (a year?) the administration fee is applied. We also do not understand the differences between the reservation fee; and the access fee. Clearly, the reservation fee is payable well in advance, which will help Eurotunnel s cash flow, and appears to be payable whether the path is actually used or not. However, there is a wide variation in rates for the reservation fee which is clearly not related to the cost of providing the booking, but may seek to reflect scarcity value of the path. Any scarcity charge, as the reservation fee appears to be, should be added to the access fee instead, payable when the path is actually used. The reservation fee should reflect the actual costs incurred in making a reservation. Variations in charges However, taking the reservation and access fees together to make up a total access charge, we believe that the wide variation in charges between 140 kph paths and 100 kph is excessive and in fact discriminatory against most freight traffic. Freight charges are supposed to reflect marginal cost plus an allowance for uplift to the extent that the market can bear. The marginal cost must be virtually the same for particular types of freight trains regardless of speed. Eurotunnel has not provided any information about the uplift that the

11 market could bear, not to justify such a wide variation in uplift related to the speed of the trains through the Tunnel. The only reason for charging a higher rate for slower trains is that they take up more of the tunnel capacity, but we do not believe that this can be applied unless Eurotunnel has submitted evidence for declaring this part of the network congested as defined in the texts. There is no evidence of scarcity of capacity in the Channel Tunnel, even at so-called peak periods, to support this. It is also interesting to note that there is no difference between the proposed charges for passenger trains travelling at 140 and 160 kph. This lack of different rates for different speeds of passenger trains appears discriminatory against freight. For the above reasons, we believe that the proposal to charge different rates for different speeds of freight trains does not comply with the texts. Equivalence with Usage Contract We also see no reason why these charges should be designed to be equivalent to the charges in the Usage Contract which we are advised do not comply with the relevant European texts. This issue is currently the subject of an appeal by EWS Railway to the IGC. Charges are uncompetitive with other modes and non-compliant with regulations The timings of periods of off peak, intermediate and peak coupled with no off peak services for three nights in the week mean that, in practice, there are few regular services which can effectively benefit form the off peak rates Thus, the charges appear designed to discourage rather than encourage freight. Certain charges appear to favour passenger trains at the expense of freight trains. Conclusion RFG is deeply concerned about the apparent non-compliance of the Eurotunnel Network Statements with both the EU law and the regulations transposing it into UK and French law. We shall be seeking meetings with the Intergovernmental Commission as well as Eurotunnel to discuss these issues.