In the White Paper “European Transport Policy for 2010: Time to Decide”, the Commission announced a new package of measures that included the creation of a Community structure for railway safety and interoperability17. The proposal for a regulation by the European Parliament and by the Council establishing a European Railway Agency was
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presented in may of this year in the Official Journal of the EU. Following the Community way of thinking, the progressive creation of a common railway area requires an action in the field of technical regulation applicable to both the technical aspects and the safety standards, the two being inextricably linked. In fact the technical and operational differences between the railway systems of the Member States have compartmentalised the national rail markets and prevented dynamic development in this sector throughout Europe.
For a long time safety objectives have been a purely national matter, mainly because the national markets were closed. In the new common perspective a need has emerged to develop common approaches to safety: first to ensure high safety standards as the market is opened up to an increasing number of operators and second to allow efficient use of infrastructure access without which incompatible national safety regulations would create new barriers to entry. One step could be the facilitation of issuing safety certificates to railway undertakings with a view of their mutual recognition in the long term. Furthermore in the field of safety it would be important to ensure the greatest possible transparency and an effective flow of information, with an analysis of performance based on common indicators and linking all operators in the sector. In case of safety requests from national authorities directed to receive information concerning other Member States, it would be important to have an independent technical opinion.
In one way safety is an essential requirement for the technical specifications for interoperability and must be taken into account directly when drafting them, while conversely different safety regulation among member states could be an obstacle to interoperability of rolling stock. For example rolling stock maintenance is an important part of the safety system and no genuine common market can be developed without a system of certification of maintenance workshops. The solution to this correlation is defining technical specification and European standards.
In the context of safety and interoperability, human capital also plays an important role and the vocational qualification required for train drivers could be relevant for the development of railroad system in Europe. These are also a precondition for the free movement of workers. For these reasons one of the Agency tasks is, among the others, to support exchanges of drivers and trainers between railway companies from different Member States.
None of these actions could be taken without the support of an independent and technical body to supply the Community with high quality expertise while ensuring neutrality vis-à-vis market operators and national authorities18. The economic improvements that will follow from a common set of technical and safety standards are a substantial improvement in the competitiveness of the European industry, the cost cutting of rolling stock, and the creation of a common internal market for railway equipments. Therefore, given this scenario, it is now easier to interpret the different objectives
and services that should be provided by the European Railway Agency19. First, it must supply technical support for establishing a system for the registration of rolling stock. This act of registration is a prerequisite for the recognition of the technical capability of the existing and future stocks to operate under certain conditions. Second, the Agency must collect documents and any kind of relevant information useful for the process of interoperability and must make all these documents and information accessible to the public and interested operators. The Agency must also provide an efficient means for exchanging this information. Third, it has to promote innovation (in the field of railway safety and interoperability) and the use of new technologies. Fourth, it has to contribute to the implementation of the Community legislation for the creation of a common and free European railway area. The agency must be independent, having legal autonomy and a budget financed by the Community. It will be guided by an Executive Director supported by an administrative board20and by a staff of independent personnel under the full responsibility of the Executive Director.
The Agency is not an Economic Regulatory Authority, however, because although it may adopt recommendations addressed to the Commission and express opinions to the Commission or to the authorities in the member states, it does not have any direct regulatory power. It does not have the power to submit to member states compulsory regulation and it does not fix prices (as do the majority of existing regulatory authorities in the field of public utilities). This very important specification does not make any difference to the information required needed in order to operate. In fact, neither the European Railway Agency nor classical regulating authority could work without a critical mass of centralised information to be created for and by the Agency. We do not know if the Agency represents a first step in the direction of railroad regulation in the European context, but it must at least organise a framework of data bases, human skills, expertise, and registration documents necessary for the work of a typical regulatory body.
As mentioned before, one important task of the Agency will be the promotion of innovations aimed at improving railway interoperability and safety, particularly requiring, however, the use of new information technologies and tracking and tracing systems. The development of these kinds of expertise and models will be extremely useful for the application of a future system of access prices at a European level. If, for example, for the future European railway network the solution of pricing access following the marginal cost pricing rule is adopted, the question of the applicability of this system of prices will deal with the possibility of estimating use related wear and tear costs, congestion costs, scarcity costs, external accidents costs and environmental costs. The estimation of the first category of costs requires a well founded knowledge of rolling stocks and operational techniques while the others costs, accidents apart, can be estimated using models of tracking and tracing21. If, otherwise, pricing via average costs (or with two part tariffs)
is applied there will still be the need for identifying bottlenecks and infrastructure scarcity, therefore it will be important to have a system to model the railroad network usage during peak and off-peak periods.
It seems plausible to conclude from the above discussion that the process of railways restructuring promoted by the Commission and now on the floor calls for a future European regulatory body. This institution, in order to operate, requires a certain critical level of human skills and information that are in part contained in the information that the proposed European Railway Agency has the duty to collect and organise. Of course, the technical requirements are, for the moment, far from being the political requirements necessary for the establishment of a typical national regulatory authority.
6. Conclusions
This paper has discussed questions concerning the economic regulation of the railroad sector and the proposal for regulation by the European Parliament and Council to establish a European Railway Agency. The main idea of the paper is that the European Railway Agency represents a first step towards the constitution of a future European Authority for the railroad sector, even if, at present, the Agency proposed is far from having the institutional requirements that can allow it to work as a typical authority. Generally an authority is needed when the process of restructuring a formerly vertically integrated sector is implemented through separation. This approach consists of splitting the different phases of service production introducing competition when possible, and regulating the phases that have the economic characteristics of a natural monopoly. In order to operate properly, an authority needs a critical mass of information, a certain organization and a staff endowed with specific skills. Only in this case can the game among private operators and public institutions be fruitful for the development of competition and the development of efficiency within the sector, given the presence of asymmetric information that characterises these processes of restructuring. Even if, for the reorganisation of the railroad sector, the alternative solution of competitive access is chosen, however, the question of maintaining a certain amount of critical information that can allow market designing and the construction of a new and competitive framework still remain critical. In fact any antitrust actions made to support the market require clear rules for courts and technical information and evidence that can support any action towards the protection of competition. The European Agency’s task, at least at the beginning of its activity, is to organise and provide information, standardise procedure, create a body with highly qualified and competent human skills, and to promote innovation. With these acquired capabilities the agency could be transformed without many problems into a European Authority for the railroad sector, once the necessary political conditions exist.
Of course there would not be the need for a European Authority for the railroad sector if a common and open
market for railroad services did not exist. For this reason, the agency must create the necessary conditions for the naissance of this market through interoperability, common technical standards, and safety rules. Once the European railway network has been organised with common technical operating rules, and once the common market is monitored, for example, with tracing and tacking systems, it would be possible to proceed with any kind of technical and economic regulation such as organising rail transport flows in bottleneck situations, pricing access, introducing transport tariffs, and promoting strategic infrastructure investments (for the development of the European market).
NO T E S
1Commission White paper European Transport Policy for 2010: Time
to Decide; COM, (2001), 370.
2 See Commission of the European Communities, (2002),
Communication from the Commission to the Council and the European Parliament, Toward an integrated European Railway area, COM (2002) 18 final, 23.1.2002, Brussels.
3As proposed in the Official Journal of the European Community dated
28.5.2002, C 126 E, pp.323-331.
4A public choice perspectives of railway liberalisation is discussed by
Ponti, M., and S., Erba, “The Liberalisation of the Railway in a “Public Choice” perspective”, published in this issue.
5Paragraphs 2 and 3 will be organised following the idea presented in
Kessides, I., and R., Willig, (1998), “Restructuring Regulation of the Rail Industry for the Public Interest”, in OECD Report, Railways: Structure, Regulation and Competition Policy, Paris, OECD.
6 In case of multiproduct monopoly the level of prices is inversely
correlated to demand elasticity.
7Some authors consider these solutions the “choice among three evils”,
Friedman, M., (1962), Capitalism and Freedom, University of Chicago Press, Chicago.
8 See Laffont, J.J., and J., Tirole, (1993), Theory of Incentives in
Procurement and Regulation, MIT Press, Cambridge, Ma, pp. 1-50, and the classical papers of Demsetz, H., (1968a), “The Cost of Transacting”, Quarterly Journal of Economics, Vol. 82, pp.33-53; Demsetz, H., (1968b), “Why Regulate Utilities?”, Journal of Law and Economics, Vol. 11, pp.55-66. For the case of public utilities see also Archibugi, D., G., Ciccarone, M., Marè, B., Pizzetti, and F.,Violati, (1999), Il triangolo dei servizi pubblici, Marsilio, Venezia.
9In Italy, for example, in some utilities the access to a fixed facility can
be assigned with a regime of concession or with authorization, for a discussion see Marcucci, E., (2003), “Gare e contratti di servizio nei servizi pubblici locali: alcune indicazioni dal caso dei trasporti pubblici locali”, in Perefetti, L., and P.,Polidori, (Eds), (2003), Analisi economica e metodo giuridico: i servizi pubblici, Cedam, Padova, in print.
10 In this case it is possible to recall the classical considerations
proposed by Williamson, O., (1975), Market and Hierarchies: Analysis and Antitrust Implications, Free Press, New York; Williamson, O., (1985), The Economic Institution of Capitalism, Free Press, New York.
11For a general discussion of the problem see La Spina, A., and G.,
Majone, (2000), Lo Stato regolatore, Il Mulino, Bologna.
12 Armstrong, M., C., Doyle and J., Vickers, (1996), “The Access
Pricing Problem: a Synthesis”, Journal of Industrial Economics, Vol. 44, pp.131-50; Cervigni, G., and M., D’Antoni, (2001), Monopolio naturale, concorrenza, regolamentazione, Carocci, Roma.
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13A classical reference is Laffont, J.J., and J., Tirole, (1993), op. cit. 14On this point see also the paper of Nash, C., and B., Matthews,
(2002), “Implementing Marginal Cost Pricing of Rail Infrastructure – Barriers and Solutions”, published in this issue.
15Known also as the Baumol-Willig rule. Willig, R. D., (1979), “The
Theory of Network Access Prices”, Trebin H. M., Issues in Public Utility Regulation, East Lansing (Mich.); Baumol, W.J., and J.,Sidak, (1994), “The Pricing of Inputs Sold to Competitors”, Yale Journal of Regulation, Vol. 11, pp. 171-202.
16For a discussion on the regulation of access and on the application of
the Efficient component pricing rule see Beccarello, M., (2002), “La regolazione dell’accesso alle reti ferroviarie”, mimeo.
17The legal basis for this Community action may be found in Art. 71(1)
of the Treaty.
18Of course there is the possibility that the regulator is captured, and it
is not easy to define clearly the conditions (using the economic theory) that can assure neutrality. For an interesting discussion about the nature of authorities see, Patrizii, V., (2002), “Le autorità indipendenti”, mimeo, in particular par. 4 on the question concerning their independence.
19All the action taken by the European Agency must, obviously, be
transparent and non discriminatory as is required of any independent body.
20The board will be composed by six member of the Council, six
member of the Commission and three independent experts, with no vote, appointed by the Commission.
21On the question of scarcity costs it is important to recall the above
discussion on the allocation of slots.
BI B L I O G R A P H I C RE F E R E N C H E S
ARCHIBUGI, D., G., CICCARONE, M., MARE, B., PIZZETTI, ANDF.,VIOLATI, (1999), Il triangolo dei servizi pubblici, Venezia, Marsilio.
ARMSTRONG, M., C., DOYLE AND J., VICKERS, (1996), “The Access Pricing Problem: a Synthesis”, Journal of Industrial Economics, Vol. 44, pp.131-50.
BAUMOL, W.J., AND J.,SIDAK, (1994), “The Pricing of Inputs Sold to Competitors”, Yale Journal of Regulation, Vol. 11, pp. 171-202. BECCARELLO, M., (2002), “La regolazione dell’accesso alle reti ferroviarie”, mimeo.
CERVIGNI, G., AND M., D’ANTONI, (2001), Monopolio naturale, concorrenza, regolamentazione, Carocci, Roma.
Commission White paper, European Transport Policy for 2010: Time to Decide; COM (2001), pp. 370.
Commission of the European Communities, (2002), Communication from the Commission to the Council and the European Parliament, Toward an integrated European railway area, COM (2002) 18 final, 23.1.2002, Brussels.
DEMSETZ, H., (1968a), “The Cost of Transacting”, Quarterly Journal of Economics, Vol. 82, pp.33-53.
DEMSETZ, H., (1968b), “Why Regulate Utilities?”, Journal Law of and Economics, Vol. 11, pp.55-66.
FRIEDMAN, M., (1962), Capitalism and Freedom, University of Chicago Press, Chicago.
KESSIDES, I., ANDR., WILLIG, (1998), “Restructuring Regulation of the Rail Industry for the Public Interest”, in OECD Report, Railways: Structure, Regulation and Competition Policy, Paris, Oecd.
LASPINA, A., ANDG., MAJONE, (2000), Lo Stato regolatore, Il Mulino, Bologna.
LAFFONT, J.J., AND J., TIROLE, (1993), Theory of Incentives in Procurement and Regulation, MIT Press, Cambridge, Ma.
MARCUCCI, E., (2002), “Gare e contratti di servizio nei servizi pubblici locali: alcune indicazioni dal caso dei trasporti pubblici locali”, in Perefetti, L., and P.,Polidori, (Eds.), Analisi economica e metodo giuridico: i servizi pubblici, Cedam, Padova, in print.
NASH, C., ANDB., MATTHEWS, (2002), “Implementing Marginal Cost Pricing of Rail Infrastructure – Barriers and Solutions”, published in this volume.
Official Journal of the European Community, (2002), “Proposal for a Regulation of the European Parliament and of the Council Establishing a European Railway Agency”, May, 28, C 126 E.
PATRIZII, V., (2002), “Le autorità indipendenti”, mimeo.
PONTI, M., AND S., ERBA, “The Liberalisation of the Railway in a “Public Choice” Perspective”, published in this volume.
WILLIAMSON, O., (1975), Market and Hierarchies: Analysis and Antitrust Implications, Free Press , New York.
WILLIAMSON, O., (1985), The Economic Institution of Capitalism, Free Press, New York.
WILLIG, R. D., (1979), “The Theory of Network Access Prices”, Trebin H. M., Issues in Public Utility Regulation, East Lansing (Mich.).
1. Introduction
The railways in Europe have been going through a period of turbulence for nearly ten years. In truth, at the moment, the turbulence is predicted or hypothetical rather than real.
Nevertheless, the “real turbulence” should corre- spond to a precise objective of EU transport policy, that derives directly from the Treaty of Rome. It is neither a fashion nor caprice. It is part of the political objectives being carried out by the EU.
The scope of this paper is to see how the deregulation process is moving, if it will be realized completely and what will be the probable scenario at the end of this process of transformation.