Back on track: does the 4th Railway Package open up the Dutch railway market?
An overview of recent developments in railway law
Over the past few years, a lot of commotion has arisen regarding the tender procedure that will be used for the upcoming concession of the Dutch Main Rail Network (in Dutch: Hoofdrailnet, “HRN”). The Ministry of Infrastructure and Water Management (the “Ministry”) wishes to re-award the concession to the Dutch Railways (“NS”) in a private tender procedure. A number of railway operators are protesting that decision. Also, in recent years, there has been a number of conflicts regarding the tariffs and conditions for railway infrastructure, service facilities, and additional and ancillary services. In this overview blog, we will look at the most important legal developments in the area of railway law, with attention to the position of decentralized railway operators.
Main Railway Network concession 2025-2035
The Dutch railroad network consists of the centralised HRN and a number of decentralised train services. Since the concession for the HRN is awarded periodically by the Ministry directly and to one provider (private tender), until at least 2025 only the well-known Intercity trains and Sprinters of NS are allowed to operate on the HRN. Decentralised train services, on the other hand, are publicly tendered. They are sometimes operated by NS, but sometimes also by other transport companies such as Arriva, Connexxion, Keolis/Syntus, Qbuzz of Eurobahn.
The Ministry has expressed its intention to re-award the HRN concession in a private tender to NS after 2025. Other (regional and European) carriers do not agree and together with the public transport industry association FMN (Federation of Dutch Mobility Companies) have been litigating against the proposed re-award since 2020. In addition, in 2022 the European Commission (“Commission”) questioned the legality of a private re-award in a letter to the State Secretary of Infrastructure and Water Management (the “State Secretary”).
The impact of a possible opening of the Dutch market for the provision of rail services on the HRN would be significant for railway carriers, NS, and passengers alike. However, the civil and administrative courts are not (yet) venturing to check the proposed re-award of the HRN concession to NS against European law. That review, according to the judges, is reserved for the European Court of Justice or the Dutch high administrative court, the Trade and Industry Appeals Tribunal (in Dutch: College van Beroep voor het bedrijfsleven, “CBb”).
European legal framework
One of the goals of the EU common transport policy is the liberalisation of passenger rail transport. In that regard, the European Parliament and the Council adopted the 4th Railway Package in 2016. The 4th Railway Package’s market pillar relates to the increased opening up of the rail market. The 4th Railway Package includes the SERA (Single European Railway Area) Directive and the PSO (Public Service Obligation) Regulation. Many provisions of the SERA Directive and PSO Regulation have been incorporated into the Dutch Passenger Transport Act 2000 and the Dutch Railway Act.
Central rules on open access and open service contracts
A central principle in railway law is the principle of open access, formulated in Article 13 of the SERA Directive and Article 19a Wp2000. This means that, in principle, every railroad undertaking has a right of access to the national railroad infrastructure.
Article 11(5) of the SERA Directive limits this principle. The right of access can be limited if “exclusive rights to convey passengers between these stations have been granted under a public service contract awarded before 16 June 2015.”
A public service contract is a contract concluded with the operator of a public service obligation. This is a performance that an operator, if it were guided by its own commercial interests, would not provide, or would not provide to the same extent or under the same conditions, without compensation (Article 2 under e PSO Regulation). With regard to passenger rail transport, this includes, for example, operating unprofitable lines (such as most rail lines in the Netherlands), offering minimum frequencies, applying (maximum) fares, or providing travel information. When granting an exclusive right, such as a concession, the competent authority is obliged to conclude a public service contract with the operator (Article 1 Wp2000 and Article 3 PSO Regulation).
The CBb already determined in 2017 that the 2015-2025 concession for the Dutch HRN to NS constitutes such a “public service contract”.
Although public service contracts must, as a rule, be publicly tendered, Article 5(6) of the PSO Regulation allows member states to directly award public service contracts for rail transport until 24 December 2023 at the latest, for a maximum duration of ten years (Articles 61(1) and 64(1) Wp2000). For the 2015-2025 concession period, the Secretary of State made use of these possibilities by privately awarding the HRN concession to NS, thus limiting the right of access to the HRN for other carriers (Articles 19a and 19b Wp2000).
Changes to the 4th Railway Package
The 4th Railway Package aims to liberalise passenger rail transport and therefore extends the principle of open access. There will be only one exception to the principle of open access from 1 January 2025: the right of access may only be limited if otherwise, the economic equilibrium of a public service contract would be compromised (Article 11(2) SERA Directive).
In accordance with its established methodology, the Authority for Consumers and Markets (the “ACM”) can examine in a preliminary objective analysis whether the economic equilibrium of a public service contract is indeed compromised in specific cases and therefore whether open access to the railways may be restricted. The economic equilibrium test is elaborated upon in Implementing Regulation 2018/1795. Such an equilibrium test can be requested by the relevant grantor (the Ministry), a relevant concession holder (NS) or the infrastructure manager (ProRail). The Ministry regularly requests an equilibrium test when other carriers report an intention to operate a new passenger service. The ACM then considers, among other things, the impact of the passenger service on the profitability of the public service contract and the net costs for the competent authority (Article 10 Implementing Regulation 2018/1795).
There may be multiple public service contracts for a route. In that case, the economic equilibrium test must consider the impact of open-access transport on all concession holders. For example, the Almelo – Hengelo route is served by NS under the HRN concession and by Keolis under the Zwolle – Enschede concession.
In addition to extending the principle of open access, the 4th Railway Package also makes the private award of public service contracts more difficult. After 24 December 2023, Article 5(6) PSO Regulation will no longer apply, and private awarding procedures will only be allowed under strict conditions ((Article 8(2)(iii) and 5(4a) PSO Regulation). A competent authority can only privately award a public service contract from 25 December 2023, if:
- it considers it justified in the light of the relevant characteristics of the market and rail network; and
- the contract results in an improvement in service quality or cost efficiency (or both) over the previous contract.
On this basis, the ACM shall publish a substantiated decision and shall inform the Commission thereof within one month of its publication.
Legal proceedings HRN
First summary proceedings
Despite the new regulations, the Secretary of State still intends to re-award the HRN concession privately to NS before 24 December 2023. This would exempt the upcoming concession from the stricter rules on private award procedures. In a letter to the House of Representatives dated 11 June 2020, the State Secretary justified this choice by stating that publicly tendering the HRN is a very complex matter and would require thorough preparation. In the short term it would therefore be wiser, according to the State Secretary, with a view to the stable provision of transport services, to award the HRN concession directly to NS once again.
This intention was appealed by a number of regional and European transport companies and the FMN in 2020. In summary proceedings, FMN c.s. claimed that the State Secretary should be prohibited from further implementation of the intention to re-award a private contract to NS. Among other things, it was argued that directly re-awarding the HRN concession was disproportionate, and in violation of the principle of open access. This position, according to the Court of The Hague, was premature, as the modalities of the award had not yet been determined at the time of the ruling.
The dispute focuses on the interpretation of the transitional arrangement of Article 5 (6) PSO Regulation. The State argued that before December 24, 2023, a private award is still possible without further justification. The Court in preliminary relief proceedings considered that in that case the moment of award and the start of the next HRN concession on 1 January 2025, would be more than a year apart. Such a prolonged evasion seems incompatible with the transitional regime and could lead to an unlimited circumvention of the new open access rules contained in the 4th Railway Package. The Court in preliminary relief proceedings concluded that the transitional regime was not conclusive and that, although the arguments of FMN c.s. did not seem implausible to the Court, it could not yet be determined whether the intention to award the concession was in fact contrary to the PSO Regulation. That, according to the interim relief judge, is ultimately up to the European Court of Justice.
Position European Commission
On 18 July 2022, the European Commission also objected to the Secretary of State’s award proposal. In a letter to the Secretary of State, the Commission expressed concerns about the re-award of the HRN concession to NS in two areas:
- Circumventing the new open-access rules by privately awarding the HRN 2025-2035 concession to NS more than a year before the start of the concession violates European law, according to the Commission.
- According to the Commission, European law requires the Secretary of State to conduct a market analysis before determining the scope of the HRN concession in order to examine whether there are train services included in the proposed concession that could be provided by other carriers without compensation. After all, if this indeed turns out to be the case, those parts of the HRN would not fall within the definition of a public service obligation (Article 2(e) PSO Regulation).
By letter dated 1 March 2023, the Commission clarified its position. The HRN concession is generally profitable, as evidenced by the contribution NS pays annually to operate the concession. While the PSO Regulation allows the bundling of profitable and loss-making lines in one concession, it does so only under strict conditions and after a proportionality test. Now that FMN c.s. show interest in offering train lines on the HRN, a market analysis – based on established case law – should take place.
Second summary proceedings and appeal
Following the Commission’s letter, new summary proceedings against the State commenced in late 2022. Both the possible conflict of the re-award with European law and the scope of the obligation to conduct a market analysis were addressed. FMN c.s. join the Commission’s call for a market analysis. According to them, other carriers are also able to profitably operate train services belonging to the HRN concession. After all, NS itself pays an operating contribution, although this could change under the new concession. The State disputes that such an obligation exists under the PSO Regulation, and also denies circumventing the open access rules.
The Court in preliminary relief proceedings dismissed all claims of FMN c.s. and considered that it is up to the Court of Justice to interpret the PSO Regulation (including the obligation to perform a market analysis) and possibly to establish a conflict with European law. The Court in preliminary relief proceedings did note that it is certainly not inconceivable that the State will be ruled against in proceedings before the Court of Justice. For the time being, however, the State Secretary may proceed with the private re-award to NS.
On appeal, FMN’s claims were again rejected. The Court of Appeal ruled that a private award procedure appears to be permitted for the time being (ex Articles 5(6) and 8(2)(iii) PSO Regulation). Also, according to the Court, it has not been established in advance that the State can be required to conduct a market analysis on the possibility of open access on individual links of the HRN (Article 2 under e PSO Regulation).
Proceedings on the merit
Shortly thereafter, the District Court of The Hague also ruled in the proceedings on the merit between FMN c.s. and the State. The Court noted that, as a ‘residual’ judge, it should play no role in the issue surrounding the granting of the concession, and that the case can be brought before the specialised administrative judge, the CBb. This can only be done after the final concession award. Otherwise, there would be a risk that the civil court and the CBb would issue conflicting judgments.
The ball is now in the court of the Court of Justice. The Commission has indicated that it interprets the PSO Regulation in such a way that a prior analysis of the market and profitability of some train lines is mandatory. The State Secretary expects that the Commission will start an infringement procedure against the Netherlands for this reason. In that case, the Court of Justice may give a ruling.
Impact on announced open access services
Because the scope of the HRN concession has not yet been determined, the introduction of new train lines is delayed. The ACM is currently unable to determine whether announced open access services will jeopardise the economic equilibrium of the HRN concession. For example, it is still unclear whether the Groningen-Zwolle and Leeuwarden-Zwolle Sprinter routes will become part of the HRN concession. Both NS and Arriva are vying for those routes. The scope of the HRN concession will become clear before the summer.
Changes to the current HRN concession
The Secretary of State sometimes amends the terms of the HRN concession, often at the request of NS. Those modification decisions are sometimes litigated, as are decisions to grant subsidies to NS.
For example, in 2021 and 2022 the CBb dismissed an appeal by rail operator Allrail against an amendment to the HRN concession and the granting of subsidies that made it possible for NS to extend the night train service between Vienna and Düsseldorf to Amsterdam. The CBb concluded that the amendment decision did not constitute a substantial change to the HRN concession and was therefore permissible. The same applied to the subsidy granted, which, according to the CBb, sufficiently reflected the actual costs incurred for the operation of the train line (ex Article 2a(2) PSO Regulation).
Free access to rail infrastructure and service facilities
The principle of open access also means that rail manager ProRail is obliged to offer all railroad undertakings non-discriminatory access not only to the train path, but also to, for example, platforms, connections, switches, signals, information about train movements and available capacity.
This is also called the minimum access package (Category 1 of Annex II SERA Directive). The rules regarding the minimum access package are laid down in Chapter 5 of the Dutch Railways Act. For this access, railroad undertakings pay a fee to rail manager ProRail. The method for calculating that fee is determined by the ACM.
In addition, railroad undertakings also depend on access to so-called service facilities and associated additional and ancillary services (Category 2-4 of Annex II SERA Directive), such as passenger and marshalling yards, freight terminals, refueling facilities and cleaning services. The operator of such a service (facility) is also bound by the principle of non-discriminatory open access but may charge a fee for it. That fee may not exceed the operating costs plus a ‘reasonable profit’ (Article 9(5) Implementing Regulation 2017/2177). What constitutes a ‘reasonable profit’ has been established by the ACM in its Guide on Rail-related services and service facilities.
Each year, ProRail publishes in the Network Statement an overview of the available rail infrastructure and service facilities (including those of third-party operators) and the conditions under which they can be used.
A railroad undertaking has to request access to railroad infrastructure or service facilities itself by means of a request. ProRail or other operators may refuse such a request only if there are viable alternatives allowing the applicant to operate their transport service under economically acceptable conditions (Article 14(4) SERA Directive).
Disputes on rail infrastructure conditions and rates
Over the past few years, the ACM has regularly handled complaints and disputes about rail infrastructure scope, rates, and conditions. For example, the ACM previously ruled that ProRail applied the wrong prioritisation when assessing a request for access by rail freight operator Lineas to an assembly site, in violation of the non-discrimination principle
The rates that ProRail charges for access to the railroad infrastructure are also the subject of debate. Earlier this year, for example, the ACM dealt with a complaint from Arriva about the level of indexation of the user fee charged by ProRail, and the lack of differentiation therein. The complaint was declared unfounded. A complaint by Railexperts about discriminatory rates for train paths and sidings was also declared unfounded by the ACM.
However, a complaint by RailGood about the preconditions applied by ProRail for the use of a switching yard in Venlo was partially upheld. According to the ACM, ProRail used the wrong procedure in determining the preconditions.
Additional and ancillary services and service facilities
The ACM also deals with matters concerning additional and ancillary services and service facilities. For example, before a tender begins, the ACM approves the rates and conditions for the use of service facilities along (decentralised) train lines, for example on the Valley Line and the Zutphen-Hengelo-Oldenzaal route. The ACM also shares informal views in conflicts between railroad undertakings, such as in the case of a request by rail freight operator Lineas to widen DB Cargo’s shunting services. The ACM concluded in its view that DB Cargo is obliged to expand and offer shunting services to Lineas.
The proposed private re-award of the HRN concession to NS is causing a stir. Both carriers and the Commission are hinting at possible conflicts with European law. They argue that the State is trying to circumvent the stricter rules from the 4th Railway Package by awarding the concession privately more than a year before the start of the new concession. They also argue that the State failed to use a mandatory market analysis to ascertain whether there were other operators who wanted to operate on the Dutch railways. The Court of The Hague considers these positions plausible but does not want to rule on them for the time being. The Court of Appeal of The Hague seems to reject the views of FMN and the decentralised carriers. This means that the proposed re-award seems to be able to go ahead, for now.
FMN c.s.’s claims were also rejected in the substantive proceedings. The civil court did not consider itself competent as a ‘residual judge’ and referred the case to the CBb, where an appeal is possible after the final award of the HRN concession. No preliminary questions to the European Court of Justice have been raised, yet there is a significant chance that it will ultimately be the European Court of Justice that will rule on the compatibility of the State’s plans with European law.
As a regulator of railroad legislation, the ACM monitors parties such as ProRail and supervises service facility providers in tenders. The ACM also assesses the impact on the economic equilibrium of the HRN concession in open access requests, as well as frequently acting as a dispute resolver in open access issues. More competition on the railroads, the system of open access to rail infrastructure and service facilities could lead to a multitude of disputes between (rail) companies.
Are your business operations affected by the developments regarding the HRN concession? Are you engaged with the ACM in a regulatory matter or dispute? Or are you curious about the impact of new regulations? If so, feel free to contact one of our specialists in railway law.