COMMITTEE ON THE EUROPEAN UNION INTERNAL MARKET, ENERGY AND TRANSPORT SUB-COMMITTEE

European Rail Market and the role of the Channel

Written and corrected oral evidence

Contents

Alstom—Written evidence ...... 3 —Oral evidence (QQ 199-233) ...... 11 Lord Berkeley—Oral evidence (QQ 300-330) ...... 26 David Briginshaw, Editor-in-Chief, International Rail Journal—Written evidence ...... 41 Department for Transport—Written evidence ...... 44 Department for Transport—Oral evidence (QQ 253-299) ...... 49 AG—Written evidence ...... 67 Deutsche Bahn AG—Oral evidence (QQ 87-131) ...... 73 European Rail Infrastructure Managers (EIM)—Written evidence ...... 87 European Railway Agency—Written evidence ...... 90 —Written evidence ...... 94 Eurostar—Oral evidence (QQ 42-86) ...... 99 Eurotunnel—Oral evidence (QQ 331-366) ...... 116 Eurotunnel—Written evidence ...... 135 Ferrovie Dello Stato—Written evidence ...... 139 Ltd—Written evidence ...... 141 High Speed 1—Oral evidence (QQ 132-162) ...... 149 High Speed 1 Ltd—Supplementary written evidence ...... 162 Interfleet—Written evidence ...... 163 International Air Rail Organisation—Written evidence ...... 165 Ivor Morgan—Written evidence ...... 167 MDS Transmodal—Written evidence ...... 177 —Written evidence ...... 181 Office of Rail Regulation (ORR)—Written evidence ...... 185 Office of Rail Regulation—Oral evidence (QQ 163-198) ...... 190 Passenger Focus—Written evidence ...... 206 P&O Ferries—Written evidence ...... 209 Rail Freight Group—Written evidence ...... 210 Rail Freight Group—Supplementary written evidence ...... 214 Seat 61 (The Man in Seat Sixty-One)—Written evidence ...... 217 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252) ...... 226 DB Schenker Rail (UK) Limited—Written evidence ...... 235 Professor Roger Vickerman, Professor of European Economics, University of Kent and Dean, University of Kent, —Written evidence ...... 240 Professor Roger Vickerman—Oral evidence (QQ 1-41) ...... 245

2 Alstom—Written evidence

Alstom—Written evidence

Summary

(i) The EU has a world-leading rail industry with potential for further growth & job creation. (ii) Alstom supports liberalisation of rail markets as a way to increase competition, bring new investments and generally to increase rail ridership. (iii) Alstom is concerned about national differences of approach, which underlines the need for a single EU rail market (iv) More competition in the EU rail passenger services market will mean more business opportunities and employment. The UK example is a case in point. (v) Common rules though need to be agreed, governed by an appropriate overarching body with authority and real teeth. That body needs to have a clear relationship with national authorities. (vi) Faster deployment of the European Rail Traffic Management System (ERTMS) is the highest priority in order to develop an EU rail market (following lead of Benelux, Italy & Switzerland). (vii) Funding allocated at national and European levels to rail projects – especially those which promote international travel - must be increased in the next financial perspective 2014-20, particularly the TEN-T programme. (viii) Differences in some types and some level of incompatability in cross-border European rail market will always exist as long as infrastructure remains different. (ix) Safety is a priority for cross border passenger traffic, but commercial efficiency is also important. Alstom supports a stronger European oversight. (x) The EU Supply Chain is among the best in the world, but as very few cross-border projects reach fruition, it is relatively fragile. New entrants to the market from Asia benefit from security of closed home markets. Alstom believes this is a strategic issue for the EU supply chain. (xi) Alstom strongly supports the Transport White Paper, which calls for a 60% GHG emissions reduction in the transport sector by 2050.

About Alstom

1. Alstom is primarily a designer, manufacturer and supplier of high-speed and turnkey systems (see paragraphs 41-45 for more detail).

Detail

Q1. How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

2. The question can be broken down into four areas: (i) operations; (ii) trains; (iii) infrastructure; and (iv) regulations & standards.

Operations

3 Alstom—Written evidence

3. We support the liberalisation of rail markets, but we are concerned about the differences of national approach, which underlines the need for a single EU rail market. Rail market liberalisation - through the 2004 legislative Third Rail Package – could be more evenly and rapidly implemented across the EU.

4. National state railways dominate most of the rail network across Europe and there are substantial opportunities to develop competition in most countries. However, there needs to be political will within member states to make meaningful changes. In addition, a lack of transparency over subsidies of some state-run railways acts as a potential block to liberalising passenger services, as there is little clarity over the true costs of train operation and infrastructure provision.

5. In addition, technical barriers still exist that prevent new operators from entering the EU market. Cross border services do not seem to be a priority for many State operators and are outside the franchise scope of many private operators. The infrastructure costs and constraints make many possible services unbankable or unprofitable, which creates the need for further State, or EU, investment and legislation.

6. The UK example where different, non-incumbent, rail passenger services were developed in the domestic market - improving the traffic and quality of rail services offered to passengers - is a good illustration of the potential room for improvement in international rail passenger transport.

7. At a technical level, several barriers still exist, including gauge, electrical and signaling system differences, and treatment of safety standards, which make this area notoriously difficult to navigate. The supply industry is striving to develop innovative ‘go anywhere’ solutions. But this has the tendency to drive up costs for a market which is, in order of magnitude, not very significant and to say the least erratic.

Trains

8. For a train with passengers to cross an international border, at least two signaling systems and a specific on-board solution are required, so as to be recognised by the ‘receiving’ country signaling system. Due to safety rules, a train must be ‘seen’ and ‘handed over’ as it crosses the border. If the service is not to be disrupted, this has to be highly reliable and instant. A train also has to pass each country’s safety case procedure, a process which can take up to 18 months to 2 years to complete.

Infrastructure

9. There is still much to do on infrastructure and rolling stock. Top priorities are to adopt the least proscriptive application design criteria and for transparent bidding processes for new business opportunities.

10. Most suppliers have a range of solutions (train lengths, passenger capacity, speed, distributed or loco power, acceleration, etc), but the definition in the bidding documents rapidly reduces options, and possible product differentiation, and hence advantages of suppliers. Output specifications should be encouraged provided that there is sufficient certainty around what is being bid for.

4 Alstom—Written evidence

11. Alstom’s recommendations to develop international rail passenger services (which should also lead to market opening for domestic passenger transport) would be:

(i) Third Railway Package: ensure adequate implementation across all Member States to facilitate cross-border transport and market access.

(ii) Strengthen competitive railway transport with separation between operators and infrastructure managers; and through transparent charging and access to rail related services. Access to critical infrastructure is vital to ensure a proper level of maintenance and to improve the reliability/availability of the system. Original Equipment Manufacturers (OEMs) have a lot to offer in this field. The EU is aware of the problem of access to critical infrastructure and has proposed to ease access in the recast of the First Railway Package (legislative procedure ongoing). Such a proposal should be supported and implemented to guarantee a better competition between operators.

(iii) Technical barriers to a truly European railway market should be tackled. Strengthened cross-acceptance of certifications and the extension of the scope of TSIs could improve interoperability in the EU. As regards homologation, when a new operator (following liberalisation of the market) wants to homologate its rolling stock - to run trains in competition with traditional operators - it can face major difficulties and delays. One of the difficulties faced by operators and equipment manufacturers when bidding for work is the lack of clarity, certainty and transparency of local rules and procedures. The European Rail Agency (ERA) should be given more power to propose cross-certification rules, supervising National Safety Authorities (NSAs) and developing TSIs.

(iv) Standardisation of power supplies. The twelve different systems currently co-existing in Europe makes on-board electrical conversion systems extremely complex and costly.

(v) Faster deployment of the European Rail Traffic Management System (ERTMS). Recent EU leadership has resulted in the probability of a faster ERTMS roll-out. Alstom supports this as a cornerstone of legitimate investment, which will benefit all states and stakeholders equally and ensure that the barriers caused by different signaling systems is a thing of the past.

Q2. How has the liberalisation of the international passenger rail market been developing since January 2010?

12. It is very early to draw conclusions. Where there has been evidence, it has been limited to small regional rail networks, and this is only now starting to extend to the high- profile long-distance, high-speed or inter-city networks (NTV Italy is one example.)

13. Since freight gave a lead in the 1990s, the passenger rail market for international services has been slowly growing each year. New services have been proposed between -; France-; and Italy-France.

14. In relation to access to the UK-Continental passenger market, it has now begun to be opened up to competition and new operators have expressed an interest in running services out of London, including importantly, Deutsche Bahn. However, the introduction of new operators is taking some time to ensure that critical safety issues are respected in the unique environment. That said, once the rules have been clarified, new entrants should lead to increased competition in this market. 5 Alstom—Written evidence

15. The delay and re-phasing of the TEN-T programme has had a negative impact on the so-called priority projects, and few have come to fruition. Little investment has materialised in Europe in new international passenger rolling stock, although infrastructure spend in some cases is continuing despite the effects of the economic downturn (e.g Portugal High Speed Train). Other projects are reverting to private sources of finance (e.g PPP programme just launched in Spain), though it remains to be seen whether concrete orders will result.

16. European financed projects like Rail-Baltica have stalled and are in danger of collapsing completely due to sporadic electrification; gauge differences; incompatible slow speeds; single tracking; excessive journey times; and low political buy-in. The financial crisis has recently boosted interest in the liberalisation process in Greece and Portugal, although, to date, none of these has produced bids for projects. However, some European financed projects (e.g in Poland) appear to be reaching fruition.

Q3. (i) Should the European Rail Agency have a stronger role in this regulating rail safety? (ii) What relationship should be adopted between the European Rail Agency and national rail authorities such as the Office of the Rail Regulator (ORR)? (iii) How should the safety certification for the Channel Tunnel be undertaken within this context?

Question 3 (i)

17. Yes, the European Rail Agency (ERA) should have a stronger role to play in defining common homologation and safety rules. The objective is not to replace NSAs, which still need to keep their role in ensuring the proper implementation of certification processes. But ERA could supervise them and prevent the increase in the number of local rules, that may, inadvertently, constitute barriers to the market. ERA should play a role for rail similar to that of the European Aviation Authority.

Question 3 (ii)

18. The Office of the Rail Regulator (ORR) is primarily responsible for regulation on the UK railway system, so it has limited exposure and experience in European matters. Furthermore, its experiences stem from UK gauge operating conditions and legislation, which it understands profoundly well. It functions in its current form as a consequence of UK privatisation and liberalisation, which caused a dramatic rise in the number of regulatory matters being addressed and handled on a day-to-day basis. The UK franchise-railway model is unlike most instances in mainland Europe, where State interests, and State enterprises, still dominate the landscape. In addition, border constraints and issues are far fewer in the UK (being an island) and so change occurs more infrequently.

19. The differing technical standards, and the national railways insular criteria regarding safety, are partially the reason why today the ERA ‘paints the big picture’, but on specific issues takes a purely legalistic view, often non-proscriptive and non-judgmental. Whereas the ORR is practical at heart and is, by necessity, operationally highly present and visible.

20. The singular international duty of the ORR relates to the Channel Tunnel. However, the introduction of other European systems on the railway such as ERTMS, and how high speed develops within UK, may also require fresh approaches.

6 Alstom—Written evidence

Question 3 (iii)

21. The Channel Tunnel has specific rules in terms of safety and was opened prior to any of the recent European legislation on safety in high-speed . These system rules stem from safety committee work under guidance of the IGC (as defined in the Canterbury Agreement) and are related to the unique nature, and specificities, of the Channel Tunnel as a very long under-sea tunnel (and, as such, is different from other long, inland rail tunnels that do not pass under water). These create a number of specific safety challenges that have to be reflected in the local infrastructure rules and requirements.

22. Alstom believes these rules should be reviewed from time to time - and should always take advantage of the evolution of technologies brought to the market - but be driven by GAME (ensuring at minimum the same level of safety). Safety Authorities should be independent and not be subject to pressures from infrastructure managers, operators and equipment suppliers. Rather they should be guided by safety considerations which they have a duty to safeguard.

Q4. How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN-T projects?

23. The entire cost of the EU network is estimated at €500 billion and current funding does not cover these costs. The budget allocated so far to TEN-T has been insufficient and additional funding will be needed to achieve a fast and efficient completion of projects.

24. For the next financial perspective (2014-2020), we recommend a specific focus on high added value projects, such as high speed rail. The EU should also reflect on innovative ways of funding, such as earmarking revenues from Eurovignette, or from the auctioning of allowances in ETS phase 3.

25. Given the lack of funding for TEN-T, there is a need to concentrate the available resources on a small number of projects, which have high added value and are well known. Cross border high speed rail projects could benefit from this principle.

26. High speed rail projects can also be funded by EU Structural Funds, which are managed by each Member State. Operational programmes of Member States should better reflect the priority given to rail and high speed rail links.

27. Conditions which could be attached to TEN-T funding include:

• Support projects with high added value in Europe (e.g high-speed rail projects). • Greening of TEN-T projects: the current redefinition of the TEN-T policy to a low carbon transportation network and to promote sustainable transport. Rail projects represent a significant share of TEN-T projects and that should be increased. Some private operators (e.g in Netherlands) now take economic evaluation criteria on bids for the CO2 use (both lifetime of train and behaviour of the manufacturer).

7 Alstom—Written evidence

• Support “full interoperability” of the TEN-T rail network. The implementation of ERTMS should be imposed on rail infrastructure, together with other requirements in terms of interoperability. • Respect a number of technical criteria: e.g use of innovative technologies, common standards, etc. • Make sure Member States respect their commitments in due time. One solution could be to set binding targets, with clear criteria for a specific project and sanctions (e.g loss of financing), such as exist in other industry sectors.

Q5. Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

28. Yes. As mentioned in the previous answer, TEN-T core network projects should offer added value; be sustainable; and involve commitment from Member States to achieve the projects on time. The revision of the TEN-T policy to be adopted around the Summer of this year should take these points into account.

29. Another important principle that we would recommend is included in a new proposal is the approach of having a European co-ordinator. One authorised co-ordinator per project in the core network would help efficient implementation across borders.

30. Funding issues for the TEN-T do not only come from the scarcity of financial resources, but also from the way transport policy is being planned and implemented at the EU and Member State levels. The various sources of funding are often overly complex to administer and implement. Funding is often unused, or under-utilised.

Q6. What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport, and others such as cross-Channel ferries?

31. Modal shift from air and road to rail will be possible only if rail is sufficiently attractive for passengers and businesses. This implies that rail needs to be competitive enough, which can be achieved with the liberalisation of the rail market and technical harmonisation. In addition, given the need to decarbonise the transport sector, a shift to sustainable modes of transport is a high priority.

32. The key elements to encourage modal shift are price, frequency, punctuality and customer service. In the UK (and several VHST projects in Europe), significant shift has been made from air to rail as operators have developed highly competitive services on key air routes. Latest industry figures show that rail’s market share on the 10 most popular domestic air routes in 2010 grew to 44% - up from 29% in 2006.

33. If the trend continues, train companies predict that rail’s market share on these routes will rise to above 50% within the next 12 months. Between 2006 and 2010, total journeys by rail on the 10 most popular UK domestic air routes rose by 42%, increasing by 2m to just over 7m journeys. The last two years have seen a particular surge in rail’s market share, with train journeys on the 10 routes rising by 25%.

34. On the routes where rail competes directly against airlines, frequency and reliability has increased dramatically over the last six years since the introduction of

8 Alstom—Written evidence

Pendolino trains and airlines have withdrawn from key routes from London to Liverpool, Manchester and Glasgow.

35. Two key elements to ensure a modal shift to rail are:

• A level playing field between modes of transport: through fair taxation and charging, and the full integration of the polluter-pays principle. Inter-modal competition is still hindered by unequal taxation and infrastructure charging. Railway transport is subject to VAT on international passenger tickets, whereas air transport is not. Road transport does not pay infrastructure charges, whereas rail does (and the agreement in second reading on Eurovignette is unlikely to rebalance this). The removal of such strong taxation inequalities could help to promote a modal shift to rail. The internationalisation of external costs and the full application of the “polluter pays principle’ would remove the current inequalities between the different modes of transport. . • Massive investment in rail infrastructures and new technologies. Not enough investment has been made in rail – both freight and passengers – despite the need to replace ageing infrastructure. As a consequence, there are no incentives to move to rail transportation. Investment in high-speed rail is likely to attract passengers and promote a shift from aviation and road to rail.

Q7. Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

36. No comment, as we are not an operator. Q8. In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

37. As a designer, manufacturer and supplier of high-speed trains and turnkey systems, Alstom is not in a position to comment on this question other than as stated in paragraph 22 above. Q9. The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

38. The Channel Tunnel does not, we understand, represent a bottleneck. Today, according to the CTG, there are dozens of paths available per hour and a service only partially used at night, which can be taken up both by new operators and new franchises (passenger and freight).

39. The best way to achieve multimodality is to:

• Get the infrastructure right. • Ease the ability to switch from one mode to another. This could be done through nodes or hubs that connect modes with each other; and ICT (information to passengers, e-ticketing etc. will be crucial for multimodality). • Create closer alignment of speed on key routes. The past trend for ever-faster passenger services was often at odds with the speed that freight could be carried. 9 Alstom—Written evidence

However, there is a shift for environmental reasons towards slower, but more frequent, passenger services and this may enable better shared use of existing networks. Q10. What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

40. The greater the volume of passengers, the greater the need to ensure that the operating conditions are designed to an appropriate level of safety. The impact of greater volumes of passenger services on safety in the Channel Tunnel should be assessed by the relevant safety authority. The starting point is that safety rules must always be respected. Any change to the existing safety rules, whether to adapt to greater volumes of traffic, or for any other reason, should, as always, be carefully assessed on the basis of appropriate safety studies, and should ensure a level of safety at least equivalent to that achieved under the current rules (in compliance with Article 4(1) of the Rail Safety Directive (Directive 2004/49 as amended) and Article 1.16 of the Safety in Rail Tunnels TSI). In this context, the role of equipment suppliers is to provide rolling stock that complies with, or exceeds, the level of safety laid down in the applicable rules.

Background on Alstom

41. Alstom is primarily a designer, manufacturer and supplier of high-speed trains and turnkey systems. Examples include the Cisalpino fleet (Italy-Switzerland); the fleet (UK); and the construction of the HS1 line into London (including the tunneling, signaling, electrification and catenary systems). Alstom is also a maintainer and provider of full service provision (e.g West Coast Mainline for Virgin Trains).

42. Alstom’s high speed, and very high-speed, fleet is the largest in service of any manufacturer in the world. In the UK, this also includes the current Eurostar fleet, which has been in successful cross-border operation since 1995.

43. In Italy, we are the provider to NTV of their newest AGV very high-speed trains, which will operate from to . We also provided with their pendolino fleet, which operates into Switzerland. In the Czech Republic, we provided the Super- Pendolino, which travels across border to Slovakia and , and will eventually travel to Germany.

44. Alstom provided the high-speed rolling stock Cisalpino fleet, which transits between Italy and Switzerland, and the ground breaking -St Petersburg earlier this year. Other cross-border services which Alstom has worked on developing solutions for include: the upgrading of the Spanish and French TGV sets to allow for services to run between and ; and the ERTMS signaling systems (including the onboard computers), which is an enabling technology and forms part of the cornerstone of future cross-border competition.

45. Half our business is with private operators, running allocated franchises, with the other half coming from state owned enterprises. We have our own R+D budget, which funds our train and product development. Clients and/or State administration rarely contribute to that, so our IPR is almost totally wholly owned.

7 June 2011

10 Alstom—Oral evidence (QQ 199-233)

Alstom—Oral evidence (QQ 199-233)

Evidence Session No. 5. Heard in Public.

THURSDAY 14 JULY 2011

Members present

Baroness O’Cathain (Chairman) Lord Clinton-Davis Lord Haskel Lord James of Blackheath Lord Rowe-Beddoe Lord Walpole ______

Examination of Witness

Witnesses: Terence Watson [Senior Vice-President Europe and Central Asia], and Stephen Burgin, [UK Country President]

Q199 The Chairman: Good morning, Mr Burgin. Is that how you pronounce it? Stephen Burgin: It is, Burgin, yes. The Chairman: Thank you, and Mr Watson. Terence Watson: Good morning. The Chairman: Thank you very much for giving up the time to come here to this inquiry and also thank you for the evidence we have had from you. Members of the Committee with relevant interests will declare these. The session is on the record and is being webcast live and will be subsequently accessible via the parliamentary website. The witnesses will receive a transcript of the session to check and correct and this will be put on the public record in printed form and on the parliamentary website. I wonder if you could state for the record your names and official titles. Do you want to make an opening statement or do you want us to just start with the questions? Terence Watson: Thank you. I am Terence Watson, Senior Vice-President for Alstom Corporate at the head office in Paris and I am a railway man. Stephen Burgin: My name is Stephen Burgin. I am responsible for Alstom in the UK and I am an engineer. The Chairman: Thank you very much. Mr Watson, is your microphone on? You spoke very softly and some of us have hearing problems. Terence Watson: It is the opposite of what my mother usually says so that is very good.

11 Alstom—Oral evidence (QQ 199-233)

Q200 The Chairman: Thank you. I will ask the first question. Do you anticipate a significant growth in the provision of new international passenger services to the UK and across the EU in the next few years? I dare say you will say, “I hope so”. Terence Watson: I hope so. Yes, the pie is getting bigger. The Chairman: The pie is getting bigger? Terence Watson: I think it is getting bigger. I think the rail market share of that pie is growing so, yes, first of all. I would say the international component is growing more slowly, which means, of course, between countries with high-speed and, today probably, there are too few services. We see it as pretty saturated, the international aspect of that travel, and probably new services are needed, in a nutshell. We have some statistics for the UK and a good model on the high-speed lines. If you look at the 10 most popular air routes in the UK and the trans-placing of their passengers by rail services then it is quite a success story, and we are seeing that in other countries as well. Where there is speed and a rail option, there is a growth in service and there is a switch from air, predominantly, to rail in each of those cases. Where the speeds are slower or the distances are longer the swap-over from air to rail is less noticeable. Of course best case is the Brussels service of , Eurostar and so on, where as much as 90% of the service has switched from an air mode to a rail mode, which is great. The Chairman: Brussels to where, Paris? Terence Watson: Brussels to Paris predominantly but also London to Brussels.

Q201 The Chairman: Are there any blocks to that pattern of growth that you seem to suggest could be organic and normal growth augmented by problems at airports and greater road congestion? Are there any blocks on the continuing growth of the provision of all modes? Terence Watson: International? The Chairman: Yes, using the Tunnel. Terence Watson: Using the Tunnel particularly? The Chairman: Yes. Terence Watson: Perhaps I could just talk about Europe generally and then come back to the Tunnel, if that is okay. The constraints are the ones I am sure you will have heard of before in these hearings—the infrastructure constraints, interoperability constraints. Within the infrastructure there are boundaries that are being overcome by legislation and by technology so that trains can travel between countries smoothly and seamlessly. But the constraints are pretty big. If you look at the physical constraints—for example the infrastructure, electrical systems, catenary—they are different systems in many cases and for a train to have to travel across those countries seamlessly the train has to be able to cope with all those systems. So that is a primary constraint that the infrastructure is not yet, in many cases, constructed that can accommodate that. The second constraint I think is a more practical one. It is that when there is a service that wants to be run, the delay in getting that service operating, from the point of view of manufacturers, from the start day to the first passenger travelling, is a long time. If you look at the elements of that then you would have to say the manufacturing part of building a train is not the greatest. It is a relatively short period of time. It is at the very end of a process; the infrastructure can take a decade to build. The train obligation can sometimes take up to

12 Alstom—Oral evidence (QQ 199-233) two years, and we have records of that. So that is one major constraint. That is across the whole of Europe; it is not a British phenomenon or a Channel Tunnel phenomenon. As far as the Channel Tunnel is concerned, I would guess the limiting factors are probably the number of pathways and the access of competition. Competition is just starting on the Channel Tunnel so we will see how that develops. We do not have any experience of it yet, of course, in passenger terms but it is arriving now and I understand there are pathways. I understand there are more services per hour that can be taken through the Tunnel. The Chairman: Yes, many more. Terence Watson: I would not see that that is a particular constraint in the short term. Stephen Burgin: The technology is available. Speaking as a manufacturer, as we are, I think it is an important point that technology does exist. We do not see technological barriers and consequently in a way as an industry we are ready to go if the non-technical barriers can be removed.

Q202 The Chairman: Can I just ask for clarification? You said that there were problems with the electrical systems. How long would it take for standardisation to be effected throughout Europe or is that not going to be possible? Secondly, in your description of technology and technological barriers I take it you are not talking about electrical systems, because I inferred from your answer that the electrics could be a long way off. Terence Watson: I will take that. There are several systems. They will not change, so a 25,000 volt system or a 15,000 volt catenary system will remain like that. The question is whether the train can carry the technical systems on board to switch between the two. On top of that—I think I am right, I have a note of it somewhere—there are 25 train protection systems in operation in Europe across the countries. For a train to go anywhere, which is our dream—it is a dream we should all have—taking the freight example, they do not. Freight liberalisation occurred back in 2001. A train can go everywhere but it will be an expensive train. That will not change by 2020, but it will be improved. Stephen Burgin: I think another interesting dimension to this and one where the frameworks and agreements and legislation and things can assist is that it would surely be good that new infrastructures and new dedicated lines are working to a common standard, so at least we can start to realise a common platform with new infrastructure and not just increasingly fragment the marketplace. Terence Watson: Absolutely.

Q203 The Chairman: I am sure that is right, but you do not replace train tracks, do you? So there will never be a single system of electrics. Is that right? Stephen Burgin: I think that is probably fair to say. Terence Watson: I have a supplementary answer, and I think that brings on what Steve has mentioned. If you take the signalling system, and we have referred to ERTMS in our presentation, there are big tranches of standardisation, which will benefit everybody, still to come. So, there are some pillars to the development of Europe and if you look at international travel the majority of it, even in the short-term and medium-term future, will be between two countries. That is already long enough. If you can imagine a four and a half hour journey being a barrier boundary between an aeroplane and a high-speed train, let us just say—it is not exactly correct but let us just say that at that point the trade-off of the

13 Alstom—Oral evidence (QQ 199-233) business case is harder to prove—in that case it is very often between two countries or a third country but it is not 22 countries. That is the point.

Q204 Lord Haskel: You have told us about the infrastructure and technology barriers. Of course, there are a lot of EU railway packages that are designed to open up competition in the international railway services. How are these working? Are there problems as a result of their legislation or are there enough of them and the problem is the implementation? Terence Watson: I will take the first stab at it, Steve, then you can pick up. I think the legislation is okay. We are talking about Railway Package 3 now. There is Railway Package 1, which is probably a decade old, Railway Package 2 and Railway Package 3. Railway Package 1 I think focused on freight liberalisation. Railway Package 3 is focused on international passengers. It is just coming into power now—it is coming into force now, January 2010. We have no back history to look at and rely on to see how successful it has been. It is going to be able to be commented on in a year or two. We are cautiously optimistic but we believe as a summary: legislation is okay, implementation is weak. Why do I say that? Because of Rail Package 1. I think we have a record of some 21 countries that are still in infraction for not adopting parts of or all of Rail Package 1. So Rail Package 3 is in, the legislation is good, it is going to work, but it is a matter of how quickly we can get it adopted. Fair? Stephen Burgin: Yes. I think it is the implementation as opposed to the legislation.

Q205 Lord Haskel: How could the implementation be improved? Stephen Burgin: Perhaps we can come on to that when we are talking about the bodies and overarching frameworks through the ERA and other mechanisms but, yes, that should certainly be a priority in that agenda. The Chairman: Or would it be one of moving ahead quickly on the proceedings, the infractions? Stephen Burgin: Yes.

Q206 Lord Rowe-Beddoe: Good morning, gentlemen. You mentioned, before I get on to my question, that 21 countries were in infringement of Railway Package 1. Are there any major countries in that 21 that you could identify? Terence Watson: I think the answer is possibly yes. Lord Rowe-Beddoe: Like? Terence Watson: Well, I would suggest you ask other people visiting the Chamber to address that because it is not really in our territory. Lord Rowe-Beddoe: No, I am delighted to talk— The Chairman: It is not in the public domain, is it? Terence Watson: I think the infractions are public, yes, and you can look back. The Chairman: We will find them. Terence Watson: To summarise, yes, there are some substantial countries and you would probably find quite a few of the new European countries in the list as well, to be fair. Lord Rowe-Beddoe: Well, we do not have to be fair.

14 Alstom—Oral evidence (QQ 199-233)

Terence Watson: I also think it is fair to say some of the infractions are minor and some are serious, if you look at the range.

Q207 Lord Rowe-Beddoe: It is a delight to talk to manufacturers in this inquiry, because we spend a lot of our time talking to regulators and service operators and suchlike. May I ask what is your manufacturing capacity base in the ? Stephen Burgin: I will take the question on the UK. In the UK we employ over 6,500 people. We are in the fields of transport, electricity power stations and the grid interconnections. We have about 2,000 people employed in our transport business, the majority of whom are working in the maintenance and the upgrade of the fleets that we have put on to the network, most notably the Virgin , where the 52 Pendolino trains are of Alstom manufacture. The base train is manufactured in Italy and we bring it in and then we do a fit-out here. We are also manufacturing an additional 106 cars for the West Coast Main Line to make 31 of the existing trains longer by two cars, from nine to 11, and then we are providing four brand new 11-car sets. So the maintenance activity is predominantly around high-speed on the West Coast Main Line and on London Underground, mainly with the Northern Line. We have signalling—

Q208 Lord Rowe-Beddoe: The power cars, the engines, where are they manufactured, where do they tend to be? Stephen Burgin: We can manufacture and we do manufacture spares, traction parts, in Preston. We have a manufacturing facility in Preston. Today we are tending to use that more for upgrading and modernisation of traction units.

Q209 Lord Clinton-Davis: Who are your main competitors on the London Underground? Stephen Burgin: In terms of supply, Bombardier would be the primary competitor, maybe CAF in Spain. Terence Watson: I think CAF are bidding on future projects. The London Underground is predominantly, I think, today Bombardier and Alstom in terms of supply.

Q210 Lord Rowe-Beddoe: I trust that your manufacturing capabilities remain fairly intact in the United Kingdom. Stephen Burgin: Where we are today, with our manufacturing facilities, we indeed are maintaining them intact and, predominantly, it is more around service and support and parts and upgrade and integration, customisation, that type of activity. But similarly we have that on the power generation side, just to complete the picture, and on the grid side also we manufacture transformers in this country. Going back to transport, we are producing and manufacturing signalling systems—the company is called Signalling Solutions—in the UK in Borehamwood.

Q211 Lord Rowe-Beddoe: That comes on to the question I should have asked you. As a manufacturer, and I think it is very important, how do you think that the rail manufacturing

15 Alstom—Oral evidence (QQ 199-233) industry can help to overcome the problems of interoperability that clearly still exist right across Europe and are the biggest problems? Stephen Burgin: I will continue if I may, as I am in flow. The key issues in terms of the barriers, from our perspective as a manufacturer, are the ability to introduce new rolling stock, the acceptance and the meeting of all the different safety cases, provision of the infrastructure—we mentioned before about the signalling—and something as basic as gauge. But for us as a manufacturing company, what can we bring? Well, what we do have, of course, is we have technologies that span the different nations. We should take a responsible role in encouraging harmonisation, standardisation and functional technological platforms that can be used in different countries so that when we travel from one to another they will interface and we can manage across two zones. I think what we bring as a manufacturer is the technology and innovation. We bring a desire, of course, and everybody wants it, to have harmonisation, standardisation, so that we can get economies of scale. When we get economies of scale we are supplying lower-cost solutions and trains and then we are encouraging a more competitive open market and the opportunity for more players to enter that market. I think an area that is not perhaps highlighted as much as it should be in what we can bring are issues around the green agenda, carbon emissions, environment. When we design all our products and deliver all our products we are working very strictly to all methods we can to bring down the amount of emissions. We make our trains 98% recyclable, for example. Efficiency of our electrical energy supplies and the motors is much higher and there are other things like that. So I think the green aspect, the environmental aspect, is one again where we can bring a value to the rail sector, to the marketplace and support. The final role—I am giving a bit of a long answer—is we as a manufacturer can also act as a catalyst in terms of dealing with the national operators. We are at the point at which we have dialogues on an ongoing basis and hopefully we can help to bring and share best practice and behaving responsibly, with the longer-term view that we can try and get some form of common thinking. Terence Watson: Could I just make a complementary point? It is a very long answer and I am chipping in here, but I think it is worthwhile mentioning that, at this point of the European network and how it is going for high-speed, it is best in class and best in the world today. There is a danger it loses ground now. There is a danger that the future markets move to Asia and the potential for business is going to be outside Europe. The predominant market—

Q212 The Chairman: Manufacturing will move to Asia? Terence Watson: No, the clients, the actual take-up of purchase of new trains in terms of kilometrage of high-speed line— Lord James of Blackheath: Is that not good news for you? Terence Watson: Well, it will be if we can bring to the market a competitive, standard product. That comes back to Europe. The Chairman: Standardisation again. Terence Watson: Yes. Small, piecemeal orders for special things tend not to be internationally saleable. If you go back to the Victorian bicycle, best in class means you standardise quickly on a great standard and it becomes the international standard. We have to take a European perspective on that. 16 Alstom—Oral evidence (QQ 199-233)

The Chairman: Like going for Boeing as opposed to all sorts of other aircraft manufacturers as the standard. Terence Watson: Correct. It is a good analogy.

Q213 Lord James of Blackheath: Quite closely related to that, this is a question from the heart of an ex-manufacturer talking to manufacturers. To maintain your viability and your capacity for response to market demand, what is the minimum months of order cover you need to maintain your full operation? Terence Watson: Good question. Lord James of Blackheath: It is a question that has given me nightmares all my life. The Chairman: Hold on, this is an investigation into the Channel Tunnel. Lord James of Blackheath: It is relevant because we need to know how reliably they could have a downturn for a period of time and then still pick up for market demand and supply when it came. Stephen Burgin: If I can give a very quick answer, of course it depends what you are making and whether it is a commodity or a major infrastructure. There is a massive variability and similarly in our markets we have that. But typically Alstom has been operating with an order book of something in the order of up to 42 months forward, and that is just enough. Lord James of Blackheath: That sounds very minimal to me. Stephen Burgin: Behind that as well, of course, if we are looking at a maintenance contract, which we have with West Coast Main Line right now, that is running through to 2020 and again we—

Q214 Lord James of Blackheath: The point of the question for me is how far could you have a problem for a period of time and still be capable of picking up when there was a sudden resurgence of market demand so you maintain your role as a British leader? Terence Watson: Can I answer that, Steve? If we look at the European industrial base for Alstom, we have been through that twice in our recent life, not long term, and the most recent is the now period. We are in the middle of one where we have had to cope with a massive shift of demand and a turndown. There are two answers. One is to do with how quickly we can switch down an operation and keep it profitable, alive and useful and how quickly we can come back up. More than half the answer is based on the supply chain. The supply chain is crucial and it is something that we worry about every day. We procure a lot, we engineer a lot. Co-operation engineering is part of our lifeblood. The other half of the answer is our employees. On contracts we take on—

Q215 Lord James of Blackheath: What percentage of your supply chain is UK-based? Terence Watson: As a percentage of the whole of Alstom? Lord James of Blackheath: Yes. Terence Watson: I do not have that answer. Stephen Burgin: I could not answer that, but we can get back to you on it.

17 Alstom—Oral evidence (QQ 199-233)

Q216 The Chairman: I think it would be useful if you could. Lord James’s question is very good but we do have a time constraint. Let me just use 10 seconds to ask a question. You talked about the downturn, and it is a very worrying question obviously, but you do not only manufacture, you have maintenance contracts. What percentage of your total UK business is maintenance contracts? Stephen Burgin: Today the vast majority of our UK transport business is in maintenance contracts. Terence Watson: It is 70%.

Q217 Lord James of Blackheath: You cannot split your workforce between the production side and the maintenance side, can you? Terence Watson: In some cases no, but in some cases in fact yes, if we do an overhaul or an upgrade. Lord James of Blackheath: Let me put my question in context. The Chairman used the B-word, Boeing, just now. The order cover required at Boeing is 15 months, without which they fall flat on their face. You are in a rather better position than that. Terence Watson: But indeed one end of our business is nuclear power, so it is a far longer gestation. The Chairman: Yes, quite. So it is not the same at all.

Q218 Lord Clinton-Davis: How is the European Rail Traffic Management System being deployed at the moment and what do you have to say about the whole thing coming to fruition? Terence Watson: First of all, it is good. The ERTMS is a good thing and I would be surprised if any manufacturer, or even any operator, would come to this table and say otherwise. It is a good thing. It is generally a consensus-based need. There is a technology that is shared around Europe and there is a rollout plan, and indeed Britain is in the rollout plan. It is a small initial phase, involving the Cambrian Line. It is not a very well-known line but it is between Shrewsbury and Aberystwyth. It is a test pilot, and that is Britain’s first step into ERTMS. It will help you learn about the way it is used and so on. If you look at Europe the rollout is pretty good. There are ERTMS level 2 systems operating in six or seven countries now, dedicated lines of course in some cases. In some other cases, like Denmark, which I wish to highlight, they are currently bidding for the whole national operation of the country to switch to ERTMS, which is a dramatic step and we would see that in the bigger countries of France, Germany and Britain as being a later stage. One of the challenges is that when you do that every single train has to have the appropriate equipment on board it, so it is a very large investment commitment. That is the first thing. On international travel, ERTMS is now at the stage of first step, so it is moving from a national use to an international use, and trains are travelling between countries on ERTMS— Belgium to Holland for example, Holland to Germany and so on. So I would say that progress could be better. It is one of the things that will create a pillar for the future of European rail, absolutely. Our children’s children will be surprised we had some of these problems with investments now. I would say it is on the whole okay. Stephen Burgin: One fear with the multiplicity of pilots across different countries is that each goes off in its own direction, so again coming back to the point of the overarching ERA 18 Alstom—Oral evidence (QQ 199-233) or another body to co-ordinate and to establish standards that people can broadly work to so we can get alignment of those different installations while we gain the experience with the long-term goal of consistency.

Q219 Lord Walpole: Can I just ask you one question? I come along a railway line from Norwich to Liverpool Street and I believe our carriages are 40 years old now. I do hope you are going to be able to have an opportunity to replace them. It is appalling to run a train 110 miles with carriages that old and engines that cannot pull them because they cannot get away. Terence Watson: It is an astonishing statistic. Stephen Burgin: We would hope to have an opportunity to replace them. Lord Walpole: I had the opportunity to go up to Penrith the other day and travelling in one of your Pendolinos I thought, “This is what we want on that line.” Terence Watson: Fabulous. We agree. Stephen Burgin: We are ready.

Q220 Lord Walpole: Good. I am very glad. As the franchise is coming up, do keep your eye on it please, because I am fed up with it. The Chairman: Back to business with your question. Lord Walpole: Yes, exactly. Should the ERA have a stronger enforcement role or even the power to direct national regulators and is it feasible that Member States will agree to this? Terence Watson: Back to Stephen’s link, the question is quite a useful link. We believe yes. Let us just summarise. The ERA only came into force quite recently, I think with the Second Railway Package, so they are a new organisation. With the Third Railway Package the extent to which Europe develops is more substantial. With the rise of the Third Railway Package we have passenger services now at the international level. So the ERA we think has a developing role to play, yes, a bit. What we would not say is that they take over the role of a national authority. What has to be done and what has to be found is where there is an appropriate accommodation between the two in what they do. National authorities, of course, get involved in all sorts of things beyond safety and technical legislation, like economic value and fairness and so on. We think the ERA have a role more on the technical side. A good example is ERTMS where we would find maybe different countries applying things a different way. The ERA would be a great place to bring that back together. So, yes, the ERA has a role to play, whether it is in terms of balancing strength and power or whether it is just simply recognising that something has become much more complicated recently. We would prefer to tend to the latter, because of a complication that the ERA have a role to play. Lord Walpole: A more powerful role. Terence Watson: A more powerful role, yes.

Q221 The Chairman: More powers would have to be agreed at European level of course. 19 Alstom—Oral evidence (QQ 199-233)

Terence Watson: Yes, indeed. Stephen Burgin: And possibly moving it towards also an auditing role against given parameters, certain projects, for example. The Chairman: I am not so sure it is going to be politically advisable to suggest that we should give any more powers to an overarching regulatory organisation based in Brussels.

Terence Watson: That is a very good point. We understand the difficulties. The Chairman: We will have to tease it out, of course. Thank you very much.

Q222 Lord James of Blackheath: Now we have the Independent Regulators Group, how do you think they are going to go about the process of settling any differences in regulatory requirements that arise? I think you can probably only answer that if you suggest what the regulatory differences might be that will arise. Stephen Burgin: It is an interesting question and it extends into the role of this body in relation to whether it is a place of discussion and debate or whether it is going to have any form of power. Our experience in dealing with such groups, not necessarily in the transport industry but bringing parallels from other industries, is that it is probably a very healthy group to have. It is probably going to be appropriate for them as a group to identify the lowest common denominator, if you like—those areas where each regulator has a common interest—and not to try and encompass the whole remit of each regulator, because each regulator has different responsibilities in different countries. So, to narrow it, it can be a place of talking about consistency, harmonisation, sharing common issues and sharing best practice.

Q223 Lord James of Blackheath: Can I follow you up on one point? The Chair just asked a few minutes ago whether we were looking at the possibility of an overbearing regulatory presence arising from Brussels. Do you think this will bring about an upwards evolution of that authority as something to impose a decision on any disputes that arise as a result of this? Stephen Burgin: I think not. I do not think it will be and I do not think it should be in an overarching role. I think it needs to be a body that acts in a complementary way to other established bodies. Terence Watson: It cannot operate conflictually, if that is the point. I think there is a very good point here. The difference between talking with a regulatory group that shares its opinion on how certain things should be done and how it operates, and how that interfaces with its national regulatory group, has to be very carefully constructed.

Q224 Lord James of Blackheath: Before we leave the question, would either of you gentlemen like to put your money on what will be the first big regulatory dispute between various areas that will arise? Stephen Burgin: I think we would reserve our judgment on that. Terence Watson: But I will have a side bet with Stephen outside. The Chairman: We are moving on. We do not want to speculate. 20 Alstom—Oral evidence (QQ 199-233)

Stephen Burgin: Not in terms of which the issue will be but if there is an attempt to reach and to find a means of having a single voice of the regulator, which is probably going to be almost impossible, if it does move into a place where there is that sort of debate and conflict and difficulty then we perhaps know where the industry needs to target some more attention.

Q225 Lord James of Blackheath: Thank you, gentlemen. I have been given the next question as well. In the matter of TEN-T funding do you see whether this would be beneficially prioritised by being directed either at high-speed or at normal-speed rail, or is there some other category? Terence Watson: There is the TEN-T programme, then there is the core TEN-T, and of course within the TEN-T programme there are non-railway projects. As far as the railway projects are concerned, we are concerned honestly about lack of funding generally and the speed that these projects are moving at. Beyond that, to answer your question directly, it has to be high-speed. Why? Because invariably we are talking about cross-border projects and invariably we are talking about distance. So, if it is not high-speed you do not really replace existing modes. It does not take you anywhere further.

Q226 Lord James of Blackheath: What if I were to tell you that we have had some evidence given to us this week from the high-speed team that has suggested in their view it will not matter either way but that the concentration should rather be on the elimination of bottlenecks that will benefit both high and normal speed? Terence Watson: This was an international high-speed group or a national high-speed group? Chairman: High Speed 1. Terence Watson: HS1? Lord James of Blackheath: Yes. Terence Watson: Okay. Well, I am talking internationally, and that is a very fair point. They have probably made a very fair point for Britain, by the way, and we understand that. I do not know how that fits in with the TEN-T core programme for Britain. Clearly they have their lobbying to do and clearly they have their opinions. I think from our perspective as a company Britain is part of the TEN-T core. It stretches as far as the Baltics and on record I will say that it is very poorly adopted in the Baltics and there is a big programme of work to do in these places. When I look at what they have to do, I imagine they are thinking in some of these countries that high-speed is over 80 kilometres an hour. It is never going to replace other modes of transport and it is not going to bring more pie. There is not going to be a bankable project coming out of that unless it is developed properly. So what is that? We believe it is high-speed. You cannot get between capital cities of two different countries slowly except with a student rail pass and three spare days. So it has to be high-speed. We also have another argument and that is that the high-speed rail is very, very green. Steve alluded to this a moment ago, but the statistics are phenomenal. They are absolutely phenomenal statistics, and I have a couple here to mention for the record, it that is okay. They are about the energy consumption of an AGV—that is one of our new products, the distributed power high-speed train that we have in Italy. The reason I am commenting on that is because I know that train; I cannot comment on anybody else’s. That is it consumes a 21 Alstom—Oral evidence (QQ 199-233)

15th of the energy of an aircraft for a similar number of passengers, or you could calculate it per passenger on a full-train basis. In petrol terms, it is interesting to compare with a car— 0.4 litres of petrol per passenger per 100 kilometres is the train petrol equivalent, if you can suspend the disbelief part of a petrol train being electric. As for CO2, which is in everybody’s mind at the moment, an AGV emits around 2.2 grams per passenger per kilometre versus 153 for air. So we have a very strong view of polluter should pay. Q227 The Chairman: Those figures are extremely interesting because part of all our mindset is that people going by rail think it is going to be better anyway for the environment. We have to be careful, but I had no idea that was the quantum of the difference. Terence Watson: Yes, dramatic. The Chairman: Do you have those figures in written form that we could have? Terence Watson: Yes, we do. The Chairman: Would you be prepared to send them to us? Terence Watson: We would. The Chairman: That would be great. Thank you very much indeed.

Q228 Lord Walpole: We note you called for an increase in funding in international rail projects under the next Multiannual Financial Framework for 2014 to 2020, and the Commission proposes to earmark €31.7 billion for the transport infrastructure. Is this enough and are you hopeful that a significant proportion of the figure will be apportioned to high-speed rail projects? Do you think private investment can also be encouraged in rail infrastructure? Terence Watson: I will tackle the first question. It seems terribly naughty to be critical of €31.7 billion and say we would need more, first of all. So we understand there is an oddity in the reaction, but the scale of railway is phenomenal—€500 billion to run the railway in its current form today in Europe annually, so our operation is an expensive piece of machinery. As I understand it, the €31.7 billion is earmarked for the future funding period, that is 2014 to 2020, so seven years, and it is for transport. Inside that is rail, which has not been defined. Now, it has not been defined so there is going to be a fist fight of all these different modes of transport as to who gets what. It is extremely important, therefore, not to underestimate the evaluation. If you think of the number of countries and the number of years we are talking about and imagine that a proportion of it is earmarked for rail and work out the dividing, it can be as little as €50 million per country per year. You do not get an infrastructure project for that; you just do not. So when I say it is not enough it sounds unreasonable but it is not unreasonable. It is very important that we, as a rail industry, fight for the maximum possible, because if it drops to road or to air I think we lose something considerable. Stephen Burgin: The second question was associated with attracting the investment? Lord Walpole: Yes, attracting private investment. Stephen Burgin: Private investment, yes. It is very difficult to attract private investment into huge infrastructure projects where the upfront cost is so colossal. Most investors, of course, would prefer to buy or lease the asset once it is built and they can see in front of them long- term, guaranteed, consistent revenue streams—predictability. There is not such an appetite to take on construction and construction risk and to finance that.

22 Alstom—Oral evidence (QQ 199-233)

Q229 Lord Clinton-Davis: Why? Stephen Burgin: Because you are not getting the return on your investment until much further down the road, and particularly with rail infrastructure there are many potential barriers and standards and agreements to reach in order to get the infrastructure up and running. There could be indeterminate times between starting the project build and getting to the point where you have the first train running. To be quite frank, the investor wants to be at the point where he has the first train running and can just see the returns. So that is where Government, of course, has to have a role. PPP is one mechanism and at the moment I think there are three or four projects that are being looked at in Spain under a PPP scheme. Lord Haskel: In the UK? Stephen Burgin: No, in Spain. Terence Watson: Those are Spanish but they have overcome constraints of funding by proposing four PPP schemes for signalling on their high-speed network. I think the first one or two of those are in tendering. So it is realistic, it is not impossible to imagine that private investors will enter the fray on the high-speed infrastructure, but the track is already built. It is important. Steve made the point regarding clarity and certainty and you can follow the process through. If there is no tracking in a country at all, it is highly uncertain; if there is tracking, you are looking to build it up and it is more certain; and at the point of time you are putting the train on the track, it is absolutely certain. So we see a diminishing risk profile. Stephen Burgin: We have a similar challenge in the UK in the energy market. We need to attract £200 billion investment in the next 15 years into our electricity power generation and infrastructure, and Government has in fact issued this week the White Paper for the EMR, the electricity market reform package, in order to establish new market conditions, which will hopefully attract that investment and meet the security of supply and the climate change targets as well. For all infrastructure projects it is a combination of creating the conditions to attract the investment and that is where the Government has a role of course.

Q230 The Chairman: Can I just ask you a question? If, as you say, the €31.7 billion seems to be pathetic because it is over the whole of transport, do you have a railway lobbying group that demands that the Commission gives you some indication as to where rail is as part of that €31.7 billion? How else are you going to be able to plan for your infrastructure? I just do not quite see how the Commission can get away with—and I think it is something we had better look at—just shoving in a figure like €31.7 billion without making any indication as to whether it is going to be air, sea, road, rail or whatever. Terence Watson: We do have a lobbying group, a representative group in Brussels, and we do take these problems forward. UNIFE is an example of a supporting group that would represent the whole of industry. As manufacturers together we do not talk, it is not allowed, but our interests are similar. We need to make sure there is funding. The Chairman: Of course, you need to plan. Terence Watson: So it is a very good point. What we are anticipating on this €31.7 billion is that with the first floating of this idea these notional figures will become clearer. Clarity will arrive as the date becomes nearer. We will take your point and I could even suggest we

23 Alstom—Oral evidence (QQ 199-233) could send you a paper on the recommendations that have come, I think, from UNIFE on the matter of the investment. The Chairman: I think that would be very helpful, because we will have the Department for Transport as witnesses and I think we are getting the Minister, Theresa Villiers.

The Committee suspended for ten minutes for a Division in the House.

Q231 The Chairman: Lord Clinton-Davis, your hour in the sun has just come—at least your five minutes in the sun. Lord Clinton-Davis: Have I kept you all waiting? The Chairman: Never. We do not waste time even when we are waiting. Lord Clinton-Davis: Talking about the possible improvement of the pan-European booking system, rail booking, information and so on, what do you suggest there? Terence Watson: We cannot comment too much on this, because it is not a business area we are really in and I can imagine the operators would be very upset to hear me say what I am going to say. There is no technical constraint. You can make these systems work, and you have to look at the airlines as an example, but there are obviously issues that are not purely technical. These operators talking together is going to be one of the big constraints. The system solution should exist. Variable pricing, of course, is a big problem for everybody, no different from in airlines. I think that must the extent of our answer: technically you can do it, so it is about the will. Stephen Burgin: It is the will and the direction. The Chairman: There is protection of jobs in certain companies, too, I suspect.

Q232 Lord Walpole: This is the final question. Looking ahead to liberalisation of domestic rail passenger services, as proposed in the Commission’s transport White Paper, is such a measure likely to have significant implications for domestic rail markets? Terence Watson: First of all, you would not be surprised to hear that we would advocate, in all cases, liberalisation. We believe in all cases it is a good thing. We cannot see particularly why liberalisation of services—maybe not British style—could not be further developed more rapidly. Today the situation is what it is and we would say that it is open to questions of things like transparency, fairness in procurement and all those things that are difficult to address, maybe even challenges of favouritism—all that stuff. If you look at the UK, and in some cases it is absolutely not the best example but in this case it probably is, here we have—through a laboratory exercise really, which was a bit dangerous because we did not have glasses on and gloves, but the laboratory exercise in the end has worked—a privatised railway that has brought oodles of new money and in the end it has brought a massive increase in ridership. But what does it bring as well? It brings a risk on safety, and we have seen that in the UK, so it is nothing new for the panel. It means that legislation has to be very carefully looked at and rewritten and considered, which perhaps in some countries in Europe is a completely banal question for them, as they do not have an understanding yet of what this privatisation would consist of. Questions of strategic assets like depots, which was one of the questions we had to address on the West Coast Main Line. When that was privatised and we took the

24 Alstom—Oral evidence (QQ 199-233) business for the West Coast Pendolinos, we had six depots to take over, novation of staff, upgrading of the asset so it could be used as a depot for a modern train and so on and so forth, and what we found was not very . But we had access to the depot, decreed by a legislative process. So the first point is that private operators require access to strategic assets. The second point is that safety goes from something innate to something that has to be enforced in a different way and applied in a different way. When it comes to the separation of the relationship, which is in the railway package, of the Government to the track manager, the infrastructure manager to the rail operator, I repeat that 21 countries have not yet got there. When they do, all those points have to be restitched in contractual form; they have to have a way of working together that is not verbal or oral. So there is work to do in all those areas. When it is cross-border and international, which is what we are really looking at here, we are talking about strategic and political aspects to be considered as well. So there is a burden in moving to a private operating modus operandi in a country for the national operation. There is a burden on top of that for private operation internationally. You can see there is a two-step problematic here. At the moment it is fair to say that, apart from Eurostar and one or two other examples, most international high-speed passenger services are still state- operated and the negotiations are between a state and another state to run a service, which is relatively simple and has not proved to be very effective in terms of developing the market. We should not put private operators into that domain without giving them the access and some overarching power to stop the meddling and the fiddling that might go on—inadvertently, possibly, at the level of a state enterprise. Again, the legislation exists but the implementation is probably the weak point.

Q233 The Chairman: That was very useful. Thank you very much indeed. Although Lord Walpole has said that his was the final question, mine is the final question. The question is: what questions do you think we should have asked you that we did not? Stephen Burgin: We probably have a list of 50. We had obviously discussed in detail all the areas that you may have asked about. The Chairman: I am giving you an out actually, because I was thinking if it does strike you that we have missed something really core and something that would help us in coming to the right conclusions about all of this and doing a good report, which of course is our number one priority, would you get in touch with us? Stephen Burgin: Yes, I think what we would like to do now, following this hearing, is to reflect on the questions that you have asked. We will also look at the other areas where perhaps we could add some value and we can come back to you with those points. The Chairman: That would be most appreciated, thank you, because I am certainly an amateur and you are professionals and there could be some glaring holes that we have not thought about. This is new to us. Just a final comment: you said the British might not be too enthusiastic about the liberalisation. Do not forget that we started the single market, and certainly that is in our terms of reference—the internal market in transport and energy. Thank you both very much indeed for a splendid session. Terence Watson: It has been a pleasure. Thank you very much.

25 Lord Berkeley—Oral evidence (QQ 300-330)

Lord Berkeley—Oral evidence (QQ 300-330)

Evidence Session No. 7. Heard in Public.

MONDAY 12 SEPTEMBER 2011

Members present

Baroness O’Cathain (Chairman) Lord Brooke of Alverthorpe Lord Bradshaw Lord Clinton-Davis Lord Fearn Lord James of Blackheath Lord Plumb Lord Rowe-Beddoe Lord Ryder of Wensum Baroness Valentine Lord Walpole ______

Examination of Witness

Witness: Lord Berkeley [Chairman, Rail Freight Group]

Q300 The Chairman: Lord Berkeley, welcome. Thank you very much for coming here. Members of the Committee with relevant interests will declare them. The session is on the record, being webcast live, and it will be subsequently accessible via the parliamentary website. You will receive a transcript of the session to check and correct and this will be put on the public record in printed form and on the parliamentary website. Now, could you please state for the record your name, official title and whether you would like to make an opening statement? Lord Berkeley: Thank you, Lord Chairman. My name is Lord Berkeley, Tony Berkeley, and I am Chairman of the Rail Freight Group. I think you have sent me a list of quite a few questions and, if it would be helpful for the Committee, it might be easier if I wrapped up at the end on anything which I did not think I had been asked and I wanted to say, rather than giving a long speech now. I am in your hands though. Q301 The Chairman: That is very good. Thank you very much. I always ask the final question, “Is there anything that we did not ask that you think we should have asked and can you answer it?” so thank you for that. I am going to ask the first question. Do you think that the future is promising for the development of international rail passenger and freight services throughout the EU? Lord Berkeley: Yes, I do. The European Union’s liberalisation proposals, which I know the Committee has been studying at length—they cover legal, commercial as well as technical liberalisation—I think when they are achieved, and they have made progress, will make the increase in international passenger and freight services grow significantly. The evidence is

26 Lord Berkeley—Oral evidence (QQ 300-330) strong when you compare countries that have liberalised, like the UK where our traffic has grown, passengers and freight, by about 50% in 10 or 12 years, to many other member states that have not liberalised and where the traffic has gone down. I can give further information about this but I think it is probably known. The Chairman: Yes, thank you. If you did have any readily available printed information, it would be very useful if we could incorporate some of it in the report. Thank you. Q302 Lord Plumb: On that, could I ask whether some of the new countries, the east

European countries, have been a bit of a drag on development, or are they up with it?

Lord Berkeley: There are two parallel things happening. One is that in the 20 years since the fall of communism, of course, when nobody was allowed to own a car much, the growth of car ownership has increased dramatically, as has the freedom to run trucks. Sadly, most of those countries have not built many roads to cope with them, and you can understand people wanting to own cars after what they have been through. The problem is that the investment in roads and railways has not kept up. I have been quite involved in going to Poland and Romania, mainly on railway business, and both countries have failed to spend the money granted by the Commission on accession because they failed to get railway projects up and running. They are trying to transfer the money from rail to road and the Commission is trying to stop them, and there is a big row going on in Poland at the moment over that. But with that background, the potential is still there and what it needs is a decent railway, a decent infrastructure to cope with the extra traffic, competition and all the things that are in this recast to enable it to grow. It is very variable between different member states but the potential is still very much there. Lord Plumb: Thank you. Q303 Lord Ryder of Wensum: I was wondering whether or not you shared my view that in view of the fact that freight liberalisation was heralded in 2001, and indeed has been given a great deal of emphasis since then, it is not unreasonable for the Commission now to concentrate rather more on passengers than freight. Lord Berkeley: I think that is true. The problem is that the freight liberalisation has not happened yet. There are still these infraction proceedings going on. I think it is against 13 member states, including some that are probably about to start on the Channel Tunnel— sorry, on the British and French Governments in respect of the Channel Tunnel. This is why the recast is going ahead at the moment, because the member states have not generally implemented the legislation that they passed in 2001—and back in 1991 when it started actually. So the Commission wants to finish this off. However, liberalising passenger will probably be even more political and more difficult than freight. I think the plan of the Commission is to start next year with the passenger liberalisation and to try to finish the infrastructure issues, such as total separation of the infrastructure from the operations, as part of the passenger one, so to speak, because I do not think they are going to do it in the present negotiations. So, yes, they should get on with the passengers but the freight is not finished yet due to the obstructions of most member states frankly. Q304 Lord Ryder of Wensum: Is there anything else that you would like to say about the proceedings on the problem with the Channel Tunnel and freight? Lord Berkeley: There is a great deal I would like to say. The Chairman: Is it sub judice? It cannot be.

27 Lord Berkeley—Oral evidence (QQ 300-330)

Lord Berkeley: It cannot be. Madam Chairman, it is not sub judice at all, it is just that the British Government do not want to give out information. I have tried to get a lot of information under the Freedom of Information Act and I have sent one or two responses to the clerk. Frankly the last one was a bit of a joke—it is four pages of reasons why you cannot do anything or you might not be able to do anything. To try to answer the question, the Commission has sent the first document to the two Governments, called an EU pilot—I expect you have seen it—saying that they believe that the Channel Tunnel infrastructure and operations do not comply with legislation 1991/440 and 2001/14, in particular, on the independence of central functions, accounting separation, rail access charges and lack of independence of a regulatory body and capacity allocation. Those are all very, very serious issues which need to be resolved before there is proper competition. Levying of the charges is just one thing, but there are all these legal issues— then there is the safety issue, which we can talk about, but all these need to be resolved and the British Government has not responded to any of them. I am informed by people in the Commission that we should expect to see the next stage of the pilot—it is not called a pilot; it is the next stage in the infraction proceedings—quite soon. I certainly would hope that they do proceed until this is resolved because it is pretty stupid that this is not done in our country, the first country to liberalise, in our back yard. Q305 The Chairman: With your contacts with the Commission, and obviously having worked on all of these, would you give an educated guess as to when we are likely to be free from all this and it will all be sorted out? Lord Berkeley: Is this in respect of the Channel Tunnel that you are talking? The Chairman: Yes. Lord Berkeley: Well, as you probably know, infraction proceedings take a long time— The Chairman: That is what I was thinking. Lord Berkeley: And they have hardly started with this one. As you will be aware, I think, from the Minister’s evidence, the British Government is not very enthusiastic and I suspect the French Government is not either. Let us assume that the next letter comes before Christmas. There will then be, I think, two months in which the Governments are allowed to respond, but they will probably ask for extra time because the Anglo-French have to agree what they say. But if it goes on, I would expect within next year, 2012, if the Commission did not get satisfactory answers on all these things—and the issues may change, as we have to expect; this is the first one, but the issues may change—then there will be serious infraction proceedings starting by the end of next year unless the Government changes its policy and Eurotunnel agrees. Q306 The Chairman: Just saying it did not change its policy and if they did have infraction proceedings, how long would they take? Lord Berkeley: Based on what has happened with the other 13 member states, my friends in the Commission say about two years. That is the European Courts of Justice and I am no expert on that, but it takes time. It also brings big embarrassment to both Governments— any Government—and I think they will try very hard to avoid it and I hope they will. But I hope they will do it properly. The Chairman: Thank you very much indeed. That is very illuminating. Any more points? Anybody else want to make a point on that one? No. Q307 Lord Bradshaw: While we are talking about the EU rail packages, what I think the Committee is very interested in is what is going to happen in the Channel Tunnel as 28 Lord Berkeley—Oral evidence (QQ 300-330) opposed to what might happen in Poland or wherever. When you read the Minister’s evidence, she talks about the market determining the demand for freight through the Channel Tunnel and she also talked about the need that would arise for the taxpayer to pay further subsidies. Do you have any views on those? Lord Berkeley: Yes, many views. First of all, for the Minister to say that the charges should be what the market decides, that is not what the legislation says, it is quite clear. If I can refer you to Article 8 of Directive 2001/14, which I can give you—I am sure all the Committee have read it—it says quite clearly that the freight charges should, as a minimum, be what the market can bear. It then goes on to say that the infrastructure managers may increase the charge, and for things like the Channel Tunnel, which are new and privately funded projects, that would help the return on the investment. But it must not be any higher than any market segment can at least pay the cost that is directly incurred as a result of operating a rail service, which is basically marginal cost plus whatever the market will bear. So it is not up to the market to decide; it is up to the infrastructure manager, which is Eurotunnel, to comply with this legislation. If it wishes to charge more, first of all it has to demonstrate what its operating costs are in respect of rail freight. I am sure the Committee will recognise that, with rail freight and rail passengers using the tunnel, it is just a straight two tracks with the odd crossover. The shuttle service with all the terminals and the loops and everything requires much more maintenance, much more complex signalling and a significant capital expenditure. The costs of that should not be attributed to rail freight or rail passenger. We have not seen any evidence about the split of costs—that is the first thing. Once we have evidence of the costs—and that is why we should have transparency— they should provide evidence of what the market can bear on top of the costs and what they can charge. You will have seen, I hope, a letter from MDS Transmodal last week that gave some indication of what they think the market can bear compared with the charges at the moment. I personally think that is in the right order and if Eurotunnel cut their costs by a third—it sounds a lot—that would be a good start. They would get a lot more traffic. Perhaps I should then talk about the subsidies that the Minister talked about. What she says is that any reduction in charges would need additional subsidies. In so far as there is any subsidy for rail freight, which is a bit questionable, it would not change however much traffic there was—it is a sort of fixed figure, which comes out of the negotiations from the minimum usage charge about five years ago. If the charges come down, one would expect the traffic to go up, because that is how a market works and that is what the MDS letter said. I just do not accept that it would put additional cost to the taxpayer at all. I believe that the traffic would go up pretty dramatically. We have seen traffic going up in many parts of Europe on rail freight, particularly here but also through the Swiss tunnels. New figures came out last week on the extra traffic through the Swiss tunnels by rail. I am afraid I just do not agree with her. Q308 The Chairman: Can I just ask, as a supplementary, whether there is any system of arbitration, because it is virtually a cartel, isn’t it? They have monopoly positions, Eurotunnel on freight and passengers, because they are a monopoly. Is there any arbitration mechanism whereby they can appeal to the arbitrator to give a judgment as to what is fair and reasonable in the circumstances? Who do they appeal to if they think they have been totally ripped off? Lord Berkeley: Yes, you mentioned the word “cartel”, Chairman, and that could be right. Eurotunnel, of course, is in several bits: its infrastructure, its shuttle operations—passengers and freight—and its freight operations now. Transparency between them of course is one of

29 Lord Berkeley—Oral evidence (QQ 300-330) the issues that I think people are very concerned about and that the Commission is concerned about. However, the point that you focused on was one of the other things that the Commission is looking at, which is a lack of independence of the regulator. The regulator is the Intergovernmental Commission at the moment, which is part of Government. Government may not think it is in its interests to unravel this. I know that the Office of Rail Regulation provide technical and commercial advice to the IGC, but whether the IGC follows it, I do not know. Whether the Committee has come to that conclusion, I do not know. In theory there can be an appeal but in practice if the regulator is the IGC and the IGC is part of Government then it is not independent as is required under 2001/14. I know that the ORR part of it is looking at all these issues and people can make complaints and they can protest that there is no transparency and the cost of this that and the other, but until these things are published and we can look at them, and there is separation, then the position is not as we have in the rest of our rail network here. We may not like it but it is at least transparent and the regulator is tough. The Chairman: Yes, quite. Q309 Lord Brooke of Alverthorpe: I was going to ask you some questions right at the end of the session on the issue of the rail usage contract, but as it has come up now, if I may, Chairman, I would like to just follow the point through. You have firmly rejected the argument that was put to us by the Minister, but have you raised these points directly with her and, if not, will you do so? Lord Berkeley: I have raised them with her and with officials many times. In fact, I think I put out a press release some time ago suggesting that the Intergovernmental Commission should be abolished completely. That may have been slightly over the top but I wanted to focus attention on the fact that the IGC does many things. It does these legal and commercial things we have been talking about, but it is also responsible for the safety and the technical limits—I would like to talk about that at some stage. It then has security, immigration and all the other things, and I think if one focused on the legal, commercial and technical things there is no argument at all for keeping the IGC’s responsibility here. We now have a European standard on many things, we have the European legislation and, on the technical side, we have technical standards for interoperability that cover long tunnels—the Channel Tunnel is a long tunnel but it is not the longest in the world. I believe it would be much better if we had one trans-Europe system for all these things and allow the two regulators, the British and French ones, to work together on the tunnel, because every time you have something special you add cost. May I give you an example? It is a technical one but it is relevant. In the original safety regulations, in the Channel Tunnel a freight train has to be able to push another train out of the tunnel. The Intergovernmental Commission safety people said, “It is terribly important you should do this, it is safety”. I said, “It isn’t, it is operational. If a train has broken down in the tunnel, you know, okay, other trains can’t get through; it is not a safety issue unless something nasty happens, but prima facie it is an operational issue. So why do you have to have a special locomotive that can push another train out of the tunnel?” I believe that it even has to be able to do that when half of the locomotive is broken down, because the locomotive also has to have two separate power packs. This means that only one type of locomotive can use the tunnel at the moment and only two operators own that, one of which is Eurotunnel and other is DB Schenker. Why should other people’s or other types of locomotives not be able to go through?

30 Lord Berkeley—Oral evidence (QQ 300-330)

The European Railway Agency said, “No problem at all.” You will have read their papers, I think. IGC said, “Well, it is safety.” I said, “It isn’t safety.” You can go on with these things. They may then say, “It is a very dangerous tunnel, it is underneath the sea, it is very long,” but perhaps I could just remind you that there is also a new tunnel under the Lötschberg Pass, which is not quite as long as the Channel Tunnel—it has been operational for a year or two now—and in about three or four years the Gotthard-based tunnel will open, which is 20 kilometres longer than ours. In building the Gotthard tunnel, they knew that there was a 20-metre wide vertical fault full of pea gravel, which is gravel of one particular size, so the amount of water that will come in there is just horrendous, and it probably has 3,000 or 4,000 metres of head pressure on it, but the Swiss are dealing with it. You do not have 3,000 or 4,000 metres of head on the Channel Tunnel because it is only about 90 metres below the sea bed, so you have 90 metres of head. These are things that are designed out. There is nothing very special about it, it is just an ordinary long tunnel and there is a standard that deals with it, a European standard, so why do we not comply in the first instance? Have I answered your question? Lord Brooke of Alverthorpe: Yes. The Chairman: You have taken the wind out of all our sails. Q310 Lord Brooke of Alverthorpe: The second question relates to what you said earlier. You mentioned that in your opinion Eurotunnel could cut its costs by about a third. Linking this to the arguments that the Minister advanced, is one of the fundamentals behind all this not the extent to which Eurotunnel is profitable or not? There is a desire for Eurotunnel to maintain its level of profitability at broadly the present levels because there are people with an interest in that. Lord Berkeley: Eurotunnel is a private company quoted on the Stock Exchange. I do not think that it is Government’s role to ensure that they have a particular profit or return on their capital. I believe, first of all, that Eurotunnel and the Government should comply with the legislation, as I have said before. I do not think they need a special case or special treatment. I think they could make a good profit if they increased the volume of freight and reduced the price, because if you reduce the price you will get more freight, and they would probably be very happy. I do not know why they have not done it. I am sure you can ask them that. But when you see the trucks going down the M20 in Kent, you can count them. The last time a friend of mine did a count, they reckoned they could have filled 200 freight trains a day, and there are five going through at the moment. I would suggest that there is something very wrong there. The market is not working and that is because the Government is somehow mollycoddling them, giving them special treatment or something. If the Government will not do it, then the Commission has to do it and get nasty. I believe Eurotunnel will, in the end, say, “Well, that is a good thing.” Q311 Lord Walpole: Chairman, could I get this thing clear about trains? Are not all trains virtually the same length and tonnage and have two engines on them? How many of them per hour can go through and how much more space is there than is used at the moment? Lord Berkeley: Are you talking about freight trains? Lord Walpole: No, I am talking about everything that goes through the tunnel. The Chairman: All trains. Lord Berkeley: As you all know, I used to work for Eurotunnel and I used to have this off pat. As far as I remember, the tunnel is signalled for about 24 trains an hour in each direction, of which half are the shuttles—passenger, freight, trucks, trains and so on. That is 31 Lord Berkeley—Oral evidence (QQ 300-330) assuming that they go at virtually the same speed. They do not quite but if they were to go at the same speed you would get more in there. Of the 12 trains that are passengers and freight through trains, the original forecast for freight was 40 trains a day—I am sorry if I am jumping between hours and days—with more trains at night. I cannot remember how many original ones there were for passengers but I can probably dig it up and write to you on this. What I am saying is that the capacity is for 12 trains an hour, passenger and freight, through the tunnel, day and night, with some servicing period and a reduction in capacity at night— there is a big capacity available there. With 40 freight trains a day, there is also capacity on the existing rail network as far as Willesden on one of three routes. Now, of course, we are allowed to operate up the high-speed line—it is not very many yet but it will come. So I would suggest that there is very significant available capacity for freight—40 a day was what was forecast at opening, but it should be 60, 80 or something. There are five to six a day. You asked about the train lengths. The standard length across Europe is 750-metre trains but there are not many places in the UK that can accept them. If you cannot shove them in a siding to let the express train through because the sidings are too short, then you have to run shorter trains. We are getting quite long trains through the tunnel—less than that but they are not too bad. In the long term, the French railways have announced a plan to try to have 1,500-metre trains. Obviously the longer the train, the better. We would probably have a job, but if Network Rail can do it and the network can do it, the longer the train, very much the better. They are all different weights, of course, but the big growth is going to be in container traffic. Containers are containers as long as they are 9 foot 6 inches high and there is a route in there. In the UK we expect the traffic to grow by about three times in 20 years and other trains should follow. They all fit quite well together. If they all went at the same speed, you would get even more, but it is coming. Lord Walpole: That is a very helpful answer. Thank you very much indeed. Q312 Lord Fearn: Should the ERA have a stronger enforcement role, or even the power to direct national regulators? Lord Berkeley: It is a very good question and my gut feeling is that it should, but I just temper that answer with a comment about the regulators in general. Three or four years ago I think I was instrumental in arranging the first meeting between the German regulator and our regulator. It was an unofficial meeting, just to get to know each other. The German regulator is a very efficient regulator but he suffers from not being able to get any documentation from the infrastructure manager about its costs. He is still required to set the charges but if he does not have the information about costs he has one hand tied behind his back, shall we say. They have taken this forward with other regulators, forming eventually—earlier this year—a more formal grouping of regulators across Europe. This is very much to be welcomed. There are one or two people who want to have a European regulator but I think we should try a bit harder with the system we have at the moment before trying to have a European one. The problem is that if one looks back to regulation of network industries in this country, how long have we had them? Twenty years? It has taken us probably 10 to 15 years to get a regulatory practice going across all these industries. Here is one expecting to get other regulators to pick it up and do all these enforcement things immediately without any case law or anything else. So I think the ERA certainly should have some role in this—I am not quite sure what yet—because, if not, the regulators are going to struggle. The Chairman: Can I just interject? I think this is now trespassing on the question, or it is combining with the question, of Lord Clinton-Davis. 32 Lord Berkeley—Oral evidence (QQ 300-330)

Lord Fearn: Sorry. The Chairman: No, it is okay. Lord Fearn, what do you think looking at the questions? Lord Fearn: It probably is, yes. The Chairman: Yes, I think so. Can we do those two questions together? You have asked your question, what about you, Lord Clinton-Davis? Q313 Lord Clinton-Davis: First of all, I should say that in our halcyon days Tony Berkeley and I worked together on transport, albeit in opposition. My question relates to the role of the Independent Regulators’ Group. How significant do you think that is and how can the differences in approach by national regulators best be overcome? Lord Berkeley: It is very significant. The most important thing is that the regulators are independent of Government or anybody who funds anything to do with the railways, which is what it is in this country, as in other industries in this country. Each regulator will have to operate in accordance with their national law and the national law will have transposed the directives in different ways, depending on sometimes the political pressure that the incumbent railways put on their Governments. The role of the regulators’ group is absolutely fundamental. They have to help each other and they have to look at best practice. They have to give support when things are going wrong in one particular member state. They will say, “Well, we have done it this way.” As you will know, the Commission, our Government and some European Parliament Members in the recast are trying to give the regulators an even stronger role because they see that as preferable to the Commission doing it or to member states doing it. I think that is probably going to work and I think it needs encouragement. If in five or 10 years’ time it has not worked then one looks at it again, but I think it is the best way forward at the moment. Q314 Lord Clinton-Davis: When you have consulted the transport people in the Commission, what are they saying at the moment? Lord Berkeley: On that issue, they support it. They are very happy with strengthening the regulatory regime because they have their cost reduction plans, the same as the Government has, so they do not want to take on any more work but they want to make sure it is going to happen right. This is a way of doing it. Q315 Lord Clinton-Davis: How are they examining the position? Lord Berkeley: There are 750-odd amendments put down by European Parliament Members to this legislation. The European Council is looking at them and the Commission is looking at them, and they are all trying to come up with the usual compromise that they have to. There were two amendments put down by three French MEPs that Eurotunnel should be exempt from all legislation, so I had to try to stop that one, too. I think the Commission did not think too much of that either, but this is the parliamentary process that we all love. The Chairman: This is democracy. Lord Berkeley: Yes, Chairman. The Chairman: Thank you very much. Are you satisfied, Lord Clinton-Davis and Lord Fearn? Good. Q316 Lord Plumb: You have covered some of this, I think, already. We received conflicting evidence regarding the efficacy of the current governance arrangements for the Channel Tunnel as stipulated in the Treaty of Canterbury—the treaty of course that supersedes the treaties that were there before relating to transport. There were some,

33 Lord Berkeley—Oral evidence (QQ 300-330) including the Government, who we believe, from the evidence we received, prefer the status quo, while others would like a fundamental overhaul. Can you give us more thoughts on that? We note in your paper that the IGC has taken no action to ensure compliance. That is not surprising from what you have said already, but why is that and should it, in your opinion, be abolished? Lord Berkeley: Lord Plumb, I will not repeat what I have said in response to some other questions but let me just add a few words on that. One has to recognise that the IGC was basically set up under the Treaty of Canterbury, as you have said, which was in 1985, I think—a long time ago. There was no experience then of transmanche transport services and this was the first time that the water frontier around our coast had been pierced. You may remember some of the jokes at the time. All the government departments had to start off by thinking of reasons why it should not happen but once it was happening they had to think of how to deal with all these different things: immigration, customs, Ministry of Agriculture regulations, which you probably remember from your previous existence, as well as all the legal things and the train operating things. It was based on two nationalised industries having a kind of joint venture, and SNCF, and it all worked fine for that because they were one happy family. Unfortunately then the Government decided to privatise British Rail freight and that was sold—it was called Rail Freight Distribution but it was sold to EWS Railways, who said, “We are not going to pay all these guaranteed minimum charges that British Rail were happy to pay,” which were put in there as a back-door government guarantee, as we all know. Basically on freight, if there were fewer than 40 trains a day going through the tunnel, then the British Government funded Eurotunnel as if there were 40 trains a day. It was a fixed cost. The same, I think, happened with the passengers but I cannot remember the numbers now. When that happened in 1985 or something, DB Schenker, or EWS, said, “We are not going to do this,” so there was a deal done between the Government and DB Schenker and Eurotunnel. With SNCF, I am really not sure what happened there at all. But that was the first stage of, “Look, this structure is not any more compatible with a liberalised railway, European railway,” that the Government also signed up for through the Brussels directives, “and it just doesn’t fit because you have competition.” You will have heard from DB about the difficulties they have had in trying to get a service through the tunnel. The agreement on passengers is that Eurostar pay Eurotunnel about £25 for every passenger they take. I do not know whether DB have the same arrangement, but if they have not that is highly anti-competitive. We have got two operators going through the Channel Tunnel now, DB Schenker and a Eurotunnel subsidiary, which is GB . I do not know whether they pay the same amount. There is no transparency. But other ones would like to go through too. Also, of course, as I said before, the safety issues have moved on with the European ones. We have all learnt a great deal. We have learnt why the three fires happened, and I think lessons have been learnt from that. I think the IGC, as it was originally created, is no longer fit for purpose. That does not mean to say it should be completely abolished, because the things outside the legal and the safety things possibly should continue as a way of making arrangements between the countries and the two Governments. But for the train operation side, safety, legal, commercial, I think the time has come to move on. Q317 Lord Clinton-Davis: When I was Transport Commissioner between 1985 and 1989 I cannot recall a single occasion when the Treaty of Canterbury was raised in the Commission. Don’t you think that is rather surprising?

34 Lord Berkeley—Oral evidence (QQ 300-330)

Lord Berkeley: Not particularly, with respect, because 1985 to 1989 was the period of construction of the Channel Tunnel and the treaty had been signed, the Intergovernmental Commission was being formed and most of its work was towards getting the safety approval for the design and the operation of the tunnel, which got extremely complicated. There was a battle royal with the ferries, as you will recall, over safety. They called it the longest crematorium in the world until the “Herald of Free Enterprise” disaster, when I am afraid I said to Harbour Board, “Do you want to have a crematorium or a watery death? Let’s stop this stupid debate.” But they were concentrating on other things. It was only when they got to the opening of the tunnel in 1994 that I think some of these things started to surface and a few years afterwards before the liberalisation started. In parallel, in 1991—I do not know whether you were working on the original 1991/440 directive but that started while the tunnel was being built—there was a debate as to whether the UK Government or European Commission started liberalisation first. It was about in parallel. There were other things happening then. Q318 Lord Bradshaw: Chairman, could I please just get Lord Berkeley to be quite clear? In order that we can judge whether various types of traffic using the Channel Tunnel are paying their fair share, we need to see how much Eurotunnel is charging the shuttles and the freight, and similarly charging the passenger and freight trains, because without that transparency I cannot see how this situation can move forward. The Chairman: You are absolutely right, Lord Bradshaw. In fact, one of the papers we are looking at and I had just put down had “transparency” in great big capital letters. It does seem a complete morass and you just cannot get through it. But I do think that one of the objectives of this report is to bring this to the attention of people and say, “Until this is sorted we are not going to have the benefits of the Channel Tunnel either for us or for the whole of the mainland of Europe.” The other point is that we are the Sub-Committee that looks after the single market and it is not a single market. You cannot have a single market if you have all this sort of fog around it. Lord Berkeley: Yes, I entirely agree with you and I trust it will be in your report. The Chairman: It is on the record now. Lord Berkeley: Could I just qualify what Lord Bradshaw said? He is absolutely right in what he said but before you get to the charges for different things you need the costs. The Chairman: Of course, this is the point. Lord Berkeley: We do not have that either and it is absolutely essential. The Chairman: It is totally crazy. I do not know another industry or another sector that would behave like this, but let us move on. Lord Walpole. Lord Walpole: Was I doing this one? No, I was pushed out. The Chairman: He thought he was pushed out and he gave way. Lord Brooke of Alverthorpe: I gave way. Lord Walpole: I have not read it yet. The Chairman: Yes, he did, he very generously gave way. Q319 Lord Walpole: You are talking about question 7 now? Yes. Is there any justification for the Channel Tunnel having separate safety standards in place that are not necessarily in conformity with ERA TSI, or is a more bespoke approach required because of the peculiarities of the tunnel? I think you have answered that question. It is not peculiar.

35 Lord Berkeley—Oral evidence (QQ 300-330)

The Chairman: It is not peculiar at all. Lord Walpole: There are a lot more very similar tunnels. We understand the IGC consider that full compliance with the relevant safety TSI would result in a lowering of standards that precluded Article 4 of the rail safety directive. Lord Berkeley: Could I just speak to that very briefly, and I am not going to repeat what I said. Lord Walpole: No, because you have answered the first half of the question. Lord Berkeley: There is one very, very important thing. The technical standards, in this case for long tunnels, are seen legally to take precedence over the IGC’s rules. This is what the Commission is saying. Frankly, the IGC is sort of waffling in its answers, as you will have seen. The process is that, if the IGC believes that its standards are better or safer, then it has to demonstrate it with a risk analysis and a cost-benefit analysis. It is all in their long letter that they wrote in connection with the DB trains, which I am sure the Committee has seen. That is absolutely clear, and they have done nothing with that; they have just said, “We are safe.” There are lots of opinions about safety but you do have to go through the process correctly and provide evidence, and if they have not produced any evidence I would suggest that they cannot or they do not want to. Therefore you start off with the technical standards for interoperability. Do we think that the Swiss are going to make a tunnel that is less safe than ours? I think that is very unlikely. Q320 The Chairman: Can I just interrupt and ask a supplementary there? In my limited experience, an organisation that deals with supposedly high-risk activities, like an airline, has a safety board. Does Eurotunnel have a safety board, do you think? A safety board was independent of the board, reported to the board in terms of the minutes and so on, and I am sure that their minutes could have been accessed under freedom of information. I am just wondering if Eurotunnel has. Is there any emphasis on safety? Lord Berkeley: I am afraid I do not know. I cannot answer your question whether it has a safety board because I do not work for them. You will have to ask them that question. The Chairman: Yes, I will ask them. Yes, obviously, but I just thought— Lord Berkeley: However, I have not seen anything under freedom of information and it is a private company—after all, somebody in the IGC did argue that Eurotunnel did not have to comply with many of these regulations because they were a private company. The Chairman: They did not say that, did they? Lord Berkeley: They did, yes. Subsequently I told them they were a bit wrong and then they said, “Perhaps we were wrong”. They have a concession from the Government, which means they have to comply, so that is total rubbish. Yes, they probably should have a safety board and they are a safe company—I do not want to suggest that they are not. You may well find that Eurotunnel is very keen to comply with these regulations and this may be a problem with the IGC, I just do not know. But somehow they have to comply and the IGC has to make them, or somebody has to make them, but it may be that they will welcome it. I would not ever suggest that they are not safe but they have done a lot of work on it. Q321 Lord Walpole: You said something that I do not think this Committee knows, although it is quite a long time since we last met, which was what did cause the fires in the containers. Last time we heard that they were doing research to find out what caused them but that nobody knew. Do you know what caused them?

36 Lord Berkeley—Oral evidence (QQ 300-330)

Lord Berkeley: No, I do not know. I have my suspicions but then one has to think about a fire in a tunnel—how could it be caused by trucks in some shape or form, which it was, and how could it be prevented? Very easily—you enclose the wagons because you would not have the wind going through them. The Chairman: Yes, we were told that. Yes, I remember that. Lord Berkeley: I am sorry, I must just finish this, because the car and coach ones are enclosed and they have Halon or whatever the latest stuff is, which your Chairman will probably know more about than I do. Halon puts it out very quickly and does not kill the occupant, which is very important. Sorry, but it is very important. The problem about doing that for a truck is that it would increase the total weight of the wagon to such an extent that the axle rate on the chain would be above the track and therefore they would have to limit the weight of goods in the wagon. Now, if you look at the lorries going across the channel, you would probably find that 75% do not weigh out and therefore could be carried if there was a lower weight limit and they enclosed it. That is a way of stopping the fire. I do not know whether the safety rules in the tunnel now have been enhanced in order to stop a lorry fire and that the passenger and freight trains are having to pay for more safety because of that. I really do not know, but the TSI should sort this out because they do take trucks through the Swiss tunnels on open vehicles, as far as I know—I am going to go and look at them soon. There are questions to ask but this is why it is so important to separate them. Lord Walpole: That is very helpful. Thank you very much. Q322 Lord Brooke of Alverthorpe: This is a very quick one, Lord Berkeley. They did say that they were reviewing some of the safety aspects and consulting on them but the burden, I think, of the Minister’s response was that the difference between the Swiss tunnel that we keep mentioning and the Channel Tunnel is an issue of security—we have a problem of security which is not found in other tunnels or similar ventures elsewhere. Lord Berkeley: Could I ask who said that? Lord Brooke of Alverthorpe: The Minister. The Chairman: The Minister. Lord Berkeley: Well, I have to disagree with her. As for security, let us call it prevention of bombs. Let us be quite clear about it. When I worked for Channel Tunnel somebody did a calculation that said that you would need 40 tonnes of high explosive to let the sea in. If you get something less you will have an explosion in the tunnel, which is the same as the London Underground or anything else. The trucks are very, very carefully screened if you ask Eurotunnel—some cars are searched and, as you know, as a passenger you go through X-ray machines and the freight train loads get dealt with at the various terminals. So the risk of a bomb going off in the tunnel, such that the sea might come in, is infinitesimally small. Lord Brooke of Alverthorpe: She did not say bombs, she just talked in— Lord Berkeley: What else? People carrying guns. They may carry guns on trains—how does it compare with an underground train or another bit of railway? The only difference is bombs and a fear of the sea, as I mentioned earlier, and I am afraid the risk analysis and the consequence of this just do not stack up. There is an escape route from the tunnel into the central service tunnel, which was created to provide a safe haven for passengers. Again some of the safety people are saying, “Oh, but we can’t get the fire engines down there.” That is not the way it was designed. It is a good excuse to change things. I think they are using a lot of these technical arguments to prevent competition. 37 Lord Berkeley—Oral evidence (QQ 300-330)

The Chairman: That is on the record. Lord Berkeley: It is on the record and I stand by it, Chairman. Sorry. The Chairman: Fine. Good. Q323 Lord Ryder of Wensum: Forgive me, but this a pedantic point for the sake of the transcript. At the outset of the questions you referred to Eurotunnel as a publicly quoted company and two or three minutes ago you referred three times to it as a private company. Can we just be clear so that the transcript is consistent? Lord Berkeley: I said private as the opposite to state-owned. These definitions get difficult but it is publicly quoted, it receives no state aid—somebody suggested it does, but it does not—and therefore it is different from most infrastructure companies that are state-owned. The Chairman: That is clarification. In other words, it is a privately owned company in the public sector. No, so what is it? It has shareholders but limited shareholders. I could not go and buy shares in it. Lord Berkeley: Yes, you could. The Chairman: Could I? Lord Berkeley: I lost a lot of money on the share issue, so I know. Is that clear, Chairman? The Chairman: Yes, it is. It is clear now that I could have shares in it if I wanted, so therefore I know what I am doing, I hope. You said, Lord Berkeley, that you would not make an opening statement because you would do a sweep-up at the end. Before we do that, I ask Baroness Valentine, Lord James and Lord Rowe-Beddoe whether there were biting issues that they wanted to raise and just were not lucky in the draw. Q324 Lord Rowe-Beddoe: I have a question, if I may, Lord Berkeley. It is not a biting issue, because I was not allocated a question and I have had the pleasure of listening most intently to every word you have said and I am totally and utterly bewildered. I wonder, in a generic way, how you could explain the apparent lack of motivation in these organisations to expand their services, their throughput or whatever you want to call it, spreading their fixed costs by thus generating more traffic, being able to reduce their operating costs and reducing the price to the consumer, be it corporate or private. I am mesmerised by this basic lack of motivation by a company, a management, a board or whatever it is. The Chairman: So am I. Lord Berkeley: I would agree with you, I am afraid. I am mesmerised. I thought to start with that it was because when the company was younger they possibly thought they were a French auto-concessionaire, where they would think, “Okay, if we put the charges up we will get more revenue.” It is such a long time ago that that did not work. If you want more traffic then possibly you should drop your charges. I know they want more traffic but there is something stopping it and I do not know what. I do not think it is just the company; I think there is something in the two Governments, whether there are cans of worms there. Freedom of information is a very slow process and I struggle with it, but I still think there is something there because an official did tell me once, “There is a big contingent liability there.” I said, “What for?” “I couldn’t tell you, it is much too secret.” I do not know how big is big. Lord Rowe-Beddoe: Thank you.

38 Lord Berkeley—Oral evidence (QQ 300-330)

Q325 Lord Brooke of Alverthorpe: Isn’t it possible that there is a conflict of interest in that there are French interests in ferries and promoting cross-channel lorries? Lord Berkeley: There are not many French interests in ferries left. SeaFrance is for sale, is it not? It is a French company. I just do not know. The French Government is changing its regulatory process and structure quite a lot and everybody says it wants more traffic, but then you get into the detail and the nitty-gritty. Q326 Baroness Valentine: We have touched on the ORR occasionally but we have not focused on it—I am afraid we have been on holiday, so I have forgotten exactly how these all relate to each other, but I think the ORR is the secretariat of the IGC and is on the ERA in some way or related to it. Anyway, my question is: does the ORR have any leverage in this? At face value it has some leverage to sort some of these issues out and yet does not seem to, and you made one comment about the fact that they were providing advice to the IGC and by implication their advice was not being listened to. So I am just interested in what leverage it has through which vehicles to achieve better things. Lord Berkeley: I think that since the ORR has been appointed to provide advice to the IGC things have got a lot better, because they are doing what the ORR normally does and searching for the evidence before deciding what the decision should be. But it is still only advice. Their relationship with the ERA is good, I believe, and they can advise the ERA, but on the other hand the ERA is really there to advise the IGC on compliance with European legislation, particularly safety. The ERA is a safety organisation. So I suppose if one takes the original ERA letter to IGC about the DB trains and where is the evidence, the IGC would have asked the ORR to produce the rebuttal to this and I can see there might be problems. Whether the ORR believe in that or whether they would really rather be an independent regulator with the French regulator without the IGC, you would have to ask them. I personally think it would be a great idea but I cannot answer for them. Sorry. Q327 Lord James of Blackheath: There have been such comprehensive questions that I have to scrape the barrel of paranoia to find a question for you. Could the tunnel be depth- charged and destroyed from above by a suicide bomber? Lord Berkeley: From the information I received when I was helping to build it, the answer is definitely no, not with the current technology. I exclude atomic weapons—I have not got a clue about them, but I think the MoD had looked at this with everything else. You have a minimum cover of about 40 metres to the tunnel, with very big thick tunnel linings that are grouted up behind. In those fires that happened on one occasion the tunnel lining was virtually wrecked and it stood up by itself. So I think the answer must be no, but I am not a depth-charging expert. Lord James of Blackheath: There is no such thing as a nuclear depth charge. Lord Berkeley: Thank you. Q328 Lord James of Blackheath: My last variation of that is that when the tunnel was opened I remember that great assurances were given as to whether in certain circumstances, which it was hard to imagine then and even harder to imagine now, the tunnel could be closed completely in the event of hostilities between Britain and Europe. Is that still capable? Lord Berkeley: My information was that something was built into it to enable that to happen. I cannot answer from the present situation. Q329 Lord James of Blackheath: I see no tungsten gates waiting to drop into place, so how does it happen?

39 Lord Berkeley—Oral evidence (QQ 300-330)

Lord Berkeley: If you go back to some of the Victorian cartoons, the tunnel came out in Shakespeare Cliff and went on a big viaduct in the sea before it got into the UK so the British Navy could fire on it. Lord James of Blackheath: The best one I saw was of Margaret Thatcher opening the sluices and washing all the French back up the other side. Lord Berkeley: That was another cartoon, but without Margaret Thatcher. Q330 The Chairman: Lord Berkeley, thank you so much, but before you get away I would like to ask the question I always ask. What questions have we not asked that you think we should have asked? Lord Berkeley: Chairman, I will not keep the Committee long, but there is just one thing that was not in the terms of reference in detail. In respect of IGC immigration and security, where Lord Plumb started the question, I know of passenger operators who would like to run through trains from north of London to the continent, including sleeper trains. I think that with the technical standards that should be possible, but we have to get the immigration people and the passenger security people to avoid requiring the passengers to get out at Ashford, walk through a customs hall and in again, and ditto in Lille. I heard a rumour that the French authorities were considering requiring the German trains to do that in Lille so that the Eurostar would get a competitive advantage. I am sure it is not true. But, more seriously, we have to try to pretend that we are part of Europe and we can do these things that are very necessary—we can do them on the train while we are asleep or something. The Chairman: Thank you. It has been a wonderful session. Thank you very much. You will have a transcript and you can correct it. Lord Berkeley: Thank you very much.

40 David Briginshaw, Editor-in-Chief, International Rail Journal—Written evidence

David Briginshaw, Editor-in-Chief, International Rail Journal— Written evidence

Question 1

1.1 The European Commission needs to ensure that national governments comply with and implement Directive 2007/58/EC relating to opening up the international passenger rail market to competition. The EC also needs to enforce the proper separation of the management of the infrastructure from the operation of the trains. This still has not happened in Germany and Italy where German Rail (DB) and Italian State Railways (FS) are holding companies for their respective operating and infrastructure division. In France, there is only quasi separation as the infrastructure manager RFF is not responsible for allocating paths or controlling the signalling. French National Railways (SNCF) maintains and operates the signalling and maintains the tracks.

1.2 The standard of rail regulation varies between countries from strong to weak and has only recently been established in France and Italy. The initial judgements by the new Italian regulator appear to indicate that the regulator is in the pocket of FS. Italy has passed laws to allow domestic open access passenger rail operators to compete with FS’ Trenitalia subsidiary, but the law is not being enforced and FS’s RFI infrastructure manager subsidiary is making life very difficult for the first two private operators, Arenaways and NTV.

1.3 The incumbent national railways generally do not welcome open access operators, particularly in France, Italy and Germany, but on the other hand they are actively looking to operate in other countries, often through joint ventures with or shareholdings in private operators. For example, SNCF is a shareholder in NTV while Trenitalia is teaming up with Veolia Transdev to start international services between France and Italy.

1.4 As far as the Channel Tunnel and HS1 are concerned, there are several barriers to entry. The track access fees are extremely high. The airport-style security and border controls make it very difficult to operate services from London to multiple destinations. When the Channel Tunnel opened border controls were carried out onboard the trains in traditional railway style which obviated the need to have border staff at stations. Security checks were initially random, and the check-in times for Eurostar were 10 minutes for first- class and 20 minutes for standard class. Now it is 30 minutes for all passengers which effectively means passengers will allow between 35 minutes amd 1 hour to ensure they meet the check-in deadline. This makes connections at potential high-speed hubs at Lille Europe and Brussels Midi very long and negates the benefits of high-speed rail. Thankfully, the spurious barriers to introducing other types of passenger train through the Channel Tunnel now appear to be receding.

Question 2

2.1 There has been precious little development of international open-access passenger operations in Europe since January 2010. As yet, no new services have been introduced. DB plans to introduce services from London to and and a joint venture between Trenitalia and Veolia Transdev intends to start services between Italy and France. But the latter will be a mixture of new services and the replacement of one of the overnight services currently operated by SNCF and Trenitalia. In fact, there has been a reduction of 41 David Briginshaw, Editor-in-Chief, International Rail Journal—Written evidence international services between Italy and neighbouring countries because FS has pulled out of traditional bilateral agreements to run these services. In some cases, neighbouring railways have been forced to find new partners in Italy such as Le Nord and Arenaways to maintain services, but have then encountered strong opposition from FS.

2.2 The main development of open-access passenger operation is in domestic markets. Britain currently has the most comprehensive range of such services with Hull Trains, Grand Central and Heathrow Express. Veolia Transdev operates an irregular daily service between Malmo and Stockholm in Sweden and two trains a day on the Warnemünde – – Leipzig corridor in Germany. Arenaways runs one round trip a day between and Milan, but the frequency is much lower than they wanted and the trains are not allowed to stop at intermediate stations.

2.3 Several new operators are about to launch open-access passenger services:

• Italy: NTV will launch a comprehensive network of regular-interval high-speed services, probably early next year, in competition with Trenitalia. • Austria: Westbahn will launch an hourly-interval service between and Salzburg in December in competition with ÖBB. • Germany: HKX will introduce three trains per day between and in the autumn in competition with DB’s hourly-interval Intercity service. • Czech Republic: Student Agency will launch its Regiojet service between and Ostrava in the summer in competition with Czech Railways (CD).

Question 3

3. The safety certification of the Channel Tunnel should be brought into line with the European Technical Specifications for Interoperability (TSIs), as recommended by ERA. The Channel Tunnel is just a railway tunnel albeit with higher safety features than those encountered in older tunnels.

Questions 4 and 5

4/5. The problems associated with the development of international passenger rail services in Europe have little to do with the development of the high-speed network. Indeed, the network is rapidly falling into place. The TEN-T project is more relevant to freight. The problem on the passenger side is concerned with the games the old national railways play to try to prevent competition and hinder new entrants.

Question 6

6. There needs to be far better coordination of existing international passenger services to improve connections. The connections between Eurostar and other high-speed services in Lille and Brussels are appalling and unreliable and make rail very unattractive. The London – Amsterdam air route is one of the busiest in Europe and despite the completion of high- speed lines between the two cities there are still no through services and the erratic and time-consuming connections in Brussels make rail uncompetitive.

6.2 Rail can compete effectively with air and road if the journey times are attractive, the fares competitive, and services are reliable. There are plenty of examples of where rail now dominates the market. 42 David Briginshaw, Editor-in-Chief, International Rail Journal—Written evidence

Question 7

7.1 There are some corridors in Europe where rail offers a high-quality service which passengers obviously appreciate such as Eurostar (London – Paris/Brussels), Thalys, and the developing high-speed services. But there is potential to do a lot more, the main deficiency being between Britain and the Continent.

7.2 I think the current legislation on passenger rights is probably sufficient.

Question 8

8.1 The main deterrents to developing services though the Channel Tunnel are the high access charges both through the tunnel and on HS1, the rules governing the type of train which can be used, and the opposition of the French government and SNCF to even the development of Eurostar services outside its core network let alone new entrants.

8.2 Several positive developments are taking place:

• Eurostar’s recently-acquired independence • EuroTunnel’s positive attitude to developing new passenger and freight services in its desire to drive up revenue now that its debt situation is under control • Initiatives to develop new services by DB and talk of a regional cross-Channel service, and • Changes to the rules governing the type of train which can be used in the Channel Tunnel and passenger evacuation procedures.

8.3. I therefore do not believe there would be any benefit in amending the Treaty of Canterbury.

Question 9

I have already addressed this in answering other questions.

Question 10

10.1 As the Channel Tunnel is operating well below its design capacity, there are no security issues from operating more passenger services.

June 2011

43 Department for Transport—Written evidence

Department for Transport—Written evidence

Introduction

The Government is grateful to the Committee for the opportunity to submit evidence to the inquiry into the European rail market and the role of the Channel Tunnel.

The Government considers that the right transport policy is essential to the competitiveness of EU economies, which in turn will foster growth and jobs, and welcomes the acknowledgement of this in the Commission’s 2011 White Paper Roadmap to a Single European Transport Area.

The Government considers that competition between rail undertakings in the international passenger market remains limited, and that securing further market opening is desirable. This policy aim should be delivered through Directive (2007/58/EC) to open up international passenger rail services to competition, which entered into force on 1 January 2010. This has already seen results in the form of proposals to launch new rail passenger services through the Channel Tunnel.

Although the Channel Tunnel crosses what is arguably the UK's most significant international rail border, of course the rail line is not the only transport link between the UK and mainland Europe, nor is it operating in a static market. Since the Tunnel opened in 1994 Eurostar journey times have been cut through the construction of new high speed routes in Belgium and the UK. Air services have expanded and their prices have reduced, while HGV and car shuttles compete with ferry services for road-based flows.

Our prime interest is in our own international borders, although we do recognise that international services are likely to need to cross several borders. This is why we are in favour of developing more effective links between the TEN-T and the transport networks of neighbouring European countries and accession countries. This will aid the free flow of trade from Europe to neighbouring countries and regions, at the same time as enabling and aiding regional co-operation in the given area. This should have no financial impact on the UK.

Response to specific issues

Q1 - How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

The Government supports the approach that liberalises the European railway network and reduces burdens on operators. We believe that a truly open, fair and liberalised market would increase competition in international passenger services across the EU. We consider that barriers to market entry throughout Europe are caused by the different and varying level of implementation of the First Railway Package across EU Member States, insufficient administrative capacity and powers vested in the regulatory bodies, the lack of technical and operational harmonisation, and the failure to provide open access to service and terminal facilities across the whole of Europe.

44 Department for Transport—Written evidence

We believe that the European Commission's First Railway Package re-cast proposal, which aims to increase the transparency of rail market access conditions and improve access to rail-related services (for example station, freight and maintenance facilities), with explicit rules on conflicts of interest and discriminatory practices, will go some way to removing some of the barriers to entry.

Q2 - How has the liberalisation of the international passenger rail market has been developing since January 2010?

The EC Rail Passenger Liberalisation Directive 2007/58 came into force on 1 January 2010 allowing any European passenger train operating company access to all European rail networks. This has led to some interest from train operators in Continental Europe in running passenger services through the Channel Tunnel onto the UK network. However, the only operator to have publicly announced their intention to do so is Deutsche Bahn. This operator plans to commence three services per day from December 2013 to London from Frankfurt and Amsterdam, via Brussels.

The Department has published a contact guide which provides a brief overview, together with the contact details of the relevant organisations a potential operator would need to approach in applying to operate a new international rail passenger service through the Channel Tunnel.

Q3 - Should the European Rail Agency have a stronger role in this regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

We do not support a stronger or expanded role for the European Railway Agency. We believe that current institutional frameworks are capable of delivering the policy objective of liberalisation.

The safety certification of train operators’ safety management systems under the provisions of the Railway Safety Directive currently provide for a two-part certificate. Part A covers the core of the safety management system, is granted in the Member State where the operator is based and is valid across the whole of the European Union. Part B is an addition to Part A and covers any country-specific requirements. For transiting the Channel Tunnel, operators currently only need to apply for a Part B that covers the specific operating conditions in the Tunnel.

There are proposals in development to migrate to a single Safety Certificate scheme for operators. The UK supports this approach as it will liberalise the European railway network and reduce burdens on operators. Once this scheme is adopted there will be no need for operators to obtain separate certification for the Tunnel. Given the migration described above we see little benefit in expanding the role of the Agency. However, we do see benefits in the Agency fostering closer cooperation between the national safety authorities so that they apply common criteria in the assessment of operators’ safety management systems. Work on such criteria is already underway.

There is an additional reason why we consider the extension of the Agency’s role is undesirable. We have seen, in the recent technical opinion of the European Railway Agency on Channel Tunnel rules, the advantages of the Agency being able to act in an independent 45 Department for Transport—Written evidence review role. Were the Agency to take a more direct role in safety such a benefit would be lost.

Q4 - How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN-T projects?

The TEN-T programme is currently under review. Although the future direction of the policy and financial profile for the programme is not certain, it will have both a strong environmental focus and continue to support the development of the European high-speed rail network. TEN-T funding can effectively support this development by focussing on credible projects that have a sound cost benefit analysis, which enhance the coverage of the high-speed network in Europe. Funding should be conditional on complying with requirements for High Speed interoperability and the implementation of ERTMS.

Q5 - Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

The European Commission is in the process of reviewing the TEN-T guidelines. It is expecting to publish proposals in autumn, which will be subject to the Ordinary Legislative Procedure.. The Comprehensive network and therefore the core network will be subject to the technical standards foreseen in Interoperability Directive 2008/57. The TEN-T core network is likely to be the focus of regulations intended to promote EU transport policies elaborated in the EU Transport White Paper. It is not yet known which regulations or conditions will be applied to the TEN-T core; this will become clearer as negotiations develop. Interoperability is an important factor in having a European-wide rail network. However, the application of regulations, conditions or standards to the core network should not supersede previously agreed implementation plans for technical standards, as this may impose additional costs and administrative burdens on the rail Industry.

Q6 (a) What measures are most necessary to ensure passengers switch from road and air to rail?

We recognise that modal shift from air and road to rail can generate useful environmental and congestion benefits. However, rather than trying to force people away from car or air travel, we are working to support sustainable travel choices

While infrastructure has an important role to play in shaping choice, infrastructure improvement on its own may not necessarily be enough to bring about modal shift. A number of barriers can prevent behaviour change, including powerful psychological barriers such as habit. The evidence demonstrates that there is not a ‘one size fits all’ solution to enable transport behaviour change and that packages of measures often appear to offer the best solutions.

Q6 (b) What impact would greater use of rail have on these modes of transport and others such as cross-Channel ferries?

The relationship between improvements to infrastructure and modal shift is complex and hard to calculate. When additional capacity is added to rail (eg: a longer train or a new service), a mix of travellers will start using the service. Some will be new travellers, some will transfer from other public transport (eg: bus, coach, air or ferry), some 46 Department for Transport—Written evidence will be car passengers and some will be car drivers. And this mix is likely to vary according to the type of service, its cost and its relative attractiveness compared with other modes in the transport corridor. For example, estimates of the impacts of rail improvements on patronage levels, based upon DfT's National Travel Model, shows that for every 100 passenger miles generated by an improvement in a typical rail service, there are 26 fewer car miles driven. In other words, just over a quarter of the demand generated by a scheme is a transfer from the car driver mode.

Q7 - Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

We hold no information that enables us to comment on the level of passenger satisfaction with international rail services in the EU, or to assess whether passengers' rights for such services need to be strengthened.

We do not consider that passenger rights in the UK need to be strengthened. The principle of regulation of passenger rights is well-established in the UK in relation to domestic services, in order to preserve network benefits - i.e. to ensure that passengers who may need to use the services of a number of different operators to make their journeys receive a seamless and co-ordinated service that meets their needs, and thus help and increase passenger demand and revenue. Broadly speaking the UK already provides, through the Single Equality Act, quite tough requirements on assistance for persons of reduced mobility (PRM).

In addition, Regulation EC No. 1371/2007 on Rail Passengers’ Rights and Obligations came into force automatically on 4 December 2009. It is aimed at strengthening the rights of rail passengers, particularly in the areas of information and ticketing provision, compensation and assistance, and rights for persons of reduced mobility and enforcement of those rights. It ensures that there are minimum levels of compensation in the event of delay, in the event of an accident or death. Persons of reduced mobility also have enhanced rights in terms of assistance to travel; and provision of information concerning the accessibility of services and rolling stock.

Q8 - In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

The governance structure for the Channel Tunnel, which flows from the broad framework set out in the Channel Tunnel Act 1987 and the Channel Tunnel Concession Agreement signed in March 1986, has been sufficiently flexible to accommodate subsequent developments in European, UK and French law and regulation and is expected to continue to do so.

Q9: The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

We are still considering the initiatives proposed in the 2011 Transport White Paper and their likely effects on the UK and on Europe as a whole. 47 Department for Transport—Written evidence

While we support the White Paper's emphasis on multimodality we consider that it is a tough challenge requiring the determined effort of all the Member States and industry working together to make it happen. Similarly we agree that decarbonisation is a major challenge facing the transports sector. We support finding solutions which will ensure increased competitiveness of transport while delivering a reduction in greenhouse gas emissions.

In the UK, the Government is already investing in the rail network to support economic growth and help to secure environmental objectives. We support the transfer of freight from road to rail and water, where it is practical and economically sustainable to do so. Grants are available towards the operating costs of running rail and water freight services, where these are more expensive than road.

Studies have indicated that the Channel Tunnel has spare capacity to accommodate growth. Although there have been indications that the rail freight share of the cross-Channel market would be higher if rates were lower, we do not believe that the Channel Tunnel represents a bottleneck to multimodality if it is seen in the context of the competitive market for cross Channel transport for both passenger and freight .

Q.10 What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

Greater volumes of passenger services through the Channel Tunnel are unlikely to create any adverse impact on the protection of the Tunnel system.

There are two main aspects to the issue of security of new passenger services using the Channel Tunnel. The security requirements and procedures operated for services commencing from UK, France and Belgium are unlikely to need much adjustment because the existing measures are well established.

However, there will be a need to introduce equivalent security measures for passenger services commencing from other countries - including Germany if Deutsche Bahn’s proposed service from Frankfurt and Amsterdam to London starts in December 2013. UK and French officials are discussing security arrangements with Deutsche Bahn and the relevant government authorities to ensure that appropriate security, immigration and border control arrangements are in place when services begin.

June 2011

48 Department for Transport—Oral evidence (QQ 253-299)

Department for Transport—Oral evidence (QQ 253-299)

Evidence Session No. 6. Heard in Public.

MONDAY 18 JULY 2011

Members present

Baroness O’Cathain (Chairman) Lord Brooke of Alverthorpe Lord Clinton-Davis Lord Fearn Lord Haskel Lord Rowe-Beddoe Baroness Valentine Lord Walpole ______

Examination of Witnesses

Witnesses: Theresa Villiers [Minister of State, Department for Transport], Roy Griffins [Head of UK Delegation to the Channel Tunnel Intergovernmental Commission], Caroline Wake, [Head of UK Delegation to the Channel Tunnel Safety Authority], and Nick Bisson, [Director of Rail Policy, Department for Transport]

Q253 The Chairman: Good afternoon, Minister. Welcome, and thank you very much for sparing the time. Before anything else, I fear we are going to have a Division shortly. Unlike for other witnesses, I do not have to explain to you what a Division is. Thank you very much for coming. The session is on the record. Members of the Committee who have relevant interests will state those interests before they speak. The session is being webcast live and will be subsequently accessible by the parliamentary website. You will receive a transcript of the session to check and correct and this will be put on the public record in printed form and on the parliamentary website. You have three colleagues with you so I wonder if we could start by you giving your name for the record and your official title, as if we did not know, and then perhaps your colleagues could do it for the record, because we do not have nameplates for you.

Theresa Villiers: Certainly. For the record, my name is Theresa Villiers and I am the Rail Minister. I will pass over to my DfT officials who are flanking me today to introduce themselves. Nick Bisson: Nick Bisson, Director of Rail Policy at the Department for Transport. Roy Griffins: Roy Griffins, Head of the UK Delegation to the Channel Tunnel Intergovernmental Commission.

49 Department for Transport—Oral evidence (QQ 253-299)

Caroline Wake: Caroline Wake, Head of the UK Delegation to the Channel Tunnel Safety Authority. The Chairman: Good. We have the heavy hitters here today. Thank you very much. Would you like to make an opening statement? Theresa Villiers: I am happy to go straight to questions.

Q254 The Chairman: I am asking the first question. Do you anticipate a significant growth in the provision of new international passenger services to the UK and across the EU in the next few years? What involvement does the DfT have in the negotiations between the relevant actors regarding the prospective Deutsche Bahn service and is everything proceeding to schedule? Theresa Villiers: We certainly hope that there will be an increase in passenger services across Europe over the coming years, including through the Tunnel. The most immediate prospect for that is, as you have identified, Deutsche Bahn. We are very supportive of their efforts to introduce a new service in competition to Eurostar and offering alternative destinations to passengers, specifically Frankfurt and Amsterdam. There are a number of issues that will have to be resolved prior to those services going ahead as Deutsche Bahn hope in, I think, December 2013. Broadly, they are the safety issues, the security issues and the border control issues. The Department for Transport is engaging on all those matters with a view to trying to facilitate solutions to them all. We have made considerable progress in relation to the safety issues, with the ERA, the European Rail Agency, concluding that there is no barrier to using distributed power in the Tunnel, which is the type of technology that Deutsche Bahn use. Further work needs to be undertaken to see if we can ensure that appropriate security and border controls mechanisms are in place. I can go into further detail on that, or you may want to ask me specific questions about those two.

Q255 The Chairman: I think it would be useful if you could, because we have had a lot of evidence on the border controls and the problems of security and how they mingle. You said they are two separate issues, the border controls and security, which sort of foxed me for a moment. Theresa Villiers: Both have to be looked at separately on their merits. Looking at security issues first, I think we are pretty confident that it will not be that difficult to get these sorted. I think real progress is being made with Deutsche Bahn on the sort of security checks that passengers are already used to in relation to the current Eurostar services—the sort of scanning-screening type checks that already go on. In terms of border controls, which are dealt with separately—that is run by UKBA, it is a Home Office competence, not a Department for Transport competence—in some ways the issues are a bit more challenging. But in response to the Committee’s questions about a proliferation of juxtaposed border controls, we do not see that as being a viable solution in terms of new services of the sort Deutsche Bahn want to run, partly because neither Germany nor the Netherlands is currently keen on the idea of UK border officials on their territory, so we are looking at alternative ways to deal with that. The sort of options on the table and in discussion between UKBA and Deutsche Bahn involve enhanced use of the e- Borders programme and advance passenger information. Also what UKBA are in discussion on is carrier liability, a similar sort of approach that is currently used in relation to airlines to incentivise airlines only to take passengers who have appropriate clearance. We are also 50 Department for Transport—Oral evidence (QQ 253-299) considering what sort of checks might be appropriate and certainly onboard checks are a possibility or checks at St Pancras. So where we are at the moment is that there is not a final resolution on that. There are a number of very promising options and those options do not require the proliferation of juxtaposed border controls. We are looking at alternative ways to deliver continuing safe and secure borders for the UK but also to enable DB services to begin and hopefully services from other countries as well.

Q256 The Chairman: And passengers not being delayed too long at border controls.

Theresa Villiers: That is something that is very dear to my heart. The Department recently published a report on airports and in that the industry members emphasised the importance of running our borders in an efficient way. I very much welcome the work that UKBA have been doing in relation to introducing new technology and in particular their emphasis on revised working practices to ensure that they can deal with peaks more easily than perhaps in the past but also their thrust to collect more information about passengers in advance so that at the border the checks can be done in as smooth and efficient a way as possible. So I think UKBA have a very impressive programme, which has received probably more scrutiny in relation to airports, but the benefits of the reforms and improvements they are running out will certainly be felt with international rail services as well.

Q257 The Chairman: Is everything proceeding according to schedule? Deutsche Bahn say they want to do it in winter of 2013. Is that likely to be held up or is it going according to schedule? Theresa Villiers: I know Deutsche Bahn are understandably nervous about this. My understanding is that the discussions on all the three issues that I have mentioned are going well. In the discussions I have had with officials in preparation for this meeting there was not any kind of showstopper that was highlighted with me. Of course it would be foolish of me to give a guarantee that everything will be able to be ironed out in time— The Chairman: We would not ask you to.

Theresa Villiers: But I am certainly not at the moment aware of a big problem that we believe will slow up the introduction of DB services at the projected time of winter 2013.

Q258 Lord Clinton-Davis: First of all I ought to declare one or two interests. You and I share one thing in common: we both were involved with King’s College London, although I hasten to add that I went there in 1946. The other thing is that I have been involved with aviation and shipping in government and also in the European Commission I have been involved in transport, the environment and nuclear safety. Now I will come to the question. I am very much interested in how often you and your officials meet with the Transport Commissioner and his officials and also officials from the ERA. Theresa Villiers: I think those meetings take place very regularly. Certainly there was obviously quite a lot of engagement with the ERA in the run-up to trying to resolve the issues around Eurostar’s choice of rolling stock and the distributed power issues that I referred to a moment ago. There are very regular contacts, both with the Commission and with the ERA, as well as with Ministers. The Secretary of State, when he attends the Council 51 Department for Transport—Oral evidence (QQ 253-299) of Ministers, and I, when I substitute for him, engage with the Commission on those occasions as well. So there are extensive contacts between officials, Ministers and the Commission and the ERA.

Q259 The Chairman: Is it an easy relationship? Do they help you and do you help them, rather than having an antagonistic approach to it, not that you would have an antagonistic approach? Theresa Villiers: I have certainly not heard that it is antagonistic. I think there was very much a will to try and resolve the issues around Eurostar and their rolling stock and we felt that the Commission was very helpful, and although the ERA have a sort of neutral role they did their job very seriously and their report provided a very good way to get the issue resolved.

Q260 Lord Clinton-Davis: Do informal meetings also take place? Theresa Villiers: Yes, I imagine they probably do. Nick Bisson: Yes, they do, and for my part I would say the relationship is constructive and good. We get a reasonable exchange. That does not mean we always agree on everything but it does mean that we approach things in a constructive and usually good-natured way.

Q261 Lord Clinton-Davis: Do you meet the Commissioner? Theresa Villiers: Yes, I have met the Commissioner on several occasions, as has the Secretary of State, and I know the Secretary of State speaks on the phone to the Commissioner relatively regularly on different issues as they crop up.

Q262 Lord Rowe-Beddoe: For the record, Minister, could you kindly clarify what the Government interest is in Eurotunnel and Eurostar? Theresa Villiers: If I could start with Eurostar, London and Continental Railways holds a 40% shareholding in Eurostar and essentially they hold it on behalf of the Secretary of State. So the Secretary of State has a part ownership interest in Eurostar and that follows on from the restructuring of Eurostar, which was a couple of years ago. In relation to Eurotunnel, our relationship between the DfT and Eurotunnel is determined by the Channel Tunnel Concession Agreement of 1986, which was revised in 1998, so we do not have any ownership interest in relation to Eurotunnel, unlike Eurostar. It is governed by that concession agreement. Lord Rowe-Beddoe: Thank you. The 40% ownership of Eurostar, does that in any way reflect itself in subsidies? Theresa Villiers: No, there is no subsidy of Eurostar. Lord Rowe-Beddoe: HMG is therefore a beneficial shareholder if there is a dividend. Theresa Villiers: Yes. My understanding is that we do receive some income from Eurostar, yes.

52 Department for Transport—Oral evidence (QQ 253-299)

Q263 Lord Fearn: Good afternoon, Minister. Do you consider the recent establishment of an Independent Regulators Group to be significant and how can the differences in approach by national regulators best be overcome? Theresa Villiers: I think it is quite important that this co-ordinating group has been set up. There is a place for a forum where national regulators can get together and exchange best practice. I would not like to see the group turn into a single regulator for rail matters across the EU, for all sorts of sovereignty reasons but also for practical reasons, but the approach that is currently taken—and our regulator has played a leading role—I think could be very positive in encouraging good practice around Europe and enabling economic regulators to co-operate and develop some common approaches, for example on implementing EU legislation.

Q264 Lord Fearn: Why do you say you would not like to see a single one established? Theresa Villiers: I do not see a need for one. I think matters such as this are best dealt with at Member State level. The Government has a very strong commitment to devolution, decentralisation and localism and that would indicate that as far as our railways are concerned we would want to see power devolved downwards to a more local level. We certainly would not want to see power pulled away to a pan-European level. I simply do not see that the case has been made for that. I do not think it would be a more efficient way to do things and I think we might not like the outcome as well of some of the decisions that might be made by a single regulator looking at railways across the board. They simply might not be able to come up with a single solution that was right for the United Kingdom.

Q265 The Chairman: Can I ask for clarification on that one? I think we are in danger of looking at it from the position of being good at this and having a good history but, for some of the smaller and newer states, would it be right that they should be allowed to do their own regulation if we had serious worries that they might not be up to the standard that we would wish to see? Theresa Villiers: I think the solution for Member States who do not have such a long track record, or perhaps not such a confident approach on rail regulation, is to try and share best practice, try and give them support, rather than try to move to a one-size-fits-all single regulator for Europe. You are right to highlight the issue and one of the priorities for us, as the discussions on the current rail package go through the legislative process, is to see all Member States having properly independent, properly resourced, effective rail regulators. I think we can do that without having to subsume regulation into a single body for the rest of Europe.

Q266 The Chairman: I could not agree with you more that we do not want to see a single body, because single bodies just grow and grow and you wonder what effect they have in the end. But it does bother me that it could lead to problems if the standards were not high enough in some other countries, as high as ours for example, if we are talking about moving across country borders within the EU. Theresa Villiers: I think partly the solution could be through the rail package under discussion but also there is a case for a robust approach to implementation of the current rules on rail liberalisation. My concern is that the liberalisation that was supposed already to have been delivered by existing legislation has not in all cases been delivered and the problem you identify is one symptom of that. So we can have, I suppose, a three-stream 53 Department for Transport—Oral evidence (QQ 253-299) approach: better implementation of the current directive; looking at the new proposals in the new rail package to see if that can help; and using the forum for collaboration between regulators to try and improve practice across Europe in relation to rail regulation.

Q267 The Chairman: If we just turned it over and found that some of these countries thought they have better regulation than we have, or at least better systems and so on, we would not much like them coming in and telling us, would we? Therefore, how are they going to react if we just say, “Come on, improve”? Theresa Villiers: You are right to highlight something that is always a political pitfall when it comes to discussions in Europe, but certainly if a rail regulator from another Member State believed that they had the right approach I would be only too delighted if they were to come and share that with the ORR. As we face this tremendously difficult task of getting the cost of the railways down and implementing the recommendations of the McNulty report, if there are good ideas from the rest of Europe I would be only too pleased to listen to them. The Chairman: Well done, Minister. That is a good answer.

Q268 Lord Haskel: We have had lots of proposals as to how the TEN-T funding should be prioritised. Some tell us that it should be high-speed rail; others say normal speed rail; others say clearing bottlenecks. In your paper you say we should concentrate on interoperability. Where do you think the priorities lie? Theresa Villiers: I do not think one can split the priorities between high-speed rail and the conventional network. Where one identifies the priorities should be where you can generate the most significant economic return in terms of jobs and growth. That is very much the approach we have been taking to the reform of the TEN-T programme. We think that probably some of the key areas to deliver economic growth would be relieving bottlenecks, dealing with some cross-border issues, and in the case of the UK we would like to see our strategic national transport corridors aligned with the Commission’s core network. We are at a relatively early stage in terms of how the Commission’s plans are rolling forward but we take the approach to the TENs network that we try to do to investment in our transport system here, where getting the maximum return for the taxpayer in terms of economic jobs and growth is a very important means to decide where to spend limited taxpayer resources.

Q269 Lord Haskel: It is an economic consideration. At the next Multiannual Financial Framework do you intend to argue for more money to be spent on rail infrastructure or what particular cross-border projects would you argue for? Theresa Villiers: The priority for the Government in the negotiations for the next financial perspective is budgetary restraint. Given the crisis in the public finances that we have suffered here and that many other Member States are grappling with, we would be very concerned about the idea of significant increases in the EU budget. In an ideal world it would be great to see reductions in the EU budget. We understand though that that is not easy to deliver, but at the very most I think that inflation level increases in the EU budget are the maximum that we feel would be appropriate. All of this is subject to negotiation but our key priority is budgetary restraint and keeping any increase in the EU budget down to a minimum. Having said that, of course it is clear that there will also be decisions to be made about priorities within whatever budget is ultimately agreed.

54 Department for Transport—Oral evidence (QQ 253-299)

Q270 The Chairman: So, are you going to fight? Theresa Villiers: Our approach to the Comprehensive Spending Review has been very much to try and focus resources on areas where it will generate the maximum return in jobs and growth and so that is an approach we can see would be attractive to replicate at a European level as well. Transport is obviously something that we have prioritised within the CSR and so in terms of the ongoing debate about the financial framework for the EU, yes, there is a case for prioritising limited resources on transport and other aspects of EU spending that can help generate jobs and growth but, as I say, our key and number one priority is making sure that we see budgetary restraint overall.

Q271 Lord Haskel: As to where the money is going to be spent, you think there are jobs and growth in rail infrastructure. Theresa Villiers: Yes. Certainly transport came out of the CSR in a much stronger position than people expected because the Chancellor and the Prime Minister decided to prioritise areas that they saw as generating the best return in terms of growth and jobs. So transport did well, as did research and development, skills, these kind of things. That is our approach domestically. So, yes, we would certainly welcome that approach being replicated at an EU level. Also one of the things that is quite interesting with the reform of the TENs network that the Commission is looking at is whether we could have better co-ordination with the other areas of regional and cohesion fund spending. In many instances those funds have been used for transport projects so, looking at them together, TENs and the regional development and cohesion funding, I think perhaps you might end up with a better overall result if you looked at them together rather than separately.

Q272 Lord Walpole: Good afternoon, Minister. I think I ought to say at the beginning that I like Eurostar. I quite like the Tunnel but I do go through by car, a hybrid car needless to say, and I have a passion for Stratford. I live in north Norfolk and I spend three hours travelling and in the last 20 minutes we come to Stratford, which I think is the most fabulous place I know. It does not matter whether it is the Carpenters’ Hall, their college or their land, which we sold for a certain Olympic thing that is going on, bits of , all the rest of it, I do take an interest in that part of the world, not only in the train but also getting out of the train. As the international passenger network expands, will this not lead to a proliferation of juxtaposed border controls and, if so, will this not hinder development for new international passenger services? What do you think? I am personally in favour of the introduction of onboard passport checks, which would make the system more efficient and more convenient for passengers. I completely forgot when you go to St Pancras you walk through a door and you are in France, once you pass that French gentleman who looks at your passport. It does seem rather a funny idea until you realise you are not allowed to get out at Ashford. Theresa Villiers: Can I share your enthusiasm for Eurostar? Lord Walpole: Indeed. Theresa Villiers: I think it is an excellent service. They have phenomenal rates of reliability and obviously the opening of HS1 has had a very positive impact on journey times. Indeed, the Eurostar is something I know well since I used to commute on it in a previous incarnation as an MEP. In terms of Stratford, I know there is disappointment that at the moment international services do not stop at Stratford. I do feel this is really not something for the Government 55 Department for Transport—Oral evidence (QQ 253-299) to come along and mandate but what I would say is that the more international operators we can get through the Tunnel and on to HS1 the more likely it is that one of them may be able to build a business case for stops at Stratford International. I agree that the combination of Stratford in terms of the HS1 stop and the incredible improvements that have been made to Stratford Regional Station makes that whole area a really exciting transport hub, which I think is going to benefit tremendously from the Olympics. Of all areas where there will be a very strong Olympic legacy, I think the area of Stratford is one of them. There is real potential as when potentially new operators like Deutsche Bahn start bringing services into London they may be able to build a business case for stops at Stratford. In terms of the juxtaposed controls, as I mentioned before we probably do need to think about alternative ways to deal with border controls, given the proposal by DB to bring trains in from Frankfurt and Amsterdam, because of the political problems with using juxtaposed controls in those two countries. They are not keen on our officials on their territory, and also there are issues with intra-Schengen stops. As I mentioned at the beginning, final decisions have not been made on this but part of the eventual mix may well be on-train checks and checks at St Pancras. My colleagues in the Home Office, who have competence over this area, and UKBA are working very hard to get this resolved, potentially using API and e-Borders. What I suppose is worth flagging up is that we may have a two-stage process. We may need to put something interim in place to get DB up and running with a view to perhaps more permanent changes in the future but, as I mentioned in response to your Chairman, I am fairly optimistic that we will be able to come up with something that works and we are busily trying to ensure that these things are sorted in time for DB to launch on their preferred date.

Q273 Lord Walpole: Thank you. I have two small supplementary questions, and you can see where they are going. What items of hand luggage are currently prohibited from being used in the Eurostar service? The other one is we understand that special rules will be put in place for the Olympics. What are these and what effects will they have on the service? Theresa Villiers: In terms of prohibited items, I have a list here that I can supply to your Lordships. It is published on Eurostar’s website. I could possibly read it all out but, to give just a pithy summary, in general pretty much all the things that you cannot take on a plane you cannot take on Eurostar either but there are provisions for certain items that could be dangerous still to be taken on Eurostar as long as they are notified in advance and these items are carried separately in the hold of the train rather than left with the passenger. They include, for example, licensed firearms, swords, including swords for fencing, and other ceremonial weapons, crossbows, crossbow bolts, longbows, longbow arrows. I am not quite sure how often these things are taken on Eurostar. Lord Walpole: I can see what the Committee must do. Theresa Villiers: You would have thought that, in Anglo-French relations terms, taking longbows might be a little sensitive.

Q274 The Chairman: Can I just ask, is this really necessary? You have given us an assurance that security is great on Eurostar. Why do we have all of these on top? Theresa Villiers: I think this indicates that there is a degree of liberality to the regime. If we were talking about the Olympics, there may be sporting equipment that athletes would like to bring in with them but could potentially, in the wrong hands, be used in a way that is dangerous. So I think it is not an unreasonable compromise. 56 Department for Transport—Oral evidence (QQ 253-299)

Q275 The Chairman: What happens in the Alpine tunnels? Do you know? If you do not, we can tell you. They do not have those sorts of problems. Theresa Villiers: I just think the security risks are more significant in relation to a tunnel under the sea. It is considerably longer, it is more difficult to get people in and out, and the reality is we have a higher risk situation in relation to terrorist attacks in the UK than in many other countries. The Chairman: Switzerland. Theresa Villiers: That is reflected, for example, in the tougher regime we have in relation to airport security. We are a target in the way some of our partners in Europe are not. The Chairman: I think that is true. As soon as I said it I thought, “Wait a minute. The Swiss are not likely to be attacked”. Theresa Villiers: They are not subject to the same kind of risk.

Q276 Lord Clinton-Davis: Do you think there should be a level playing field between all modes of transport regarding taxation and other imposts that arise? Do you think that railways are disadvantaged in any way? Theresa Villiers: In terms of this question, it has always rather puzzled me. I fully agree that one should try and exercise fairness between different sectors in how you tax them. I have to say I think it would be difficult to make a case for saying that rail is at the moment disadvantaged in comparison, say, to aviation. In fact, I get a long sort of list of representatives of the aviation industry complaining that they feel that they pay more tax than other sectors like the railways. Not only are tax levels in terms of railways relatively modest but they do, certainly in terms of domestic services, enjoy quite considerable subsidies. So if we were to have a complete equivalence between transport modes I fear that would mean rail might end up having to pay more tax and get less subsidy. I feel that this is not what your Lordships would like but perhaps I am misunderstanding your question.

Q277 The Chairman: There is no tax on aviation fuel. Theresa Villiers: There is not a tax on aviation fuel but air passenger duty raises quite a significant amount for the Treasury. I do not know, Nick, if you have the— Nick Bisson: About £2.5 billion a year. Theresa Villiers: It is a substantial part.

Q278 The Chairman: I am sure somebody has done the sums, as they say, but surely the amount of aviation fuel that they get tax free is worth an awful lot more than £2 billion, if it were taxed at the sort of tax that it— Theresa Villiers: These matters have certainly been considered at length by the Chancellor when looking at air passenger duty and a consultation has just closed and the response on that would be expected in due course. So, yes, the numbers on air passenger duty have been extensively considered. As I say, I cannot see a convincing case being made to argue that railways are heavily disadvantaged in relation to public spending and taxation as compared to aviation.

57 Department for Transport—Oral evidence (QQ 253-299)

Q279 Lord Clinton-Davis: That is a view that applies throughout the House, isn’t it? Theresa Villiers: Taxation matters are for the Treasury. All I can say is that, as I say, I have not seen a convincing case to say that rail is being disadvantaged by the way the current tax regime works.

Q280 Lord Clinton-Davis: What I am saying is that on the whole, although there are exceptions to this on all sides, there is three-party agreement on this. Theresa Villiers: I think you would need to ask the Opposition their views on this. Certainly the issues around taxation of aviation are very controversial and, as I said, a consultation has just closed. Certainly the Chancellor has indicated that issues around the banding for APD might be an option for reform but, no, I would not say that there is cross-party consensus on the appropriate balance of taxation in relation to aviation and other modes of transport.

Q281 Lord Haskel: In your paper you come down quite strongly on favouring decarbonisation, with railways as a source of decarbonisation. Do you think that taxes should be used to encourage that? Theresa Villiers: I think you raise another important issue. In terms of aspiring to have a completely uniform approach to different modes of transport, if one were to commit to do that that would prevent carbon emissions being taken on board in decisions on the tax system and certainly the Government is prepared to consider whether the tax system might be part of our approach to addressing emissions and climate change. Of course, in relation to aviation, aviation will be entering the Emissions Trading Scheme so we hope that is going to play a positive role in our efforts to reduce emissions from transport, but certainly we do not rule out the option of aligning the tax system more closely to the emissions of the transport mode in question. Again, that would sort of militate against a single uniform approach between different transport modes.

Q282 Lord Haskel: It has quite an impact on ticket prices of course. Theresa Villiers: Yes. Well, APD certainly does have an impact on ticket prices and, for example, pretty much all transport modes are zero-rated for VAT so any change in that would have a significant impact on ticket prices.

Q283 Lord Brooke of Alverthorpe: Good afternoon. I think I should probably declare an interest as previously being a Government Partnership Director in National Air Traffic Services Limited, of which Mr Griffins is aware, but to counterbalance that I also have interests in the railway. I am a member of the All-Party Railway Group as well. I would like to come back to the Channel Tunnel and to refer to some of the evidence we have received. We have had conflicting evidence about the efficacy of the current governance arrangements for the Channel Tunnel as stipulated in the Treaty of Canterbury. In your written evidence you very firmly support the status quo and we are wondering why. Also, given that we have had contrary evidence put to us for change, we are wondering whether in fact you have given any consideration to the feasibility of changing the current arrangements. We are thinking particularly in the light of bilateral regulatory arrangements 58 Department for Transport—Oral evidence (QQ 253-299) where we have changed our position—ORR from the UK side has a different position now from that which you find over on the French side. Where it was previously just the British Government and the French Ministry of Transport, now we have the ORR coming from outside but they have still excluded the French ARAF. Does this make any difference to the way that life is in the changed arrangements, or would not it be better if we had the French regulatory body similarly involved like the ORR?

Theresa Villiers: Perhaps I could take that last point first. Obviously it is for the French Government to determine who is appropriate to sit on the IGC but I can certainly see greater involvement for their regulator as potentially being quite positive and I think there are signs that ARAF is having a greater involvement now than in the past. On the bigger question, the reason why the Department’s submission defended the status quo is that on balance I think the status quo is working all right. I am not necessarily saying it is completely perfect and that it will never change in the future but no one has come to me with a problem that is so pressing as to make me think that we need to start what would be an incredibly difficult process of unpicking the Treaty of Canterbury. The reality is, as I mentioned before, we have a huge challenge on our hands to get the costs of running our railways down to get a better deal for taxpayers and fare payers. That is going to be taking a massive amount of energy, not to mention a major refranchising programme over the coming years. So I think I would have to have a very compelling case for saying that all the hassle, all the resources, all the energy needed to unpick the Treaty of Canterbury is really worth doing. I simply feel that we have priorities that are more important for passengers and for our economy than trying to embark on the difficult process of rewriting the Treaty of Canterbury.

Q284 Lord Brooke of Alverthorpe: In the light of what you said right at the beginning of the interview this afternoon about the nature of your relationships with regulators elsewhere, have you been encouraging the French to do the same as we have done, or will you do? Theresa Villiers: In what sense? Lord Brooke of Alverthorpe: Give them a role to play. I understand that our regulator is exploring areas of economic significance, which would come back to meeting the kind of ambitions that you have to try to get costs down, but we do not have the French regulator doing the same thing. It is simply the French Ministry of Transport involved with the governance. Theresa Villiers: The cost issue is not necessarily quite as pivotal in relation to the Tunnel specifically. When I talk about costs I am talking about overall across the railways but, as I have said, we can see an attractive case for involving the French regulator more closely in the IGC. I do not know whether, Roy, you had anything that you thought might be useful to add on these points. Roy Griffins: Yes, two points. One is the Intergovernmental Commission’s structure is merely a framework and it is a framework that the British side of the IGC has capitalised upon. We have altered the make-up of our side of the IGC to reflect circumstances. For example, we now have on the IGC, through arrangements that we brought in, two members who are referred to as ORR members. They are appointed by the Secretary of State but on the recommendation of the ORR. One is the head of delegation but one is the member of

59 Department for Transport—Oral evidence (QQ 253-299) the IGC dealing specifically with economic regulatory matters. I think you have seen Brian Kogan. So that is using the framework that is there. The second point I would like to make is that this is, and it cannot help but be such, a bi- national entity—us and the French. We have been typically British in our rather pragmatic approach to this framework, which was put together in the treaty and the Channel Tunnel Act. The French have not been quite so flexible and pragmatic in their approach but there are very good signs. I do not know how far Brian Kogan went into this but his relationship with his French opposite number—and I have been around this a bit—is extremely good and very constructive and it has led to a much firmer attitude that the IGC bi-nationally has been able to take towards the regulation of the infrastructure operator, that is Eurotunnel. Theresa Villiers: I think one thing that is worth bearing in mind in terms of how the current arrangements are performing is that, despite what was frankly huge unhappiness within the French Government about Eurostar’s decision to buy Siemens trains, the current framework looks like it has come up with a solution. It did function in a way that ended up with the more liberal open market approach than a protectionist approach. I think that is evidence that the French members of the IGC are prepared to think independently and so I think they need to be given credit for that. Do not get me wrong—as I said, I am not saying that the current situation is perfect and I think this is a timely investigation. I will be very interested to hear your conclusions if you think there are ways in which we could improve the IGC but I cannot help feeling that if we are looking for change we might have to end up with something that is more evolutionary rather than revolutionary. Where we have identified a case for change is on the way the safety regime works. I am sure you will have these issues raised. The distributed power is something we look like we are going to get resolved but further progress might be made in relation to freight trains and diesel freight trains as well. Again, the current system is demonstrating that it is capable of delivering change because we are now working on the report that the ERA did recently highlighting various points and areas of concern, and it may well be that change can be delivered on that, which is where we have something specific to work on as opposed to the wider, “Do we want to rip up the governance arrangements and start afresh?” I do not know, Caroline, if you want to talk about the safety regime changes that are being worked on at the moment. Caroline Wake: As you mentioned, Minister, we had the report from ERA—the technical opinion about the safety rules for the Tunnel—and there has been a great deal of public consultation with the industry on those specific rules. We are now in the process of looking at the particular requirements that were established when the Tunnel opened to test whether they can still be justified to maintain the necessary level of safety in the Tunnel. That work is progressing and my French counterparts on the CTSA are very engaged with that and very keen to work with the European Rail Agency to address some of the challenges that they have laid down. The Chairman: Thank you. That is very interesting.

Q285 Lord Haskel: I think we have dealt with IGC. The Chairman: I think we have, actually, yes. Lord Haskel: There is just one point. You said you would like to hear what we have to say. I can only add that other people have told us that the IGC would benefit from a lot more transparency.

60 Department for Transport—Oral evidence (QQ 253-299)

Theresa Villiers: Certainly this Government has a very strong commitment to increasing transparency across government. I think the changes that have been made recently in the IGC with its publishing more on its website are very welcome. As with any area of government activity, we are always happy to look at proposals for more transparency and so again this is an area where— The Chairman: Where we might be able to help. Theresa Villiers: I would look to see your conclusions with interest to see if changes do need to be made in relation to that issue.

Q286 The Chairman: We seem to get this constantly in all the sessions we have had, “We can’t get through, it is too opaque, we don’t know”. It is an underlying feeling that we are like mushrooms. Theresa Villiers: I shall take that away with me. What I would say is that the various financial transactions in relation to the Tunnel are published alongside all of the payments made by the DfT over £500. So the information is out there but transparency is the sort of issue where in a sense there is always more that can be done, so I would be happy to consider the recommendations that you might have on that to see if we can do more. The Chairman: Thank you very much. Lord Walpole: The two of them have answered the question really. The answer is yes and no, isn’t it, or have I got it the wrong way round again? It is obviously absolutely essential that the Tunnel should be safe. It is unique. There are not many tunnels under lakes in Switzerland or anything. The Chairman: Not as long as that one. Lord Walpole: Certainly not as long as that one, and I think you do have to be very, very careful and I am very glad that everyone is looking at it to see whether it is right or whether you do need a further effort for different things that might happen down there, but I will leave it. Thank you very much indeed.

Q287 Lord Brooke of Alverthorpe: I am back on the Tunnel and the economic side of it, basically. What is the relationship between the Eurotunnel’s network statement and the various Rail User Contracts and does the Government have any role in these? There are some interesting differences between them as they impact on charges. We understand that these RUCs are the basis for the access charges currently charged for the use of the Channel Tunnel. Do you accept that there is a need for these to be reduced in order to stimulate more competition and the growth that you were talking about at the beginning of this session? Are you happy with the current level of charges? Are they unjustifiably high or are they appropriate? Theresa Villiers: Responding on that second point first, I am well aware that the freight operators using the Tunnel would like charges that are lower but it is our view that this is for the market to determine. The reality is, I think, if the Government were to intervene to try and bring charges down the only way would be to give additional subsidies to freight operators. We do that in certain contexts domestically but, given the current financial situation, I cannot say that there is a budget available to start subsidising freight services through the Tunnel to a greater degree than they are currently subsidised. They do already enjoy a degree of support because under the Rail Usage Contract the fixed infrastructure costs for freight running are borne by the taxpayer, so they currently do receive a degree of 61 Department for Transport—Oral evidence (QQ 253-299) subsidy. Without that support from the taxpayer under the Rail Usage Contract freight charges would be higher. As I say, in an ideal world it would be great if charges came down but I am simply not in a position to make promises I do not believe the taxpayer can afford to keep.

Q288 Lord Brooke of Alverthorpe: But there are other issues as well beyond the freight industry. Deutsche Bahn are not particularly happy with the charges that they can expect to be paying in due course and I get the impression that they feel they are rather high, to say the least. There are other people, I think, in the longer term who may be contemplating trying to introduce services, which we would all welcome if they could get access but again there is the issue of the charges. So it is not just the freight side. I come back to the basics on whether in fact there is enough openness about how the charges are arrived at and whether, given your commitment to transparency, we cannot look to more openness in regard to contracts where there is a difference between the statement put on the webpage by the Eurotunnel—

The Committee suspended for ten minutes for a Division in the House.

The Chairman: Sorry about that. Theresa Villiers: I would be delighted to carry on answering and then perhaps if I have not covered all the points raised, because I have not remembered them all over the break, you could come back and remind me. Going back to the way the pricing system works, as I have said it is not the Government that sets the prices. Our only involvement in what it costs to go through the Channel Tunnel is the fact that we subsidise the infrastructure costs for the freight operators. The prices are determined by Eurotunnel and the operators with whom they negotiate and if an operator like DB or whoever else was not happy with the deal they were being offered by Eurotunnel they do have a right to appeal to the IGC. The IGC, to their credit, have certainly been keen on pressing Eurotunnel for the sort of additional transparency that you have been talking about, so this is not something they are sitting back and ignoring. They do take their regulatory function seriously. Overall I think it is a system that works reasonably well but, as I have said before, if you have ideas on how you think it should be improved obviously the Government will give them proper consideration.

Q289 Lord Brooke of Alverthorpe: You understand the point that we are driving at. If you take aviation, or if you take the rest of the rail industry in the UK, you have the regulator playing a very significant role from an economic point of view in determining what the charges are but when we come to the Channel Tunnel there is a different governance entirely where you do not have the freedom of an independent regulator in quite the same way. For example, the performance of Eurotunnel is not subject to close examination in economic terms in the way that we find that the performance of the aviation industry, and indeed other parts of the rail industry, is in the UK. Theresa Villiers: The performance of the aviation industry is not—well, the airlines are not regulated. There is regulation of performance in relation to the airports. I think it is wrong to say there is not independent scrutiny of Eurotunnel. The IGC is a regulator. I do not see that its approach is so fundamentally different from what the ORR does in the UK. 62 Department for Transport—Oral evidence (QQ 253-299)

Obviously it is not aligned in all senses but it is still there as an entity that is independent from the regulated company and it takes its job seriously.

Q290 Lord Brooke of Alverthorpe: So would you be reasonably content with the level of charges then? Theresa Villiers: As I have said, it is a matter for Eurotunnel to negotiate with its customers and those customers have a right of appeal to the IGC. Perhaps again this might be a good point to bring in Roy, who can talk a little bit more about the work that the IGC is doing to hold Eurotunnel to account. As I have said, they take this issue very seriously. Roy Griffins: Thank you. One clarification: there is that part of the Tunnel where the capacity is taken up by the Rail Usage Contract, so that is 50% taken. So we are talking about the open access area where, for example—

Q291 Lord Haskel: The Rail Usage Contract just by Eurostar? Roy Griffins: By Eurostar and the freight operators, but there is still ample capacity and we have what we call open access operators and I think Deutsche Bahn, given we know about them, are the perfect example. They have not shared their plans with me, but you can imagine that wanting to come in to that 50% of the Tunnel they will negotiate with the infrastructure operator in the context of that network statement in order to get the best deal they can. One thing the IGC is doing on its economic regulatory side is forcing Eurotunnel to be more transparent than it has been so far and produce a much better network statement so that the train operator coming in on the open access side, Deutsche Bahn, has more strength to its arm in talking to the infrastructure operator. I am making this point now, I think, because we are at, without being too dramatic, a new dawn. We are relatively new in the passenger liberalised world and therefore Eurotunnel have not been used to being pressed to be more open about their charges in their network statement. It has to be said two or three years ago their network statement was pathetic. It is much better now and it is being pressed to be so by the IGC. So just imagine you can see Deutsche Bahn getting all the information they can, which Eurotunnel have been pressed to produce, entering into a negotiation with the infrastructure operator and making a business decision at the end of that negotiation. If they are happy that they can run profitable services—I hope they do—off they go, assuming they are safe and so on. If they are not, they will seize the IGC of the issue and there will be a proper appeal and it will get the full force. It will be dealt with properly by a proper regulator because we will be using the skills of the ORR to do that.

Q292 Lord Haskel: Can the IGC force Eurotunnel to reduce their prices? Roy Griffins: We have enforcement powers. The answer is yes. The Chairman: They could but do they? Roy Griffins: We have not been placed in that position yet. There has only been one appeal and that was on freight and the parties decided that they would first try and sort it out themselves. That was with what was EWS, which became DB Schenker, and so far as I know they are still engaged in these discussions. That is a business decision that they have both taken but the IGC is there to be a regulator and in an appellate function if reactivated. 63 Department for Transport—Oral evidence (QQ 253-299)

Q293 The Chairman: How much scope is there for variation between the network statement and the charges actually levied? Theresa Villiers: The network statement sets out the charges, but I understand there is a negotiation process between Eurotunnel and operators that want to come and use the Tunnel, so presumably there is scope for the parties to deal with one another to come up with a mutually agreeable price.

Q294 The Chairman: There seems to be a feeling—maybe I am wrong—that there really is a need to be more transparent in the setting of access charges. Theresa Villiers: As you have heard from Roy, the IGC is taking forward just that kind of process. The Chairman: But has it bought into that or is it sort of reluctantly doing it? Theresa Villiers: I think that is a question you had probably better ask them but my understanding is that they take their job as a regulator seriously and one of the important tools of a regulator is transparency on the part of the entity that you are seeking to regulate. Roy Griffins: I was just trying to be helpful in defining “them”. In that case, I think you were talking about the IGC, but “them”, Eurotunnel, is also an important concept. Probably up until the start of 2010 when liberalisation of passenger services came in I do not think Eurotunnel were taking this that seriously but they are being pressed by us to take it seriously and we know that Brussels are watching us and Eurotunnel know that Brussels are watching us so they take us seriously. Theresa Villiers: I am sure your deliberations and your report will provide a push in the right direction as well, both for the IGC and for Eurotunnel. I think it is a very good subject for you to have chosen and I am sure your recommendations will be very useful.

Q295 The Chairman: I hope it will also take the customer into account, and this is my final question. We have received evidence to suggest consumers experience great difficulty in purchasing pan-European through-tickets for connecting journeys. How do you think the development of such a service can be encouraged and should the CIV apply to all stages of such a journey? Theresa Villiers: Yes, in terms of the passengers’ interaction with the system they probably do not find it as easy as one might expect to buy tickets for long journeys across Europe but I know that the rail industry is very engaged in trying to make it easier and more attractive for passengers to buy tickets for locations that go beyond Brussels and Paris and the standard destinations because, of course, they have a strong commercial imperative for that to be the case. So you have the initiatives that Eurostar have done with continental partners via the programme called Railteam, where they have sought to make it easier for people to buy through-tickets to— The Chairman: . Theresa Villiers: Exactly, for Avignon there is a ski train. I know for a fact that many of my former colleagues from the European Parliament now tend to get to Strasbourg by train whereas they all used to take the plane. They now take the train to Paris and dash across between the two stations in Paris to get the train to Strasbourg. I think it is starting to happen gradually. None of these companies has come looking for a government solution. I 64 Department for Transport—Oral evidence (QQ 253-299) have to say I think this really is something where it is up to the private sector to make it happen and we can expect them to have an incentive to make it happen because it is directly in their commercial interest to make it happen. As well as the Railteam project, Eurostar has also teamed up with 10 of the domestic train operators in the UK to make international ticket buying easier, essentially allowing people to buy international tickets from a range of different domestic stations in the UK. In terms of the interaction between the international passenger compensation rights and domestic passenger compensation rights, I think the compensation rights that apply, whether it is via the CIV system or whether it is our domestic passenger compensation schemes, are certainly appropriate to the needs of passengers. I have not seen a convincing argument to say that we need to extend the scope of the international passenger protection regimes. I do not see at the moment that there is a gap in passenger protection that needs filling with a change in the rules.

Q296 The Chairman: I think the perception is that it is wonderful to travel in the Tunnel, it gets you there quickly, it is more hassle-free than going to the airports, particularly with the sort of intrusive security and car parking and all the rest of it, but there it ends, and it is difficult for the ordinary Joe Bloggs or Joanna Bloggs to get a sense of being able to travel for the best possible price on a big network. That is really where we started all of this, just thinking about the customer, who is not actually convinced about this. I know the Railteam has done it but do you think The Man in Seat 61 has probably had an awful lot more influence than anybody else? Theresa Villiers: To a degree there is a perception issue here in that people are used to taking the train to Paris and Brussels, but they are not used to taking the train to Amsterdam or or Bourg-Saint-Maurice, and I think it takes a while for people to adapt to the fact that not only is the train an attractive alternative for Paris and Brussels but increasingly it is not a bad option when you are talking about destinations further afield. I do think the new DB services will help on that. I do not want to look like I am avoiding the question but I really do think these are questions properly put to people like Eurostar or DB. They are very excited about the potential. The Government is supportive in principle in that we see that high-speed rail can provide potentially an alternative to air services between a range of European destinations. We want to see this traffic take off but it is really for the private sector operators to go out and grab those passengers who I am sure, with the right information and the right opportunity, are going to start taking high-speed rail services over much longer distances than they are used to doing at the moment.

Q297 The Chairman: I do not want you to go away thinking that I want the Government involved, absolutely not. It is just that the perception is that it is not as easy as it might be and then of course people think there is a conspiracy theory. Oh, I was supposed to give you that question, wasn’t I? I am so sorry. I am sure you have plenty of questions listening to this, but I ought to ask why the Channel Tunnel has unique safety requirements. I am sure it is because it is under the sea. Theresa Villiers: In essence that is a big part of it. The length of the Tunnel and the fact that it is under the sea mean that particular requirements apply to it, and then again there is the fact the UK is at a higher risk from terrorist attack than some other Member States. The Chairman: Yes. We have dealt with this one before. 65 Department for Transport—Oral evidence (QQ 253-299)

Theresa Villiers: There is a combination of reasons why it is a tunnel unlike any tunnel anywhere else in the world, so that does mean that additional safety requirements are needed.

Q298 The Chairman: Baroness Valentine always asks the most penetrating questions and I have now actually stopped her. Do you have any ideas? Baroness Valentine: I am all right on that, thank you. The Chairman: I am so sorry. We dealt out the questions before she arrived and I put my name on it and then did not realise I had scrubbed it out. There is a final, final question and I always ask this. Are there any questions that you think we should have asked you that we did not ask you and, if you think there are, would you tell us what they are and would you like to answer them? Theresa Villiers: There are no questions that instantly spring to mind. You have covered a range of really useful topics and given me a chance to reflect on some very important issues. The Chairman: Thank you very much. If you think that there is anything we have left out or if there is anything that you could increase our knowledge base by, it would be marvellous if you could send us a copy of it, any of you, because we are still learning. Thank you very much, all four of you, for coming in.

66 Deutsche Bahn AG—Written evidence

Deutsche Bahn AG—Written evidence

Deutsche Bahn welcomes the opportunity to present evidence to the Inquiry into the European Rail Market and the role of the Channel Tunnel. As one of Europe’s major transport and logistics groups, DB operates passenger and freight services across Europe. The acquisition of plc in 2010 has increased the operation of passenger services by the DB group in the United Kingdom. DB is actively working on a project to introduce High Speed Services through the Channel Tunnel in December 2013.

We will be pleased to provide further information to the Committee and to clarify any of the points set out in our response.

1. How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

The prerequisites for more competition in international rail passenger services are fair and non-discriminatory access to rail infrastructure and rail-related essential facilities, the removal of technical and administrative market entry barriers as well as common standards of rail regulation in Europe. a. Liberalisation of rail passenger markets

As the new IBM Rail Liberalisation Index 2011 (4th edition published on 20 April 2011) indicates, the degree of market opening in rail passenger markets in Europe still varies considerably. The asymmetry between countries with open and accessible markets and countries with restricted or no market access constitutes an obstacle to the development of rail passenger services in Europe. In the new Transport White Paper 2011 the Commission announced its intention to present legislative proposals for the further liberalisation of domestic rail passenger transport in 2012. This initiative is welcomed by DB.

With regard to international rail passenger services, directive 2007/58/EC is a milestone on the way towards an integrated railway area in Europe. As of 1 January 2010 the market is opened for international rail passenger services, based on the principle of open access taking into account the right of cabotage on international routes. The right of cabotage is essential to generate enough demand to be profitable on international services.

At the same time however, the directive includes the possibility of far-reaching restrictions on market access. It lies within the discretionary power of a Member State to limit the right of access when the service between a place of departure and a destination is covered by a public service contract and the economic equilibrium of this public service contract is compromised. The right of cabotage may also be limited on a route where an exclusive right was awarded on the basis of competitive tendering. Furthermore Member States may impose a levy on railway undertakings operating international rail passenger services. The discretionary character of the limitations deepens the existing asymmetries, because some Member States make use of the limitations while others do not. There is no uniform application of the criteria set out in the directive. Against this background, DB welcomed the publication by the Commission of its interpretative communication on 28 December 2010. In that communication the Commission specifically defines the criteria for the limitation of

67 Deutsche Bahn AG—Written evidence market access and gives guidance for transparent procedures for national regulators and market players. The communication is based on the assumption that open access on international routes is the principle and that limitations on market access or cabotage are the exception. It is essential that the directive is applied by Member States in that spirit. b. Common standards of rail regulation

In parallel with the liberalisation of rail markets in Europe it is essential that common standards of rail regulation are established in order to ensure non-discriminatory access to the network. To achieve this, the regulatory bodies in the European Union should be vested with appropriate powers. Regulatory bodies must be able to take decisions independently and efficiently and to adopt measures to correct undesirable developments in the rail markets. The independence necessary for the surveillance of competition requires that regulatory bodies must have budgets over which they have control and which allow them to recruit a sufficient number of staff to perform their tasks and to investigate complaints. Furthermore, regulatory bodies must be sufficiently accessible for the market players. Decisions and actions of the regulator should be efficient, consistent and transparent and based on the principle of proportionality.

The Commission should coordinate the cooperation between the national regulatory bodies and should ensure that European provisions on rail regulation are uniformly applied. Where decisions concern questions of track access and access to essential facilities, the regulatory body should inform the Commission. The Commission should then assess the compatibility of the proposed decision to European railway regulation and give recommendations to the national regulator as necessary. These recommendations should be taken into account by the national regulator. c. Technical market entry barriers

The homologation of rolling stock is an important element of an integrated European railway area. The homologation process can turn into a technical market entry barrier for a railway undertaking seeking market access for international services. The Commission identified this risk several years ago and proposed legislation that was adopted in 2008 in a “technical- package”. This legislation is based on the concept of “cross acceptance” of vehicle homologation. It streamlines the procedures, inserts transparency for the applicants and gives deadlines for the national safety authorities to take decisions on homologation. The interoperability directive is now supplemented by an implementation recommendation from the Commission describing the common understanding of the procedure for authorising the placing in service of vehicles. In many cases the process of mutual recognition makes cost- intensive technical harmonisation superfluous. Further measures are the implementation of “Reference Document Databases” where notified national rules from the Member States are made available to the railway sector.

DB welcomes the priority that the European Railway Agency (ERA) has given to this subject and the mandate for action to improve the procedures that the ERA has been given. To achieve this, the ERA must have powers of coordination and supervision functions over national safety authorities in homologation matters.

DB also welcomes the proposal by the Commission in its Transport White paper 2011 of a policy initiative to achieve a single vehicle type authorisation and a single railway undertaking safety certification by reinforcing the role of the ERA. 68 Deutsche Bahn AG—Written evidence

2. How has the liberalisation of the international passenger rail market been developing since January 2010?

As a result of the significant investment necessary for market entry and the current regulatory framework, competition in international rail passenger services is developing with modest speed. An academic study by the European School of Management and Technology in Berlin (ESMT) concluded that there is robust evidence for effective competition between low-cost airlines and rail operators. This can be seen in practice on major routes in Europe. Furthermore the study concluded that only a minority of international long distance origins and destinations are profitable from a pre-entry perspective. These factors, especially intermodal competition, have to be taken into account when assessing the impact of the market opening directive. An example for a market entry under the scope of directive 2007/58/EC is the trans-alpine rail passenger service from to , Bologna, Milan and operated by DB, ÖBB and Le Nord in competition to the Italian incumbent FS since December 2010. New projects will emerge in the future such as the planned direct high speed connection from Germany to the UK (ICE to London). In order to unlock the significant potential of new international rail passenger services in the future, the existing limitations described under point 1 need to be removed.

3. Should the European Rail Agency have a stronger role in this regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

In our view the most noticeable aspect regarding the Channel Tunnel is that although there are non-ambiguous Technical Specifications for Interoperability for Safety in Railway Tunnels (TSI SRT) the legislation for the Channel Tunnel has not been adapted accordingly and the specific characteristics of the Channel Tunnel have not been sufficiently notified to the Commission, although this is required by the TSI under article 7.4. That means that even established areas of TSIs do not sufficiently guarantee clear rules of access. This fact was observed – along with many other aspects – by the ERA in its report of 21 March 2011. It might be appropriate for the ERA to develop transparent documentation on the specific safety regulations in European railway tunnels. In particular, longer tunnels should publish the actual TSI conformity for those tunnels including notifications and exemptions.

4. How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN-T projects?

The TEN-T policy of the European Union is currently under review. The approach of the Commission is based on the concept of establishing a core network and a comprehensive network with the objective of prioritising the allocation of TEN-T funds. Linking central transport nodes to form a core network can increase the efficiency of the transport system. When identifying these nodes, it makes sense to distinguish between passenger and freight traffic. In this context DB shares the view of the Commission that the future core network should be determined by major traffic flows and anticipated transport demand. DB believes that only those cities with the highest traffic volume and conurbation areas or international hubs which are of central importance for society should form the nodes of the future TEN-T core network (and as a result be subject to prioritised allocation of TEN-T funds).

69 Deutsche Bahn AG—Written evidence

Furthermore when specifying the network elements, special attention has to be paid to the elimination of bottlenecks so as to increase the overall capacity of the network.

In general terms, funding of TEN-T projects should be based on an assessment of the following criteria: contribution to traffic development, environmental impact, safety advantages, network effects and saving in travelling times. The discussion on the TEN-T revision will be intensified when the proposal for new TEN-T guidelines are presented by the Commission, possibly before the summer break 2011. An extensive analysis of the current TEN-T revision is included in a DB position paper that can be provided to the Committee on request.

5. Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

The application of the EU regulations should be based on a common understanding especially with regard to standards of regulation and harmonised technical procedures. The European Commission and the European Railway Agency should coordinate the national regulatory and safety authorities to ensure uniform application of community law. Special procedures are not necessary to achieve this.

6. What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport and others such as cross-Channel ferries?

It is necessary to eliminate the unequal treatment of and air transport in terms of taxation. Airlines are exempt from VAT on international flights and do not have to pay energy-related taxes.

High-speed rail services have only marginal effects on ferries as passengers travelling by rail will usually come from destination where using a private car is not an attractive option. The most significant competition will be between airlines and rail which can already be observed between London and Paris and between London and Brussels. In the special case of high speed rail, a particular focus has to be on infrastructure access charges. The Channel Tunnel and HS1 are the two most expensive piece of infrastructure in Europe. If the level of these charges were closer to the European average for high speed lines the number of daily trains services could be expected to be significantly higher.

7. Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

Passenger rights in rail transport are well established and support a high degree of reliability in the transport chain for rail travellers. European Regulation 1371/2007 on rail passenger rights and obligations represents a reasonable balance between consumer protection on the one hand and the economic burden and the operational specifics of railway undertakings on the other. Introducing passenger rights beyond the existing level could have detrimental effects on the launch of new services as in many cases such services are longer and inherently more complex. Establishing new international rail passenger services is generally a very challenging task in terms of economic viability and operational stability. Stronger passenger rights would imply even higher costs for those services and might therefore lead to a situation where some new rail services might not be started at all.

70 Deutsche Bahn AG—Written evidence

8. In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

The Treaty of Canterbury was written at a time where the modern framework for European rail legislation did not yet exist (Directive 91/440 EC and all later directives and regulations). Rail services by new operators, in particular high speed passenger operators, are not foreseen in the Treaty; for example, new entrants cannot object to decisions of the IGC. Furthermore, the decision making process within the IGC is relatively slow. This adds to the problem that the IGC as a bi-national body has to coordinate its decisions with the national governments and regulators. DB is of the opinion that a separate body has not proved to be particularly helpful. We suggest that national regulators should take over the responsibility. The aim should be that there is no difference in the processes for the Channel Tunnel when compared with any other railway border point in Europe. One option could be to nominate a neutral and senior person (independent of the two Governments) to act as facilitator/moderator between the two regulators.

9. The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

The needs of the customer in a global market, where goods depend on production processes in different countries and where the continuing elimination of trade barriers, are increasingly leading to integrated transport chains and thus to intermodal transport services. This automatically leads to a growing demand for sustainable, environmentally compatible solutions. Rail and local public transport services must make a greater contribution to solving problems such as traffic congestion, environmental pollution, climate change, depletion of resources and dependence on fossil fuels.

For this reason, DB supports the approach of the Transport White Paper 2011:

• to encourage the integration of the various modes of transport with the aim of making environmentally compatible alternatives to road transport more attractive and of transferring more shipments to rail.

• DB in particular welcomes the goal of shifting 30 per cent of road freight over 300 km to rail and waterborne transport services by 2030 – and by 2050 increasing this to over 50 per cent. By 2050, the goal is to have the majority of medium-distance passenger transport on rail. To this end, the Commission proposes to triple the length of the existing high-speed rail network in Europe by 2030 and to connect the major airports to the rail network, preferably for high-speed services.

In the context of the mid to long term approach of new Transport White Paper the Channel Tunnel can represent a bottleneck to accommodating a growth in capacity. As mentioned above, it seems necessary progressively to adapt the technical rules to EU-legislation (i.e. the Technical Specifications for Interoperability) and to align the access charges of the Channel Tunnel with market needs.

71 Deutsche Bahn AG—Written evidence

10. What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

We do not expect any security implications: passengers on trains running through the Channel Tunnel will be subject to security checks similar to those of existing train services.

June 2011

72 Deutsche Bahn AG—Oral evidence (QQ 87-131)

Deutsche Bahn AG—Oral evidence (QQ 87-131)

Evidence Session No. 3. Heard in Public.

THURSDAY 7 JULY 2011

Members present

Baroness O’Cathain (Chairman) Lord Brooke of Alverthorpe Lord Clinton-Davis Lord Haskel Lord James of Blackheath Lord Walpole ______

Examination of Witness

Witnesses: Johann Metzner [Head of Transport Policy Europe], and Steffen Geers, [Project Director ICE London, Deutsche Bahn AG]

Q87 The Chairman: Mr Metzner and Mr Geers, thank you very much for coming. I remind Members to state any relevant interest before asking a question. The session is on the record and is being webcast live; it will subsequently be accessible via the parliamentary website. The witnesses will receive a transcript of the session to check and correct, and this will be put on the public record in printed form and on the parliamentary website. I ask first, for the record, if you could give your names. Johann Metzner: Yes, my name is Johann Metzner. The Chairman: What is your official title? Johann Metzner: I am Head of Transport Policy Europe at Deutsche Bahn AG in Berlin. The Chairman: Thank you. Mr Geers? Steffen Geers: My name is Steffen Geers and I am the Project Director for the ICE London Project.

Q88 The Chairman: Thank you very much. You have already indicated that you do not want to make an opening statement, is that correct? Steffen Geers: That is correct. The Chairman: So we will go straight into the questions and I am asking the first question. We are aware that Deutsche Bahn want to run services through the Channel Tunnel and that you have encountered difficulties. Could you talk us through the process you have been through already in order to achieve this? How is the process going? Do you think you will be in a position to run services in 2013, as planned?

73 Deutsche Bahn AG—Oral evidence (QQ 87-131)

Steffen Geers: We are in good working relations with all relevant bodies in this respect. Our discussion with the IGC and the CTSA, which are responsible for security and safety in the Channel Tunnel, gained momentum in 2009 when a public consultation was launched on the revision of the safety regulation for the Channel Tunnel. DB took an active part in that consultation and in March 2010 the IGC published preliminary remarks and recommendations on how to change and alter the safety regulation. These were supported by Deutsche Bahn and met the requirements of bringing new services to London. Unfortunately these recommendations have not come into force to date. There is a second part where the Eurostar announcement of buying new trains caused some disruption to these processes and only after an appeal to ERA to give a technical opinion on those recommendations did the process regain momentum. In mid-June this year IGC decided to accept one of the crucial elements of the recommendation, to allow distributed power in the Channel Tunnel, and Deutsche Bahn is ready to hand in all remaining safety documents in the upcoming weeks. We are optimistic that on the grounds of these documents the IGC will be able to make a decision on the acceptance and authorisation of our trains. We are dependent on the decision being taken this summer to allow for the opening of the service in 2013.

Q89 The Chairman: So is it a bit of a tight timetable. Steffen Geers: It might sound tight but we are, of course, in regular contact with the IGC so all these documents are no surprise to the IGC and the CTSA. The Chairman: I see—efficient. Well thank you very much. Does anybody want to ask any questions supplementary to that? No? Lord Clinton-Davis.

Q90 Lord Clinton-Davis: I ought to declare that I was Transport and Environment Commissioner in Europe in 1985, a great year. I understand that Deutsche Bahn is already involved in running a service between Munich and Verona. What comparisons would you draw between that experience and the cross-Channel project? Johann Metzner: From a legal point of view, the first comparison one can draw is that both services would be under the scope of Directive 2007/58/EC, which opened up international passenger services for competition as of 1 January 2010. So that is a comparison one can draw. When it comes to the specifics of the service itself, the geographical nature and the different circumstances of the service cannot be compared one to one. However, it is an international service that we would consider to be part of the tendency and the progress made under European law to open up markets in Europe. The Chairman: Right, thank you.

Q91 Lord James of Blackheath: Are the measures already in place under the EU rail packages sufficient to promote open competition in international rail services? Do you have any particular problems that you would like to open out? Johann Metzner: With regard to EU legislation I think we have to look at the three railway packages that are already in place. In freight the markets are already liberalised for international as well as domestic services. In passenger, as I said, it is only the case for international passenger services. So, from Deutsche Bahn’s point of view, there is still one piece of legislation missing, which would open up domestic rail passenger services for competition. 74 Deutsche Bahn AG—Oral evidence (QQ 87-131)

When it comes to the application of the existing legal framework there are certain shortcomings that need to be looked at in the coming years. One is that the current EU Directive gives the discretionary power to Member States to restrict market access in specific cases. The most prominent case is that if an international service is in some way touching the economic equilibrium of a public service running on the same line or in the same region then Member States can restrict international services. That was part of the compromise formed in the Council when this Directive was adopted, but today there is no common practice in applying that rule. This is why the European Commission in late 2010 published an interpretative note to give orientation to Member States on how to apply these rights to restrict access. We think they need to be applied in a uniform and transparent way so that arbitrary measures are ruled out from the beginning. The second point where we think there is still room for improvement is the removal of technical and administrative market entry barriers. This is still the case with homologation of rolling stock, particularly with locomotives. Progress is also made under the guidance of the European Railway Agency to insert more transparency and more predictability in the process when it comes to obtaining safety certificates for rolling stock in Europe. To sum up, these are the two major areas where we think there is still room for improvement.

Q92 Lord James of Blackheath: What steps are you taking to get the missing piece of legislation that you talked about in place? Johann Metzner: First of all the European Commission published its new White Paper for 2010 to 2020 at the end of March this year. In this White Paper the Commission announced the proposal of a new piece of legislation in 2012. DB highly welcomes this announcement and is actively supporting any preparation of legislation.

Q93 Lord James of Blackheath: Is that a timetable that works for you? Johann Metzner: Excuse me? Lord James of Blackheath: Does a timetable of 2012 work for you? Johann Metzner: Yes, the preparatory consultation will take place and Deutsche Bahn has been advocating markets opening for 15 years, so for us it is a demand that we have been raising for a very long time and the announcement of 2012 is a step in the right direction. Lord James of Blackheath: Thank you.

Q94 The Chairman: Can I just follow up on two points that you made in your answer to Lord James? The first one is about domestic services: what do you actually mean by domestic services in the context of your involvement in trying to come through to serve the Channel Tunnel and onwards into London or wherever? Johann Metzner: Would you allow me to make a short reference to the German situation? The Chairman: Yes, that would be fine. Johann Metzner: We had railway reform in Germany in 1994 and one of the cornerstones of this reform was to open up the rail market in Germany on the basis of open access. So every railway undertaking holding a safety certificate can ask for non-discriminatory access to the market. Under domestic service we would understand services within one country; for example, Hamburg to Munich would be a domestic service. Under European legislation

75 Deutsche Bahn AG—Oral evidence (QQ 87-131) this is not yet open in all of Europe. There are some Member States who already decided to open their market, for several reasons, and others decided not to go down this line. We think we need to remove the existing asymmetries in Europe and need to have a symmetrical market operating across EU-27.

Q95 The Chairman: Well it is against the Single Market Act if they do not open it, is it not? I would have thought it would be a non-tariff barrier to trade. Johann Metzner: From a strictly legal point of view, if EU law does not oblige Member States to open up their market, because there is no Directive in place so far, then a Member State would not be obliged to do so. A railway undertaking from a country with a closed market can still ask for access in a country where markets are opened and it cannot be turned down with the argument that the market of the country where the railway undertaking is coming from is not yet open. As I said, there is progress under way and we are optimistic that this last piece of legislation will come.

Q96 The Chairman: Do you think that by 2012 it will be a truly open market among the 27 Member States? Johann Metzner: No, in 2012 the Commission will propose or change to a new Directive, which will then go into the co-decision procedure. That usually takes 12 to 24 months before Council and Parliament then adopt it.

Q97 The Chairman: So we are talking about 2016 or something around then. Johann Metzner: Well it is hard to predict but I think it is still a good start to be doing that next year.

Q98 Lord Brooke of Alverthorpe: So when do you anticipate running trains on the French lines? Johann Metzner: That is a very good question. It depends on the calendar of EU legislation and the transposition of EU legislation. Lord Brooke of Alverthorpe: Do you ever see it happening? Johann Metzner: The French Government commissioned a recent study—the rapport Grignon—in which they analyse the situation in France and a few recommendations are made. When we speak about EU legislation I think it will take some more time.

Q99 Lord Haskel: You run trains in Switzerland. Is it because Switzerland is not a member of the EU that you have been able to come to that arrangement? Johann Metzner: Yes, we run trains in Switzerland in co-operation with the Swiss rail company, SBB. You are right, Switzerland is not a member of the European Union but it is associated, via a contract with the European Union, to transpose certain elements of the acquis communautaire but not, so far, the market opening.

Q100 The Chairman: Deutsche Bahn runs trains in Belgium and the Netherlands as well, do you not? 76 Deutsche Bahn AG—Oral evidence (QQ 87-131)

Steffen Geers: Yes we do. The Dutch connections are also in co-operation with the Netherlands railways, and to Brussels it is with the acceptance of SNCB, the Belgian railways. The Chairman: Well thank you very much, that is very interesting.

Q101 Lord Brooke of Alverthorpe: As you are probably aware, we are reasonably liberal in this country when it comes to trading and providing opportunities for other people to come and trade in the UK. In some people’s eyes we are a little bit slow on the Channel Tunnel. Is there any justification for the Channel Tunnel being given separate safety standards that are not necessarily in conformity with the ERA’s TSIs? Or is a more bespoke approach required because of the peculiarities of the Tunnel? Do you think the present arrangements are justified or do you think they should be changed? How do you think the Channel Tunnel’s problems compare with, for example, lines that run through the Alps? Steffen Geers: There is a very interesting answer to this question in the ERA report, a technical opinion that DB shares. It says that, if I may quote, “To date, the Agency has seen no evidence that migration to conformity with EU legislation would lower the overall level of safety”. That means there is a legal framework, called the TSI rules, that is already in place and could be applied to the Channel Tunnel. ERA obviously sees no reason why they should not be applied to the Channel Tunnel. In return, that would offer many advantages that would mean that a fully TSI-compliant vehicle would be authorised automatically in a TSI- compliant tunnel. By not being TSI compliant you call for extra burdens and for extra evidence to be presented. So of course DB would share ERA’s view that a TSI-compliant Channel Tunnel would be an advantage and would not lower the overall level of safety. The example of the cross-Alp tunnels, which are even longer than the Channel Tunnel, shows that fully TSI-compliant rail tunnels are there and are possible, and I guess no one would doubt that the Swiss would have at least an equivalent level of safety in their tunnel.

Q102 Lord Brooke of Alverthorpe: This is a sticking point over your progress at the moment, is it not? It is one of the issues. Steffen Geers: It is one of the points using many resources on our side, but nevertheless we are fully aware that we will have to hand in every paper and every document that shows that our trains are fully compatible for running in the Channel Tunnel. As I said, we will hand these papers in within the next few days or weeks and we are optimistic that we can answer all remaining questions with these documents.

Q103 The Chairman: Could a situation arise where all the safety standards were met but then somebody could say, “It will be devastating to the economy or a particular region to have another operator coming through”? You mentioned that the Commission takes into account the representations of the impact of competition on the railways on an economic area. So I am asking you if there is yet another hurdle that might come up where they will say, “It will be difficult for the hinterland to cope with this competition.” Johann Metzner: I do not think so. As we understand it, the concept in the UK is based on the principle of open access and has been for a very long time. When we speak about crossing Belgium and France, this would be an international service because the original destination is international. So to answer your question, I do not think this would compromise any service on this line. 77 Deutsche Bahn AG—Oral evidence (QQ 87-131)

Q104 The Chairman: What about the French side of the Tunnel? You do not have Deutsche Bahn trains running in France do you? Johann Metzner: Not passenger services, but we do have freight. The Chairman: I see, it is a bit complicated, isn’t it? Thank you very much. Lord Walpole: They are going to have to. The Chairman: Yes, that is right.

Q105 Lord Walpole: If I am declaring an interest I might say that I am president of a body that is trying to undo some of Dr Beeching’s closures in Norfolk. In other words, I think railways are a good thing and they can work very well even on single lines, using little diesel engines and that sort of thing. The bus companies like us as well, which is very surprising. The question I want to ask you is to take this a little bit further. We understand that the special security and immigration arrangements required in order to run services through the Tunnel are a little peculiar. Are they proportionate and is there any alternative to juxtaposed border controls? Do the Alpine tunnels impose special security requirements? I understand that if you go to St Pancras and walk through a door past a French immigration officer you are then standing in France, roughly speaking. Are you going to have problems with things like that? Steffen Geers: Of course we are fully committed to meeting all security requirements that are imposed on us. The Chairman: Of course. Steffen Geers: Speaking honestly, DB is not in a position to judge on security requirements. We are a railway operator and the security threats are for others to judge. However, it is quite interesting to know how the security issue evolved over time. When the Channel Tunnel opened we understand that there were only random checks and no special measurements on the vehicles. Comparing this situation to now, you have full screening and X-ray of all passengers and onboard members, you have sterilisation of the trains and you have secured stabling of the trains, which all add costs. It is not to say that it is unnecessary because it is costly. DB’s concern is that only one way has been seen in history and that is the way up. There is always adding and adding, and there is the concern that there might come a time when maybe, even for a third operator or another operator, they would look at this and say, “This is too expensive for us and we cannot afford it.” Again, it is for others to judge if it is necessary, but we are interested in the most efficient way to comply with the security requirements. I have to say that we are in very constructive discussions with the relevant bodies, especially in the UK. The same holds for passport controls; the situation is, roughly speaking, similar. If you look at the history, we used to have onboard passport checks; nowadays we have juxtaposed controls to basically push the border towards the other country. There are discussions with the UK Border Agency to have alternative measures in place and to look at alternatives to that, because when you expand the network you would have to have juxtaposed controls from every single stopping point. That would lead to enormous expense to the UK public. So in co-operation with UKBA we are looking into much more efficient measures to make sure passports are controlled.

Q106 The Chairman: That is very interesting. I can understand why it has changed of course because that was prior to 9/11 and since then the whole security situation has 78 Deutsche Bahn AG—Oral evidence (QQ 87-131) changed. Also, today is the anniversary of the London Tube bombings. You have not had that experience in Germany, so you can imagine that there are sensitivities and fears about issues like this. I think your description of it is wholly admirable, particularly the idea that you are at least having constructive discussions with people. The terrorists cannot win; we just have to make sure that we are as safe as possible. Constructive discussions could maybe lead to a lessening of the cost and the restriction. Steffen Geers: I would like to add that you are quite right: the message needs to be that the two of us are on the same side. We are on the good side and we fully support the security measures that the Department for Transport asks us to impose.

Q107 Lord Brooke of Alverthorpe: I have another question about the Alpine tunnels. Do they pose particular problems for you or is the threat lesser? The Chairman: The tunnels in Switzerland. Steffen Geers: In Switzerland? To my knowledge there are no specific security requirements, so there are no check-ins or vehicle inspections. Lord Brooke of Alverthorpe: That is interesting. The Chairman: Very interesting and quite extraordinary, too.

Q108 Lord Haskel: You have told us about the barriers to liberalisation by the safety regulations and interoperability, and you have also mentioned the ERA. Do you think that the ERA should have a stronger enforcement role or indeed should they be able to direct national regulators to get over these barriers? Johann Metzner: First of all, yes we think the European Railway Agency should have a stronger role in the future in the sense that co-ordination between the national rail safety authorities is necessary in order to ensure a uniform application of EU law. As well, it is necessary to have common standards of rail regulation when it comes to market access and we think that the competences of the ERA should be enforced in that sense. It is difficult to say whether or not in the very long term we will have one European safety authority. I think that is a vision that is still a very long way ahead. For today and in the near future we think that, yes, the ERA should play a role in order to co-ordinate the application of the existing law. It is already very sophisticated, but we can still detect some differences in the way the national bodies apply it in their countries.

Q109 Lord Haskel: The Independent Regulators Group has recently been established. What should the relationship between the ERA and the IRG be? Johann Metzner: That is a very interesting question. This newly established group of national rail regulators is looking at slightly different issues. As far as I understand it, their terms of reference want to exchange best practice of national rail regulation when it comes to market access, infrastructure pricing and regulating rail-related services. The scope of the ERA is rather more on the technical and safety side, so they do not have a priori a common scope of subjects. Of course they should exchange information and co-ordinate their activities.

79 Deutsche Bahn AG—Oral evidence (QQ 87-131)

Q110 Lord Haskel: Who would enforce the matters that the ERA and IRG-Rail think should be enforced? Johann Metzner: Our understanding is that the objectives are a little bit different. The job of the rail regulator, if I may say, is as a policeman to make sure that non-discriminatory market access is possible. The role of ERA and the national safety authorities is to issue safety certificates and to make sure that a high level of safety is maintained in all of Europe. So the enforcement of EU law when it comes to safety is via the European Railway Agency and the Commission. When it comes to market access in the individual countries, it is the specific role of the regulators. That is why they have teamed up, to exchange practices and to look at certain issues from a cross-border point of view, which I think is very useful. This is part of an initiative of the European Commission under the recast of the first railway package. Today there are still asymmetries in the way that rail regulation works. There are countries where the regulator is traditionally very strong, like the United Kingdom, where they are staffed and have competences and resources. In other European countries this is not yet the case. That is why the objective now is to have common standards of rail regulation and common competences and criteria for independence of the regulator. Lord Haskel: To raise the standards? Johann Metzner: Yes. The Chairman: Thank you very much.

Q111 Lord James of Blackheath: Could you give us your views on the prioritisation for the TEN-T funding? Should this concentrate principally on high-speed or normal speed rail? Johann Metzner: The TEN-T policy is currently under revision. As far as we understand, the European Commission will table new ideas after the summer break in September 2011. I think the policy will be revised in the sense that the allocation of TEN-T funds will be weighed or measured against the added value that a project brings in terms of benefit to the internal market, environmental improvement, network effects, cutting travel times and so on. From our point of view TEN-T funds should not necessarily go into high-speed lines. In Germany we have had the experience of upgrading existing lines. For instance, there was a massive upgrade on the line between Hamburg and Berlin a few years ago. This cut down travel time and increased passenger volume in a very substantial way. So in every individual case we think one has to weigh the allocation of funds against these criteria. At the end of the day it may be sensible to upgrade an existing line or to build a new line. So there is a not a one-size-fits-all answer to this question.

Q112 Lord James of Blackheath: Surely you need to have a policy preference yourself, otherwise the funding cannot follow what you would want it to do. Do you not take the initiative rather more directly than your response suggests? Johann Metzner: We are discussing high-speed from the perspective of the country we come from. We have a polycentric network; there are hubs every 80 to 100 kilometres and it is a completely different geographic situation from the one you would have in Spain or in France. So high-speed can add to the development of passenger services in different countries in different ways. The discussion that we are having in Germany right now is not about whether we need to pass 300 kilometres per hour on every line or how we can connect the different hubs in a very efficient way.

80 Deutsche Bahn AG—Oral evidence (QQ 87-131)

However, when we speak on a European scale, there are examples where high-speed lines were built with EU funds, like the TGV Est between Paris and Strasbourg, which was opened a few years ago. Of course, from a European perspective the investment was well made because it cut down travel time and contributed to sustainable transport in a very substantial way.

Q113 Lord James of Blackheath: I am still slightly confused on this. If you are suggesting that it is an issue of infrastructure not just to go faster but to eliminate the blocks created by the hubs, which I think is what I am hearing you say, how could money be spent that would improve the elimination of the hub blocks? Johann Metzner: What the European Commission is doing right now is attempting to identify a core network in Europe, and then in a second layer a comprehensive network. Once Member States have agreed upon a core network, then within it the TEN-T funds can be used for different projects that will generate the maximum effect on the internal market. That can be a new line, it can be the removal of a bottleneck or it can be the upgrade of an existing line. Lord James of Blackheath: Thank you. The Chairman: Thank you very much.

Q114 Lord Haskel: In your very helpful paper you talk about the need to eliminate the unequal treatment of tax between rail and air. You particularly mention energy-related taxes. Do you think that the introduction of the Emissions Trading Scheme to the aviation sector will help balance this out? Johann Metzner: Yes, today one can witness an unequal fiscal framework when it comes to value added tax on international lines and kerosene tax exemptions. With regard to the Emissions Trading Scheme, what we would expect is that the generation of electric traction energy for rail is fully subject to the Trading Scheme that will be implemented in 2013. There are already scientific studies on the effect that this will have on the cost for railways. With regard to the air sector, as far as I understand it, only 15%, a small proportion of the emission rights, need to be auctioned for the rail sector. So there will still be some unequal treatment left, even after 2013.

Q115 Lord Haskel: When the Emissions Trading Scheme is applied to the aviation sector, do you think that will help balance it out when the airlines have to pay tax on their emissions? Johann Metzner: The policy of Deutsche Bahn is not to burden other modes of transport with tax; the policy has always been to have an equal treatment that can also be achieved by applying the same exemptions to different modes of transport. From today’s perspective it is very difficult to say whether or not, from 2013 onwards, the 15% of CO2 emission rights that need to be auctioned will have an impact or not. The general message would be that we need to have an equal treatment of different modes of transport because, at least in certain segments of the market, they are in direct competition. Any legal framework that is distorting competition needs to be removed so that exemptions apply uniformly to the different modes of transport.

81 Deutsche Bahn AG—Oral evidence (QQ 87-131)

Q116 Lord Haskel: So that will mean either taxing aviation fuel or removing the tax on fuel for railways. Johann Metzner: Yes. The Chairman: Surely there could then be a case in terms of consumer interest for removing the tax on petrol for cars as well. Lord Haskel: Well— The Chairman: No, let us be sensible about it. In the end we are talking about moving people from A to B and trying to cut down on emissions. Johann Metzner: If you would allow me, VAT would be a good example. Cross-border flights are exempt from VAT; cross-border rail services are not exempt from VAT. I think there is no objective reason why this is the case. So one could easily exempt the rail sector in Europe from this burden and that could automatically be passed on to the passenger and would cut down prices, but that is just one example. That is also addressed by the European Commission in the new White Paper for 2020. We have to look in the next 10 years at achieving a level playing field for the modes of transport in Europe.

Q117 Lord Walpole: How does Deutsche Bahn regard the competing demands for developing interregional services and providing a fast link between major cities on the same lines? Or would you rather have different lines? Steffen Geers: Adding to what Mr Metzner said, we have a tradition of offering regional and intercity services on the same line, so we are proposing a mixed usage of lines. In Germany we have a polycentric network and only one single high-speed line that is just for passenger high-speed trains. All other high-speed lines are also for freight and some are also for regional trains. DB would rather advocate mixed usage of that train, which even adds to the efficiency of usage of the line, than putting them into competing areas. Of course, if you have cross- border traffic with the changing demands towards train control systems and power systems on either side of the border, this normally adds to the overall cost of the vehicle and that calls for large volume passenger flows. These are normally best suited by high-speed, intercity links. Lord Walpole: Thank you. The Chairman: Yes, most helpful.

Q118 Lord Brooke of Alverthorpe: I would like to come back to the Channel Tunnel and its governance. We have so far received conflicting evidence about the appropriateness or otherwise of the current governance, which controls the arrangements for the Channel Tunnel as stipulated in the Treaty of Canterbury. Some, including our Government, prefer the status quo and do not seem as though they want to change it, and others would like a more fundamental overhaul of it. In the light of your experience I am wondering if you would care to express a view on this. What you would prefer to come out of it if there was a review? Steffen Geers: Again, DB is not in a position to judge on national or bilateral treatments. However, it is interesting to note that the time when the Treaty of Canterbury was settled was a different time from nowadays. There was no market opening, so in the Treaty of Canterbury there is no reason to cater for third operators, for example, and consequently 82 Deutsche Bahn AG—Oral evidence (QQ 87-131) there is no way to challenge the IGC’s decision. Clearly there are some areas where modernisations could take place and the adaptation to current reality is desirable. Whether this needs a full renegotiation of the Treaty of Canterbury is not for us to judge.

Q119 Lord Brooke of Alverthorpe: So you think there could be more rights of appeal than currently exist, or currently do not exist. Steffen Geers: There are a number of characteristics in the regulation of the Channel Tunnel that are different from what you see if you apply for a rail service in the UK, for example, where you have a single, national regulator that is fully equipped with all powers to bring you through the process and which has the independent power to decide on everything that is important for starting these services. Things are different for the Channel Tunnel; it is DB’s view that we would rather go for the UK national than for the bi-national Channel Tunnel approach.

Q120 Lord Brooke of Alverthorpe: Do the proposals that you have with ICE relate solely to passenger or to freight as well? Steffen Geers: That is only related to passengers. Lord Brooke of Alverthorpe: Would you wish to develop to freight too, if you get a breakthrough there? Steffen Geers: As I am from the passenger division I will have to be cautious. My understanding is that through our division, DB Schenker Rail (UK), we are offering cross-Channel Tunnel freight services.

Q121 Lord Brooke of Alverthorpe: I see. I thought your written evidence was very helpful, too, so thank you very much for that. In it you say that the Channel Tunnel and HS1 are the two most expensive pieces of infrastructure in Europe and that if the level of these charges was closer to the European average for high-speed lines the number of daily train services could be expected to be significantly higher. Why do you think the charges are so high? We do not know the precise charges, do we? People have to make estimates and you are making an estimate in drawing comparisons. Steffen Geers: We are in very constructive negotiations with Eurotunnel even on the economic side of the story and we are aware of the charging regime of Eurotunnel for use of the Channel Tunnel. I guess it is important to note that for the overall network we wish to offer, from Amsterdam to London and from Frankfurt to London, the access charges for the Channel Tunnel amount to up to 50% of the overall charges. So we are talking here about a distance of 1,000 kilometres or more, and 50 kilometres of this is charging 50% of the overall costs. The consequence we would draw from that is that, after the most attractive destinations have been covered by services, it will get increasingly difficult for new operators to find a business case for less high volumes of passengers for new destinations. The Chairman: That is a horrific cost; I do not think we knew about that, did we? Lord Brooke of Alverthorpe: That is the first time I have heard a figure mentioned.

Q122 The Chairman: Yes absolutely, so thank you very much for that. I was going to ask whether the access charges to the Channel Tunnel are too high—obviously they are—and

83 Deutsche Bahn AG—Oral evidence (QQ 87-131) whether this has a detrimental impact on the price of services through the Tunnel, and obviously it does. I was also going to ask about the setting of access charges on the prospects for competition through the Tunnel. I think the point you made is very good— that they cream off the top of the traffic going to places like Amsterdam or wherever, but then there might be places people might like to go to but they would not necessarily have the service because the cost would be too high. They are pricing themselves out of the market because the same access prices would have to apply to the competition as well, irrespective of where they were actually travelling to, would they not? Steffen Geers: To my knowledge there are two price characteristics. One part is per train and passage. The other is per passenger. That is irrespective of the destination, so it is just per passage of passenger and the train itself.

Q123 The Chairman: Obviously you have ideas about how the whole thing should be run. Steffen Geers: I hope so. The Chairman: Are you prepared to share them in detail or is it anti-competitive? What improvements to the system and to this charging might you advocate? In other words, what is an easier way of doing it? Steffen Geers: On a general view, lower costs would of course make it easier for us to think about higher frequencies, more trains and for others maybe more destinations.

Q124 The Chairman: But Deutsche Bahn would not necessarily want more destinations than you are asking for at the moment. You do not see yourself as going to Regensburg or wherever? Steffen Geers: We have a policy in long distance service of expanding the network and bringing the benefit first of all to German railway passengers, and from there to international railway passengers. We would be thinking about increasing the frequency rather than going from London to Marseille or to Italy or somewhere. The Chairman: I see, thank you very much.

Q125 Lord Haskel: First of all, may I congratulate you on your very diplomatic responses? Steffen Geers: We learnt from you, I think. The Chairman: There is a certain amount of irony I think. Lord Haskel: We have received a certain amount of evidence that consumers experience a lot of difficulty in buying through-tickets for onward connecting journeys after going on the international train journey; it is very difficult to get a ticket all the way through, particularly if you are buying the tickets in advance on the various websites. Do you have any observations about this? Do you think this can be made easier? Do you think that your website is going to make it possible for people to buy through-tickets when you have a service to London? Johann Metzner: This is a very good question because it is on the top of the agenda in Brussels today. The historic context is that ticketing for cross-border services was subject to negotiations between the operators. The result, from what we could witness, is that for the major traffic flows in Europe there are solutions on the market that more or less satisfy the 84 Deutsche Bahn AG—Oral evidence (QQ 87-131) demand. There was a Eurobarometer published just a few weeks ago by the Commission that showed in a survey that customer satisfaction with international ticketing came out relatively high. However, yes, there is an issue when a passenger wants to buy a ticket from Wigan to Palermo; it would not be possible to buy a through-ticket today. There are two initiatives going on. One is a legal approach; there is a piece of legislation in place, which is called the Telematic Applications for Passenger Service. This is a sub-product of the European passenger rights legislation that obliges railway undertakings in the future to be able to give the lowest price and the fastest connection in order to have more transparency. This is already under way. The second aspect will be a sectoral initiative, where railway undertakings in Europe will certainly have to improve co-ordination and co-operation when it comes to major traffic flows. We are very hesitant and very cautious about an overall legislative approach by the European Commission to try to install a system where you would be able to buy a ticket from Lisbon to Tallinn, when maybe only two passengers a year will buy that ticket. So it should be market driven and it should be related to the major traffic flows and I think there is progress on the way The Chairman: That is very interesting indeed. This has been a terrific session and thank you very much. I am sorry; you want to ask another question?

Q126 Lord Brooke of Alverthorpe: If I may, Lord Chairman, I would just come back to what I think is the core issue about charging and the number of services going through. We also asked you questions about whether, if we continue with the present policy, the Tunnel itself could become a bottleneck to the growth of services. You shared the view that in the medium to longer term it could be, unless there were some changes. My understanding of what you are saying to us is that the charges are high, the number of services going through is fairly small and, if the charges were reduced, there would be more services going through, presumably both more passengers and more freight. So the question is: why then are the two countries maintaining the position they are in and stopping growth? I read this week that there are plans to start transporting mammoth amounts of freight from China all the way across to Germany. Presumably you would then, from your different hubs, be distributing the goods that are transported such a distance to places such as the UK. This is a real problem in the longer term, is it not? I am looking very much at the longer term here, if the bottleneck does exist. Johann Metzner: From an overall perspective an infrastructure manager has high capital costs and high investment, and at the end of the day our philosophy is that infrastructure should be run as a business and should be able to generate a reasonable profit at the end of the year. Infrastructure charges have to be weighed against a measurement of what the market can bear; there needs to be a balance between these two aspects. On the one side, an infrastructure manager could run the piece of infrastructure as a business with a reasonable profit, which is of course subject to regulation in the UK, and at the end of the day meet market demands and address what the market can bear in terms of costs. We think there is room for improvement.

Q127 Lord Brooke of Alverthorpe: Initially the number of passengers did not match the forecasts and presumably there may be a fear that the growth could not sustain a return at the same levels that they are presently getting with restricted access. Are you pretty sure that you have the market to grow?

85 Deutsche Bahn AG—Oral evidence (QQ 87-131)

Johann Metzner: Before this whole project was launched—my colleague could explain this much better to you—conservative estimates were of about 1 million passengers between the area of North Rhine-Westphalia and Frankfurt and London. There are 40 flights today and the idea would be to shift some of the passenger volume from these 40 flights on to rail. We think that there is a market. Steffen Geers: I am quite sure. It is not only air but there are many people today changing at Brussels either way, to get to London or Germany or the Netherlands. We believe that they will be delighted to take our through-train, a direct service, rather than waiting for one hour in Bruxelles-Midi station.

Q128 The Chairman: Thank you very much. I am going to ask you a question of which you have not had any notice on. Our policy analyst suggested that I should ask it in view of a subject that was raised at the last session. Will there be a dining car on the proposed DB ICE international service to London? We had some rather caustic comments by a member of our Committee about the current food offerings in the Tunnel. Steffen Geers: Thank you for the question. That is a very nice one for us to answer. We will even have two restaurant cars because we will have a split train with eight carriages each and one of these will be a dining car. So there is a dedicated dining area with a seating area, with a served meal, a monthly changing menu and a selection of wines and German beer, obviously. That is highly popular in Germany. We will try to adapt the range of products to the new destinations and we hope to see you in one of our trains and of course in the dining car in our first service.

Q129 Lord Haskel: Will we be able to take our bicycles on the ICE train? The Chairman: Lord Haskel is always on his bicycle. Steffen Geers: Actually for the London service that is more or less a question of security, and whether you can bring it through security. Generally speaking we adopt a policy of not taking full scale bicycles on high-speed services, just to allow for short stopping times. However, it is possible to carry a folding bike with you; that is perfectly okay on board the ICE trains. The Chairman: May I finally go back to the trains that have two sections of eight carriages? You said that in each of those sections they will have one dining car. Will the other one be a sort of buffet car so people would not be forced to sit down for a full-scale meal if they did not want to? Steffen Geers: I will go into the design of the train, which is not public yet, but I guess it is safe to say that there is a pantry. On the one side there will be a buffet where you can buy things and have a standing table and on the other side there is the restaurant. That will be in both of the trains. Q130 The Chairman: Well thank you very much. The final, final question is: is there anything that you think we should have asked you that we did not? No? Silence. Well thank you very much. This has been a very interesting and extremely informative session. We wish you well and look forward to you actually operating on the lines. Steffen Geers: Thank you. Johann Metzner: Thank you very much for inviting Deutsche Bahn to this hearing.

86 European Rail Infrastructure Managers (EIM)—Written evidence

European Rail Infrastructure Managers (EIM)—Written evidence

1. How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

EIM believes that, in order to promote competition, the existing legislation should be sufficient. However, some aspects of the rail packages could be better defined. In this regard, the EIM supports the recast of the First Railway Package aiming at bringing more clarity and coherence within the legislation.

Disparity among Members States undoubtedly exists in the implementation of the measures contained within the existing rail packages. The various interpretations sometimes create barriers to entry and discrimination.

Central to the opening up of Europe’s rail markets is the development of competent regulation and EIM welcomes the establishment of IRG Rail, the new pan-European grouping of Regulators to support the correct implementation of rail regulation across Europe, particularly in those markets which have only recently established their regulatory bodies.

2. How has the liberalisation of the international passenger rail market has been developing since January 2010?

The EU monitors the opening of the market with a specific study (the Rail Market Monitoring Study - RMMS ), which is currently in the process of being updated. Other more recent measures (DB study) show that EIM’s members tend to represent the more open markets with the member states from which EIM members come, with 4 EIM’s members of the top 6 posts in the analysis (for instance, the Swedish rail transport market will be fully opened by 2012).

3. Should the European Rail Agency have a stronger role in this regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

The European Rail Agency is the appropriate body to advice about interoperability and rail safety. As the ERA has the ability to bring together national safety authorities (NSAs) in order to share the best practices, EIM supports the development of additional activities allowing railway actors to learn from each other.

4. How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN- T projects? 87 European Rail Infrastructure Managers (EIM)—Written evidence

The TEN-T policy is under a complete review and will provide mandatory guidelines concerning the design of corridors through a Trans-European transport network. EIM welcomes that initiative and believes that the funds could be more effectively used for projects where the EU-added value and common interest is stronger.

In addition to TEN-T funding, EIM also believes that private investors could have a role in developing high speed rail. Consequently, it is important to ensure that the regulation would not restrict the ability of investors to make a reasonable return on investment.

Also, considering on the one hand that an objective of the TEN-T policy is the balanced development of all transport modes so as to facilitate their respective advantage, and that low-carbon transport is an EU objective, and considering on the other hand that rail has a current low modal share and propose a low-carbon solution, we are convinced that TEN-T fund should make a greater consideration of the CO2 performance of each transport mode in its criteria for funding.

5. Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

EIM members are committed to make the liberalisation of the rail services market work, regardless of the TEN-T designation of the lines.

From a more global point of view, EIM believes that the application of the regulation should be based on an assessment that considers the actual circumstances and physical characteristics of the different elements of the network (gauge limitations for instance).

6. What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport and others such as cross-Channel ferries?

Key-factors are crucial to encourage modal shift from road/air to rail: journey time, competitive price (including internalisation of all external costs), and connectivity.

7. Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

EIM believes that Regulation 1371/2007 on rail passenger rights, which did enter into force on 3 December 2009 and is based on the same principles than those air travel, address the topic in a correct way. However, in regard of the financial situation of the sector, EIM highlights the necessity of having an impact assessment to identify the costs of a positive application upon the railway undertakings before a final vision can be defined.

88 European Rail Infrastructure Managers (EIM)—Written evidence

8. In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

The EIM Is not in a position to comment on the specific issues raised in this question.

9. The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

EIM believes that multimodality is an important aspect in order to facilitate a freight growth. In order to promote multimodality, EIM would like to highlight the importance of consulting all stakeholders of a same route in order to allow a better understanding of the market view.

10. What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

EIM does not believe that, consistently managed within the approved safety regimes, greater passenger volume should have a negative impact in security through the Channel Tunnel.

5 September 2011

89 European Railway Agency—Written evidence

European Railway Agency—Written evidence

1. What are the ERA’s roles and responsibilities, and what areas are excluded from the ERA’s remit?

The Agency has a number of generic activities within its overall objective to “contribute, on technical matters, to the implementation of the Community legislation aimed at improving the competitive position of the railway sector by enhancing the level of interoperability of railway systems and at developing a common approach to safety on the European railway system, in order to contribute to creating a European railway area without frontiers and guaranteeing a high level of safety”.

These are as follows:

The Agency is involved in the Production of documentation. This takes the form of recommendations for secondary European legislation such as Technical Specifications for Interoperability (TSIs) or Common Safety Methods (CSM). For the drawing up of these recommendations the Agency has established a number of Working Parties composed of representatives of the Competent Authorities from the Member States and the European Railway Representative Bodies. The Agency normally produces application guidance to accompany the formal text.

The Agency is charged with the Development and Management of Databases and Registers related to railway Interoperability and Safety. These include such things as the register of vehicle types the reference document of national rules used for vehicle authorisation and the databases of safety certificates and authorizations. The Agency also provides support and advice to the Commission in respect of the databases of notified national rules managed by the Commission.

As an independent and neutral body of expertise the Agency may be called upon to Compile Reports and Provide Opinions upon matters within its competence such as national technical or safety rules and refusals by National Safety Authorities to authorise placing railway sub- systems or vehicles in service or proposals for new measures to manage dangerous goods.

The Agency has a growing role in Dissemination and Training. The scope of this activity covers both the broad European legal framework of the Interoperability, Driver Licensing and Safety Directives and the specific texts produced by the Agency.

The above activity also reflects the Agency’s role of Providing Assistance to the Commission and Member States in the development, implementation, and monitoring of the framework put in place by the Interoperability, Safety and Driver Licensing directives

Finally the Agency has a key role as Facilitator and Coordinator. It is a neutral venue and “the only place where all the railway actors meet”. In this context it is the ideal forum for development of the understanding of common problems affecting the competitiveness of the railway sector and the building of consensus solutions and a common understanding of priorities.

90 European Railway Agency—Written evidence

Broadly speaking this puts the Agency as the de-facto “Railway System Authority” on safety and interoperability issues for Europe.

We do not at the moment have a locus under the access directives other than (as in the case of the Channel Tunnel Technical opinion) that

“The national regulatory bodies referred to in Article 30 of Directive 2001/14/EC may request a technical opinion from the Agency concerning the safety-related aspects of matters drawn to their attention”

2. What kind of relationship do you foresee the ERA having with the recently established Independent Regulators’ Group?

Although we are titled the “European Railway Agency” at the moment our locus is confined to the Interoperability, Safety and Driver Licencing directives. We are aware that it might be helpful for a body such as us to carry out some of the functions we carry out under these three directives (such as facilitation cooperation between national agencies) also for other subject areas. In respect of our future role there is a decision to be made

3. Do you think that the ERA should have a stronger regulatory role, in terms of compliance and oversight of national authorities, in order to aid the development of the EU rail market?

It is an emerging consensus that we share that we could add value by doing more training and dissemination of the European legislative framework and the documents we have produced and more facilitation of a common understanding between Member States. There is also a consensus that we could provide even greater technical and practical assistance to the Commission in its role as “guardian and enforcer”.

Actually taking over from, or sharing supervisory responsibilities with, the Commission is a significant further step which would have significant resource and budgetary implications. It also would change the nature of the Agency. At the moment we are “partner” to the member States and their national authorities not their “policeman”.

4. Has the ERA identified any particular difficulties with the operation of the various Directives in any European regimes?

Now that the railway system is shared between Infrastructure Managers and Train Operators (Railway Undertakings) each responsible for their part of the system, it needs to be managed in a similar way to other shared transport systems (such as aviation or road transport). It is our belief that the directives contain the tools necessary to manage an open railways system both at national and European level. Almost all the difficulties we see at the moment tend to arise from non or partial Implementation of the directives or where, trying to apply an update of the old regime instead of replacing the existing frameworks which were designed for a different structure, Member States have overlaid the new regime on the existing frameworks.

In terms of international operation particular difficulties arise because now a multilateral set of agreements are in place (the directives) there is no need for pre-existing bi-lateral agreements which cover the same subjects. If these are not withdrawn and replaced by the

91 European Railway Agency—Written evidence provisions of the directives (and because they pre-date the directives) inevitably there arise inconsistencies, duplications and contradictions with the provisions in the directives.

5. How is the implementation of the Third Railway Package, in legislative and market terms, progressing so far? Are there any obvious problems with the operation of each measure?

This subject is outwith our sphere of competence, however by virtue of the fact that there is much interest and work going on in the complimentary areas of safety certification of Train Operators for more than once country and vehicle authorisation for more than one country we observe that progress is being made.

6. Which aspects of technical and safety harmonisation do you believe to be the most important in order to achieve greater interoperability and competition within the European rail market?

All aspects are important but a particular obstacle to progress is if different pieces of infrastructure “export” different requirements onto what would otherwise be “normal” or “go anywhere” vehicles. – Imagine how difficult road operation would be if to run on one section of the motorway network cars, lorries and buses had to have special and different technical characteristics compared to those required for the rest of the network?

7. How does the ERA’s relationship with the IGC compare with its relationship with the governing bodies of the various Alpine tunnels?

As a very small organisation compared to the ORR and EPSF (who are active participants in most our forums and working parties) we note that the IGC in the past has found it more difficult to keep abreast of and participate in Agency Working Parties than for example ORR and EPSF.

As far as we are aware the Alpine tunnels are managed as parts of the national networks by the national ministries and Safety Authorities. The Channel Tunnel is the only piece of infrastructure in Europe that has its own separate Safety Authority.

8. Does the Channel Tunnel have any particular safety requirements over and above those that apply to inland rail tunnels? Should the ERA’s safety TSIs apply equally to the Channel Tunnel as they do elsewhere?

As identified in the two technical opinions we have given (one to the Commission and one to the IGC) the TSIs apply to new trains being authorised to be operated in the Channel Tunnel. However the existing Channel Tunnel Safety requirements prevent trains that comply with the European Technical Specifications for Interoperability from operating in the Channel Tunnel even though the channel tunnel infrastructure (in order to allow lorry shuttles) provides a much higher level of safety than most (if not all) other railway tunnels in Europe through which “normal” TSI conforming trains may run.

At the moment following the introduction of the Safety In Railway Tunnels TSI in 2007 and subsequent communications between the Member States and the Commission we are waiting for the IGC to review their rules and to provide to us a suitable economic and safety justification for requirements (if any) that they think are necessary over and above those in the TSIs so that these requirements may be included as specific cases in the Safety in Railway Tunnels TSI. 92 European Railway Agency—Written evidence

9. Has the IGC taken on board the points in your March 2011 opinion about allowing trains, which conform to EU safety and interoperability standards, access to the Tunnel’s infrastructure?

We are aware that our opinion continues to be the subject of discussion within the IGC. However, with the exception of a clarification dated June 14th that trains with distributed power are allowed in the channel tunnel, we are unaware of any other actions the IGC intends to take in respect of the points we raised.

We note that, after our opinion was published, a consultation about changes to the rules for freight traffic was launched which was based on premises that were in contradiction to our opinion and to the interoperability and safety directives. (Our consultation reply to the IGC is attached for your info) [see consultation reply quoted in the Annex to the Rail Freight Group supplementary written evidence - below]

July 2011

93 Eurostar—Written evidence

Eurostar—Written evidence

Introduction

1. Eurostar is the high-speed train service linking the UK to destinations across continental Europe. We have been operating since 14 November 1994 and have since carried around 115 million passengers, doubling the size of the market for travel between London and Paris in the process.

2. Eurostar has recently adopted a new structure which it considers appropriate for the new open access environment. The new private UK-registered company, approved under the EU Merger Regulation by the European Commission has been operating since September 2010.

3. Our first step as a new company has been to announce a £700m investment in our rolling stock, with the purchase of ten new train-sets and the refurbishment of our existing fleet. Built to a bespoke specification, the new Eurostar e320 trains will be ‘interoperable’, meaning that they can operate across the European high speed rail (HSR) network, and provide direct services between London and a range of destinations throughout Europe.

4. We aim to become the leading travel experience in Europe, substantially increasing the number of connecting passengers to destinations beyond Brussels, Lille and Paris by 2015. At the same time, we want the London-Paris route to remain an important part of our business.

5. Eurostar welcomes the Committee’s Inquiry into the European Rail market and the role of the Channel Tunnel. As the only operator currently running international high speed rail services in the UK and currently the sole passenger rail operator between the UK and Continental Europe, Eurostar has a number of substantive points to make in response to the Committee’s inquiry.

Summary of recommendations

• Eurostar strongly supports regulation of access charges for international services including stronger rules to ensure genuine ‘challengeability’ of decisions by infrastructure managers and regulatory bodies • Eurostar would welcome a greater degree of European coordination of regulatory oversight, including a European ‘regulators’ charter’. • Eurostar supports moves by the rail industry to improve the end to end customer experience, including the development of common distribution standards and consistency in customer service • Eurostar is calling for a charging mechanism that would take into account the realities of the international market in which rail and air compete • Eurostar would support a standardization of contract terms to afford greater predictability of charges to new and established railway undertakings • Eurostar believes the funding for TEN-T infrastructure projects should be allocated in such a way to ensure the optimum growth of the market and interoperability of the network

94 Eurostar—Written evidence

• Eurostar supports moves by the European Commission to bring passenger rights across other transport modes in line with rail, creating a level playing field

How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

6. Whilst the market for train services is being opened up and liberalized, the provision of infrastructure to run on remains a monopoly service. Infrastructure access charges consume a significant proportion of rail revenue from passengers.

7. Domestic funding conditions are currently paramount in the calculation of most infrastructure charges. Eurostar would like to see the further development of regulation of infrastructure charging for international services, with a strong level of European coordination.

8. We believe that a more appropriate system for charging high-speed rail, with regulation to ensure the charges are affordable and predictable, is also in the interests of infrastructure managers, as it can be expected to encourage even greater numbers of train operators to use the infrastructure. This in turn would have a positive impact in European terms, potentially extending the reach of an integrated high speed rail network and its associated social and economic benefits.

9. In relation to business critical issues such as charging and pathway allocation there need to be clearer rules to ensure genuine ‘challengeability’ of decisions taken by infrastructure managers and regulatory bodies. This should include an EU ‘regulators charter’ that would encompass much stronger common criteria (as per the UK ORR section 4 duties) on the regulatory objectives - so regulators have a clearer indication of what a good outcome looks like.

How has the liberalisation of the international passenger rail market been developing since January 2010?

10. The new Open Access framework for rail travel in the EU, in force since 1 January 2010, will encourage international on-rail competition. Having competed with the airlines for the past sixteen years, we look forward to competition from other train operators, and also to taking advantage of the opportunities provided by Open Access, which will enable us to expand our own network. Eurostar anticipates competition between London and Paris/Brussels in the next few years.

11. The European Commission has paid active attention to this area. In June 2010 it began infringement proceedings against 13 Member States for not fully implementing the 1st railway package (the set of Directives designed to open up the EU Rail market to open access operators), and in September 2010 the EC published a draft ‘recast’ of the 1st railway package intended to enhance the process of liberalization

12. Given that the pace and extent of liberalization varies greatly by Member State, with varying degrees of structural separation between infrastructure managers and railway undertakings the legislative framework and the regulatory functions have an ongoing and important role and this area should be kept under review to avoid any possible structural asymmetry.

95 Eurostar—Written evidence

Should the ERA have a stronger role in this regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

13. In terms of regulating rail safety, this is currently undertaken via the ORR in the UK and by the Intergovernmental Commission (IGC) for the Channel Tunnel. The IGC was established to meet the unique geographical context of the channel tunnel and contains representatives from the two national Safety Authorities (ORR for UK< EPSF for France) who have certain legal powers to enforce the regulation of safety on the Railways. The ORR’s powers are those of an inspector detailed within Section 20 of the Health and Safety at Work etc. Act 1974, and it is these powers which give the ORR the authority and gravity, both for their standing to be recognized and respected across the industry and to provide HM government with the assurance that any regulation can be enforced.

14. ERA already has an important role in developing international rules for interoperability and to promote greater use of the Trans European rail network. This is achieved through the publication, via the European Commission of Technical Standards for Interoperability (TSI) which apply across Europe. These TSIs are published via the OJEU and are then transposed into national legislation, generally via regulation in the United Kingdom. ERA’s role then becomes one of monitoring implementation of European standards, providing advice and guidance where required on the technical detail of standards and highlighting to the Commission progress against implementation of such standards at individual member state level.

How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN-T?

15. The funding for TEN-T infrastructure funding should be allocated in such a way to ensure the optimum growth of the market and interoperability of the network. Recent infrastructure projects such as HS1 exemplify high standards of interoperability, have been developed to be future proofed for ERTMS and have benefited from TEN-T funding.

Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

16. Eurostar welcomes a strong awareness of the importance of interoperable standards and would be keen to see an emphasis placed on minimising any potential for gaps in interoperability on international routes.

What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport and others such as Cross Channel ferries?

17. In ensuring that increasing numbers of travellers are encouraged to switch from road and air to rail, several key areas should be considered.

18. The industry must raise the standard of the end to end customer experience. Eurostar is working with other industry partners to push for the developments that will aid this process, including the progression of common distribution standards to enable universal 96 Eurostar—Written evidence ticketing, better coordination of timetables in order that connecting journeys for travellers are more seamless and consistency in customer service.

19. Crucially, the market prices for international journeys by high speed rail continue to be strongly influenced by the pricing of short haul airlines. If high speed rail is to encourage further growth in passengers switching from short haul journeys by plane, a level playing field needs to exist between the two modes giving wider consideration to relevant fixed costs and taxation.

20. To achieve this and so as not to deter the development of longer distance markets for international rail, Eurostar would support a greater level of consistency and application of principles across European regulatory bodies with regard to the level, structure and predictability of international charges.

21. A significant further modal shift to HSR from carbon-intensive car and air travel will not only release capacity on motorways but deliver considerable environmental benefits, which will be crucial to fulfilling the ambition of the European Commission and also the UK Government, as stated in its recently published White Paper, to see a “50% shift of medium distance intercity passenger and freight journeys from road to rail and waterborne transport”.

Are passengers satisfied with international rail services in the EU? Do passenger rights need to be strengthened?

22. International rail services are subject to Regulation (EC) No 1371/2007 on passenger rights. In fact Eurostar’s compensation offering for passengers who may be subject to delay is more generous than the basic PRR offering.

23. Passenger Rights for international rail passengers are arguably greater than those for air and bus passengers and Eurostar supports moves by the European Commission to bring passenger rights across other modes in line with rail, creating a level playing field.

In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990’s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

24. The IGC was established to meet the unique geographical context of the channel tunnel but we understand that it is similar in form to arrangements for other cross border tunnels and its responsibilities have evolved in line with relevant European legislation. Eurostar would urge careful consideration of any move away from a single entity for the regulation of the Channel Tunnel. Geographical separation at the mid-point of the tunnel would potentially be more challenging to manage than the current set-up.

25. Eurostar welcomes the extension of the IGC’s remit to include economic oversight of the Channel Tunnel.

The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem? 97 Eurostar—Written evidence

26. The principal barrier to the development of international passenger services, and ultimately greater multimodal options for travellers, remains the level and structure of infrastructure access charges. By achieving a level of charging that is affordable, railway undertakings would thus be further enabled to grow the market. At current rates of charging across the infrastructures over which Eurostar operates, the development of a significant number of destinations is likely to be at best challenging.

What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

27. Matters of security are monitored by the respective security authorities of each Member State from which passenger trains originate and issues of safety relating to the Channel Tunnel are overseen by the Intergovernmental Commission on the Channel Tunnel and the Channel Tunnel Safety Authority.

28. Passengers boarding international services in London, Paris and Brussels are subject to security controls in line with security arrangements outlined in the Treaty of Canterbury. These controls have worked effectively during the last 16 years, during which time Eurostar’s passenger volumes have grown to nearly 10 million per annum.

29. Furthermore, all international passengers are also subject to immigration controls. The current system of juxtaposed immigration controls has been in place since 2001 between London St Pancras International, Paris Nord and Brussels Midi and has worked extremely effectively both in the interests of the Member States in terms of border control, and in operational terms from the point of view of managing passenger flows. For example, in the UK the government invested substantially in building HS1 and renovating St Pancras International. The clearance of immigration controls prior to arrival means both that the customer experience is greatly enhanced and the journey time saving afforded by HS1 is not undermined.

June 2011

98 Eurostar—Oral evidence (QQ 42-86)

Eurostar—Oral evidence (QQ 42-86)

Evidence Session No. 2. Heard in Public.

MONDAY 4 JULY 2011

Members present

Baroness O’Cathain (Chairman) Lord Brooke of Alverthorpe Lord Clinton-Davis Lord Fearn Lord Haskel Lord James of Blackheath Lord Plumb Lord Rowe-Beddow Baroness Valentine Lord Walpole ______

Examination of Witness

Witness: Nicolas Petrovic, [Chief Executive, Eurostar].

Q42 The Chairman: Welcome, Mr Petrovic. Thank you very much for coming and for giving us your time today. The members of the Committee will declare their interests if they are relevant. The session is on the record and is being webcast live and will be subsequently accessible via the parliamentary website. You will receive a transcript of the session to check and correct and this will be put on the public record in printed form and on the parliamentary website. Unfortunately, it looks as though we might have a Division because we have a rather controversial debate currently in the Chamber. If this occurs Members will have to go to the Chamber to vote. I would be grateful if you could state your name and official title for the record and then if you would like to make an opening statement you are very welcome, or we can go straight into the questions. Nicolas Petrovic: Thank you very much. Good afternoon to all and thank you for inviting me. My name is Nicolas Petrovic—it is sometimes pronounced “Petrovich”, depending on the country. I am the Chief Executive Officer of Eurostar International.

The Committee suspended for 10 minutes for a Division in the House.

Q43 The Chairman: I did ask you whether you wanted to make an opening statement.

Nicolas Petrovic: No, let us go straight to questions. 99 Eurostar—Oral evidence (QQ 42-86)

The Chairman: That is fine, thank you.

Q44 Baroness Valentine: First of all, I should declare that I am Chief Executive of London First and that Eurostar is a member of London First. My question is: does Eurostar intend to take advantage of the liberalisation of international passenger rail travel by providing additional services to destinations other than Paris, Lille and Brussels? If so, are there any regulatory or financial impediments that hinder the development of such services, in your view? If I may, can I just add a sort of corollary to that, which is security? Are there any issues about the balance between ease of access to the Eurostar and the immigration controls? Nicolas Petrovic: Thank you. The simple answer is, yes, we want to take advantage of liberalisation of the market. That is why we set up last year as a private company based in the UK. We have no subsidies. We have to make our own money and, of course, we want to grow the business. Now that the market has been deregulated we can operate in other countries, on other routes, and we intend to do so. We have a two-step approach. The first thing I would say is that we have identified that there are still 20 million people flying from the south-east of to the near continent who could take high-speed rail to get to their destination. Our market share is very small. Market share is very large for Eurostar on London-Paris and London-Brussels. If you go beyond, it is much smaller. We want to develop that and we want to double the number of people who go beyond our core destinations. We want to do that with a mixture of two things. The first is that we want to develop connections, which means travelling, for instance, on a Virgin train to London and then onwards to Paris, or London-Lille then Lille-Marseille, so connecting services of different operators with Eurostar. We want to do that first because it is easier. We are pushing it very hard. Today one out of four of our clients connects beyond our core destinations, so it is already pretty high. The second objective we have is to be able to run more direct services to other destinations. To do that, we have announced a large investment in our fleet of trains. We need to refurbish our trains and buy new ones that are interoperable, which means they can run on different infrastructures in Europe. We have not chosen yet where to go with those trains, but from 2013, 2014, 2015 we will be in a position to do so. I would say the key markets we are looking at are, of course, Holland—there is a big air market between the south-east of England and Holland—western Germany, south of France and Switzerland. That will be the areas we are looking for, but we have not made a decision yet. In terms of, I would say, hurdles or difficulties to set up direct services, you have touched on security and immigration. We have a different security regime in place for Eurostar because of the security of the Tunnel. All the security measures are meant to protect the Tunnel more than anything else. They protect also the people. I always find it ironic that it is presented like that, but that is the general idea. It makes our operation much more complicated and rigid than that of any other train operator, of course, because we need to have protected platforms in stations. We need to have X-ray machines. It is a big investment and it is just impossible to close some stations completely so that the platforms are what we call sterile. That is the first hurdle. The second one, which is not a hurdle but is something that we need to have in mind, is immigration control. When we link generally the Schengen zone and the UK, we have to have exit and entrance controls to the Schengen zone and we have to have exit—it is not systematic, but in some cases it is—and entrance controls to the UK. We have a very good system at the moment in Paris, Lille and Brussels, which is called juxtaposed controls, and 100 Eurostar—Oral evidence (QQ 42-86)

London, where actually the UK border is on the continent and, vice versa, the Schengen border is in London. It is great for the clients because they do all the administration part of their journey at the start and when they arrive they can just go. One of the issues we have is that, if we go to smaller destinations, juxtaposed controls might not be in the interest or in the plans of the control authorities. How do you then control the passports of our passengers or the passengers of our competitors? It is still something that has not been resolved, but it is something that is important for us because we do not want to be in a situation where our current passengers have to be controlled again on arrival. That would add maybe 30 minutes to their journey time, which would be completely uneconomic and would lower our market share against airlines. It is a very tricky subject, but I know the authorities are looking at it very carefully. I am sorry that this is a long answer, but it is a wide topic. For that topic, as for safety, economic matters and technical matters to operate new services, what is important for us is that there is a transparent and fair system in place where it is clear what the rules are and everyone plays by the same rules. The market is changing, of course. It is still moving. It is still a moving target for immigration, security and so on. I know that everyone is working hard on that, but it is really important for us. One last point that is important is that obviously we want to be competitive in terms of price with airlines. It is very important to understand that the further we go the higher we pay in track access charges, because we pay per kilometre, whereas airlines obviously on short-haul pay essentially the tax for the airport. They are less sensitive to the kilometerage, which means that the price people are willing to pay is roughly the same whether they want to go to Paris, Marseille, Switzerland and so on. So we have a bit of a scissor effect where the price is roughly set by low-cost airlines at one level but our cost base goes up, as the price that people are willing to pay tends to diminish and you have less and less business passengers the further you go. You have a bit of a scissor effect for our economics between the length of the journey, where costs are rising, and the price that passengers are willing to pay, which tends to decrease. It is something that we look at very carefully because we must make money. We have no subsidies. The Chairman: Quite. That is very interesting. I certainly had not thought about the fact that you have to pay to go on the track and, of course, you do not have to pay to fly in the sky because it is still free.

Q45 Lord Plumb: May I ask a brief supplementary? What are the arguments in favour of Britain becoming a member of Schengen? Nicolas Petrovic: It is a tricky subject. Lord Plumb: That is why I asked the question. Nicolas Petrovic: I am not sure I am qualified to comment. I think, honestly, the system of juxtaposed control is working well at the moment for us and our clients. I think that will continue as long as we have good co-operation with the authorities and there is a pragmatic approach to border control. I am thinking, for instance, of the project e-Borders, where we are in contact with UK border authorities. We are a different business model compared to airlines because some people buy their tickets half an hour or 15 minutes before departure and they expect to go. It is all about making it fluid and efficient for the client and we have proved that we can make it fluid. We are always willing to co-operate, but the point is to find the right balance between control and ease of use and that is the secret of our success

101 Eurostar—Oral evidence (QQ 42-86) and the fact that we have high market shares against airlines. But I will not comment on the detail of the Schengen zone.

Q46 Lord Rowe-Beddoe: Just on a point of clarification, earlier you suggested that one of your ambitions was to extend to the south of France, western Germany and Holland and so on, but they are already Schengen. So I do not understand why you said “if you could have juxtaposed positions”, because I assume that once you leave London and have gone through a Schengen control, which is the French passport office in this instance, you are free to go anywhere within the Schengen area. Is that correct? Nicolas Petrovic: This is correct. I was thinking of the return journey where, let us say, we went to Marseille and we want to stop in Aix-en-Provence, Avignon, Lyon—they are all cities where there are a lot of people flying to—on the way back. It would be the same in the whole valley—in each station we would have to have security arrangements and passport controls for the exit to the Schengen zone, and then the question is whether you would do the border control for the UK over there, on arrival or during the journey. Lord Rowe-Beddoe: I see, yes. I understand that. Nicolas Petrovic: That is where there is still some thinking to do.

Q47 The Chairman: Are you deeply involved in discussions with the UK authorities on this at the moment, or is it just a case that it comes up as a routine matter? Nicolas Petrovic: We have many opportunities to talk to the UK border authorities on our services and with e-Borders we have regular contact. On what to do for further destinations, because we have not chosen yet, we have not truly engaged and we are waiting to see. We would welcome a bit more guidance. That would be very helpful. We will engage in due time.

Q48 The Chairman: Yes, because I would have assumed that—maybe I am wrong or maybe you can confirm if this is right—if you are planning to go to, say, south-east France, Grenoble or wherever, you would want to take this into account in your planning, at the very early stages of your route planning. Therefore, you would hope that the authorities would be alongside you all the time. Nicolas Petrovic: Yes, we would very much hope so. We are just starting this year to look at the route planning, so it is at a very early stage. Our first step was last year to build Eurostar International as the first international train operating company in Europe and to buy 10 new trains and to invest in our fleet. That was setting the scene. We invested a lot of money in the fleet, setting up the business, and this year we are looking at opportunities.

Q49 The Chairman: Is Deutsche Bahn not an international company?

Nicolas Petrovic: Well, at the moment they still operate internationally under joint venture arrangements, but, for instance, in France we are the only passenger operator other than SNCF. The Chairman: Yes. I know Deutsche Bahn operate trains in the Netherlands and Belgium.

102 Eurostar—Oral evidence (QQ 42-86)

Q50 Lord Clinton-Davis: When I travel to Brussels, quite often there is no passport control at all. You just pass straight through. Why is that? Nicolas Petrovic: I am surprised. Is it from London? Lord Clinton-Davis: No, to Brussels. Nicolas Petrovic: Well, I am surprised. In London or in Ebbsfleet and Ashford, our two other stations, there is a systematic control of passports by the French border control authorities. For the UK border authorities this is done on a sample basis. It is not systematic. The Chairman: I see. Nicolas Petrovic: But at least the entrance to the Schengen zone is always controlled.

Q51 Lord Brooke of Alverthorpe: Good afternoon. As a monopoly supplier, how relaxed are you about the prospect of greater competition on the route that passes through the Channel Tunnel? Perhaps you might say something also about the level of your operations and the percentage of seats that are unused. Nicolas Petrovic: Yes. At the moment, we are the only train operator for passengers through the Tunnel. You are saying “monopoly”. I think we have been competing very hard with airlines for a number of years now and we have managed to go from a very small market share to 80%, but it did not go without a fight. I would say we are pretty relaxed because we think, first of all, it gives us an opportunity to expand. To have competitors on our line, we believe, will grow the market for high-speed rail because it will attract attention to that market and raise awareness that you can travel on high-speed rail to many destinations. We think it is good. We are preparing the company to sustain competition and I think it will be in the interests of the passengers, so that is good. The only point about which we are very conscious—we will have pay a lot of attention there—is that we want to make sure that the competition will be on a fair and equal basis and very transparent. It is very important for us that the conditions to go on the tracks, to go through the Tunnel, to have immigration controls and so on are fair and the same for everyone—that is for any operator operating on the routes or operating on the different infrastructure, the Tunnel or the others. That is for us very important. Your last question was about our—

Q52 Lord Brooke of Alverthorpe: Levels of capacity. Nicolas Petrovic: Capacity on our trains, our load factors? Lord Brooke of Alverthorpe: When we started, we were led to believe there would be a lot more passengers travelling than proved to be the case. In the event now you have grown the number, but there is still, I believe, a degree of opportunity for growth both within your company and possibly on the line as well. Nicolas Petrovic: Yes, and that is what I say. On the London-Paris, London-Brussels route we are close to the maximum of the natural market because we had a very high market share, around 80%. After that, the rest is interlining passengers and it starts to be difficult to eat more market share. But the growth opportunity, as I said before, is the beyond market—it can be all the different markets I talked about. There is capacity on the line to run more trains, so I would very much hope that we will take advantage of that growth.

103 Eurostar—Oral evidence (QQ 42-86)

Q53 Lord Brooke of Alverthorpe: We have not seen Eurotunnel yet, but I am wondering whether you could say what the capacity growth opportunity is. Nicolas Petrovic: For Eurotunnel? Lord Brooke of Alverthorpe: Yes. Nicolas Petrovic: It is difficult to say, but I do not see any bottlenecks in the Tunnel for the foreseeable future, I would say.

Q54 The Chairman: What is the maximum number of trains that you can run through in an hour? Nicolas Petrovic: Through the Tunnel? The Chairman: Yes. I mean just in one direction. Nicolas Petrovic: An hour. It is difficult to answer the question for Eurotunnel as well because it is a bit technical. For international pathways, the trains through the Tunnel have different speeds and we are the faster. I will not go into more details than that. In terms of fast pathways through the Tunnel, you have six per hour, if I remember rightly. The question after that is: can you link these pathways with pathways in the UK, in France, in Belgium, in Germany, in Holland? That is the trick because you want the pathways to seamlessly get you from one point to the other. I know the infrastructure providers—Eurotunnel, RFF, HS1 and so on—are talking constantly to try to have those pathways available for the operators.

Q55 Lord Clinton-Davis: The food on airlines and Eurostar is absolutely dire. Do you envisage any improvement in that? Nicolas Petrovic: I am disappointed you do not like the food on Eurostar. In April we asked Michel Roux, who is a famous chef—maybe you know him? The Chairman: For super business class, though. What about the rest of us? Nicolas Petrovic: I am willing to take that point and we are willing to work with the teams to try to do better, but I can tell you we are trying hard.

Q56 Lord Walpole: The interest that I ought to declare is that I am trying in north Norfolk, East Anglia, to undo what Dr Beeching did—in other words to put some railways back again, which is quite an exciting pastime. I was going to ask you if there is any justification for the Channel Tunnel having separate safety standards in place that are not necessarily in conformity with the ERA’s TSI, or is a more bespoke approach required because of the peculiarities of the Tunnel itself? Nicolas Petrovic: I would first say that in the TSIs there is a clause saying that for tunnels that are, I think, more than 20 kilometres long there can be some specific rules. Because of this clause, in a way you can say that the rules of the Tunnel fit in the TSIs, which is a bit of a technical point, I agree. I would say the Tunnel is a specific piece of infrastructure. It is a very long tunnel, 50 kilometres. It is protected. It is a very important piece of infrastructure and, because it has mixed traffic—not just our trains but also freight trains and the trains with the trucks on them—it is more subject to fires. There have been three in, what, 16 to 20 years of operation. Actually, there have been two in the past four years and every time it comes from a truck because that is the highest risk.

104 Eurostar—Oral evidence (QQ 42-86)

If you look at the fact that it is a long piece of infrastructure, you want to protect it and there are these risks of the trucks, so I would say it is better to have some specific safety rules, first to protect the people who travel on our trains, on the shuttle trains, as well as the staff, and also to protect the Tunnel itself. It is not just the Channel Tunnel; maybe you know that in the in Switzerland there has just been a big fire. The damages to a tunnel like that can be massive very quickly because, of course, it becomes an oven. In my view, the system can always be improved. I think we should always keep in mind the fact that it is a very specific environment and we should try to keep the level of safety at the right level, which does not mean we should not touch any of the rules, because that can be adapted, but we should keep the same level of safety.

Q57 Lord Walpole: As far as these fires are concerned, none of them was done on purpose, or were they? Nicolas Petrovic: No, not that I know of.

Q58 Lord Walpole: No, they were all something inside a container. It was nothing to do with the vehicle, was it? Nicolas Petrovic: I think we are still waiting for the results of the investigation in the latest fire, so I do not know for the latest one. What I know is that Eurotunnel—and you should ask them because they have a much better understanding—have specific rules to check on the vehicles themselves and to inform the truck drivers about what to do and what not to do with electrical equipment in their cabins and so on. We have to look at all the causes of fires. I think what is important is what Eurotunnel did and that is to invest in what they call safe platforms, which are three platforms, I think, along the tunnel where you can stop those trains with trucks and there are some fire extinguishing systems. For instance, on our trains, unlike other trains in Europe, because it is not a TSI requirement, we have fire detection and extinguishing systems on board the train, which makes it much safer. That is why our trains are safer than TSI to protect against the risk of fire. I think it is the right thing to do.

Q59 The Chairman: I am sure you are right. Can I just ask you to mention trucks? Are trucks charged more because of safety? Obviously they need greater safety, otherwise they are a greater hazard. Nicolas Petrovic: Well, that is an interesting question. I am not sure I can answer this one. I think what is peculiar about the Tunnel operation is that you have several types of operators. There are people like us. Then you have the freight trains. It is usually other operators but Eurotunnel also has some freight operations. Then there are the shuttle and truck operations, which are done directly by Eurotunnel. Coming back to an earlier point I made, I cannot say what should be charged to whom like that. What is important is for the regulators to have a view on how the costs should be allocated to the different type of operations so that it is fair and transparent and everyone is charged the right amount.

Q60 Lord Fearn: Should the ERA have a stronger enforcement role or even the power to direct national regulators? How do you see the relationship developing between the ERA and the newly established Independent Regulators Group? Nicolas Petrovic: First of all, the ERA has a very important role in Europe by setting the standards. It is very important for an operator like us to have clear standards so that, for 105 Eurostar—Oral evidence (QQ 42-86) instance, when we buy rolling stock we have something that is off the shelf and as simple as possible. So we support their work. I think then the regulators have other roles than just technical and safety roles. For instance, for the Tunnel or elsewhere economic regulation is very important. As Eurostar, we really want the regulators to have even more bite on those subjects, I would say, because that is key for us to have this economic fairness, as I said earlier. I would say that ERA advising the regulator about the technical and safety matters is a very good thing but I think the regulators have to be strong and independent. They have to be able to regulate not just safety and technical but also economic matters, as well as security matters, to ensure with one single point that if, as an operator, I have a complaint to make against the infrastructure or another operator this regulator has all the roles and is strong enough. Now, I really welcome, as Eurostar, the fact that you mentioned the group of independent regulators across Europe. I think it is a very important step. I think the regulators must talk to each other and harmonise their practices across Europe because for us, of course, as an international operator, we would like to make sure that we have something that is consistent across borders. At the moment, we have four pieces of infrastructure, so four regulators with four states of maturity. We have a good relationship with all of them, but it is very important for us that they talk together and try to get best practices across the frontiers.

Q61 Lord Fearn: It is by talk rather than power?

Nicolas Petrovic: If the regulators start to have less power and give it back to someone else for some aspects and not others, then you risk having weak local regulators and then, for us, we would not know where to go next. For us there is a clear risk that we would go to that person for that type of problem, the other person for that other type of problem, and personally I would be worried that it would make the picture even more complex than it is today.

Q62 Lord Haskel: In your paper, you say that the funding of European infrastructure should be allocated in such a way as to ensure the optimum growth of the market and interoperability of the network. How should this be done and what should the priorities be? Nicolas Petrovic: It is very important for us, of course. To give an example, we have to buy new rolling stock to go to different countries. At the moment there is not enough, in our view, harmonisation of technical solutions across borders. There are some famous examples like the high-speed line in Holland, which was late and which is difficult to operate with the Belgian high-speed line because they are different standards. On the contrary, a good example is HS1 in the UK, which was built to essentially the same standard as the French and Belgian high-speed lines and the Tunnel, so it is a very easy process to operate. For us, it is important that that is had in mind and that the funding goes to make each country have the same type of infrastructure. Otherwise, we end up buying some prototype rolling stock like our current trains, which are unique in the world. For instance, some of the transformers are unique in the world—very few people know how they work—because they had to deal with four or five different voltages across Europe. If the funding could go to simplifying that, then we would buy simpler rolling stock, then it would be cheaper for the client and then we could grow the market. That is a very simple way to look at it.

106 Eurostar—Oral evidence (QQ 42-86)

Q63 Lord Haskel: Should the focus be on the development of high-speed rail or should it be on normal-speed rail? Nicolas Petrovic: I think for international markets it all comes down to faster journey times and increasing capacity. For that, high-speed rail is a very strong solution.

Q64 Lord Haskel: Even though it would be more expensive than the airlines. Nicolas Petrovic: Yes, but I think there are a number of things here. There is obviously the price we would charge the customers, but more and more customers turn to high-speed rail because of the environmental concern and the fact that the airports are more and more congested. In my view, in the dense northern Europe area to have stretches of high-speed rail to get through the bottlenecks or to have much faster journey times creates a lot of growth. Eurostar has shown that. The Chairman: Yes, because the passenger benefits from it. Nicolas Petrovic: Exactly. The Chairman: That is really the main thing.

Q65 Lord James of Blackheath: Before I put my question, can I just make the point about the breakfast on Eurostar that your omelette de fromage is superb but you never have enough? We are then forced to have the dreadful croque monsieur, which is disgusting. If everybody could have the omelette de fromage, you would have some very happy bunnies on your train. Nicolas Petrovic: I take this point. Yes, we will do better.

Q66 Lord James of Blackheath: The question comes naturally. Do you think that there is any significant disadvantage for Eurostar arising out of the taxation differences that you suffer in comparison with airlines in various forms and, in particular, will the expansion of emission trading schemes in the aviation sector have any impact on you and your competitive position? Nicolas Petrovic: Yes, of course, our competitors are mainly the airlines. Even though we will have new operators on our lines, we see the growth opportunity by getting people to stop flying and taking the train. Anything that levels off taxation between the two modes of transport is good for us. Emission trading schemes for airlines will be good for us. It is just to make sure that the client, when he chooses the modes, is not incentivised to go to one instead of the other for, I would say, the wrong reason eventually. It is true that generally, as an international rail operator, we tend to be in the category of rail in general, which is heavily biased towards commuter rail because that is what most people do. It is normal, but we are a bit of a niche market and our competitors are really the airlines. Anything that gets the two regulatory frameworks to be more consistent is good for us.

Q67 Lord Clinton-Davis: What discussions do you have with the airlines about this issue? Nicolas Petrovic: About the environmental trading scheme? Lord Clinton-Davis: No, about this particular issue—about competition between yourself and the airlines. 107 Eurostar—Oral evidence (QQ 42-86)

Nicolas Petrovic: I would say we do not talk to them directly about competing with them, because obviously there are strict laws about that. But we also have some partnerships with some long-haul airlines and we interline on the shorter legs, let us say London to Paris or London to Brussels. We have partnerships with some airlines on the sale of the ticket, so that, let us say, if someone flies from New to London, they stay over for a few days and then on the leg from London to Paris they will take Eurostar instead of flying. We try to co-operate when it makes sense but when we compete we compete.

Q68 Lord James of Blackheath: Is not the arrival of the emission trading scheme, with extra costs for airlines, the way for you to have some very smart advertising where you can point out the actual cost advantage of Eurostar by the fact that you are clean? Nicolas Petrovic: Yes. We have pushed very hard against the airlines. First of all, the fact that we did an independent study— Lord James of Blackheath: It is your initiative, not the airlines. They are the ones who are the loser. You have all the initiative. Nicolas Petrovic: We have pushed very hard the fact that it is much better for the environment to take the Eurostar compared to airlines. You might have heard that it is 10 times less emission of CO2 per passenger. Yes, if there are other possibilities to push the same type of message, through taxation and so on, we will do it.

Q69 Lord Brooke of Alverthorpe: Is this an opportunity to raise prices as well? Nicolas Petrovic: Well, it is a very competitive environment because— Lord Brooke of Alverthorpe: But all the airlines say that their prices are most definitely going to go up over the next few years, even more than they have gone up. Nicolas Petrovic: I think there is strong price elasticity on the leisure market, which means that if you raise the price too much it would shrink the volume of passengers. It is not in our interests to raise the prices too high. On the contrary, if the airlines have to raise their prices we will stay where we are, which should be good for us. We have our own price pressures. Electricity prices are going up, for instance, strongly in France, where we buy most of it. It is quite a competitive market with some strong price pressures everywhere, but our objective is to stay very competitive and to carry as many passengers as possible while making money, of course.

Q70 The Chairman: Do you actually think—I am trying to struggle with this one in my mind—that there is a negative, that your taxation is working against you and disadvantaging you in terms of passenger numbers? I would have thought that you have so many things going for you, in terms of convenience, not having to park your car at airports, not having to wait forever at airports and so on and so forth, that a little matter of taxation is not going to make that much difference, or is it? Nicolas Petrovic: I would say that everything makes a difference in that. It is not the thing that is going to swing big chunks of customers. But we still believe it is important that, especially on these kinds of topics, the consumer has something that is equivalent on both sides. It is as much a point of principle, so I would agree with you in some way. The Chairman: Can I congratulate you on not using the expression “a level playing field”?

108 Eurostar—Oral evidence (QQ 42-86)

Nicolas Petrovic: Thank you. Sorry. The Chairman: No, you did not use it and I am congratulating you on that.

Q71 Lord Rowe-Beddoe: You did, however, use it in your excellent paper, which I thought was very helpful and I thank you for it. You informed us this afternoon of Eurostar’s plans to extend operations—Holland, south of France, western Germany. Can I now bring it back to England and ask you what your plans are to develop, as it were, an inter-regional market between south-east England, specifically Kent, and the Nord-Pas de ? Nicolas Petrovic: Yes, obviously we have two stations in Kent and we have hundreds of thousands of very good and, I hope, happy customers in Kent. We are offering today—just as a way of background—that you can go from Ebbsfleet and Ashford to obviously Lille, Brussels, Paris, and I think we have a few deals on with Calais, but very few. I guess what you have more in mind is the idea of having some sort of a commuter service between the two regions, am I right? Lord Rowe-Beddoe: Yes. Nicolas Petrovic: Just by way of background, 90% of our passengers are between the three capital cities and so that is the bulk of our market. We looked at the two original commuting services, but it is slightly out of our business model in that, being a commuting service, we believe it might need a bit of subsidy or something like that. We are more of an open-access operator. If you did something specific at the right time with specific trains to do it, it is quite a lot of capital investment and the charges to go through the Tunnel and to go on the infrastructure are very high. So is there a market to sustain that investment? We are not convinced completely. That is our position. Then there is another argument: why do we not stop all our trains in all the intermediate stations? But, of course, the problem with that is the longer journey time. Lord Rowe-Beddoe: It takes time. Nicolas Petrovic: Then we would lose against the airlines on the big markets. That is our view at the moment.

Q72 Lord Rowe-Beddoe: I was thinking as well, though, of getting greater access to Ebbsfleet and Ashford from other parts of south England. Have you had conversations with train operators? It would seem to me if you are not in Kent but somewhere close by and you wished to go Paris and you have to come up to London and then cross London and get to St Pancras, it would make more sense if we could begin to make Ebbsfleet and Ashford more of a hub in themselves. Nicolas Petrovic: Yes, I agree with you. I think one of the things that could be done, especially for Ebbsfleet, is the signage on the road, because one of the reasons to set up Ebbsfleet is where it is; it is close to the M25. I do not know if you have ever driven there. I did it a few times. It is difficult to find and it is not a place that is known. When customers go there once they love it and they come back and they are very loyal. The point is how to raise the awareness and make sure we have the right signage to get there. That said, Southeastern Trains are doing a good job with their high-speed trains and classic trains to go to Ashford and Ebbsfleet, but I would say on the road side there might be something to do there.

109 Eurostar—Oral evidence (QQ 42-86)

Q73 Lord Walpole: May I ask my usual question, Chairman? The Chairman: Yes, you may. Lord Walpole: I live in north Norfolk, as I said earlier, and we have a railway line that goes down to a place called Stratford, which you do not appear to stop at, with probably 1.5 million people within easy access of that railway line. Bother these few people in Kent who can get on at Ashford! Nicolas Petrovic: I think the question is about the Stratford stop? The Chairman: Yes. Lord Walpole: Yes. I just wish you had not put in that funny one on the M25. Nicolas Petrovic: Okay. The Chairman: Lord Walpole, have you ever gone to Ebbsfleet? Lord Walpole: No, I have not. Why? The Chairman: Don’t make a judgment. Lord Walpole: Why would I go anywhere near there? I don’t need to. The Chairman: Okay, Stratford? Nicolas Petrovic: Stratford. Anyway, as you know, we cannot stop during the Olympics and at the moment the area is a big building site. We made a study, last updated in 2009, to see if there would be a case to stop in Stratford. Once again, it is a bit about this choice between if you stop you can have some clients but you have a longer journey time and you have the cost of operating the station. Because the station is a mere seven minutes away from St Pancras, the study we did showed that we would have clients in Stratford but we have them in St Pancras today because it is so close.

At the moment, there is no clear case for us to stop and, as I said, we have no subsidy. We are a commercial business. We will not stop in 2012. We are going to refresh the study by the end of this year to see whether there is a case for 2013-2014. So we are not saying no, but if we did stop we would have to have a clear business case for doing that. I think the problem is that, for clients, it is a bit like the Kent station—it is close to St Pancras, where you have all our services and all the choice of frequencies, so would you go to a station where you have just a few of them? But we are keeping an open mind.

Q74 The Chairman: Okay. Is there another direct railway line from Stratford to St Pancras? If you lived very close to Stratford and you wanted to go to St Pancras, could you go by rail anyway and then pick up the Eurostar at St Pancras? Nicolas Petrovic: Yes, you would take the Southeastern service. The Chairman: I see. Nicolas Petrovic: It is seven minutes to go to St Pancras. It is an easy change and you are on the Eurostar. The Chairman: Yes. Lord Plumb: Lord Chairman, I declare my interest as a traveller; therefore I do not want to stop anywhere, I just want to get to Brussels. The Chairman: Except for your place, apparently. 110 Eurostar—Oral evidence (QQ 42-86)

Q75 Lord Plumb: I also declare my interest as a consumer and, of course, I share the views of my colleagues, but we will not dwell on that. We received conflicting evidence regarding the efficacy of the current governance arrangements for the Tunnel as stipulated in the Treaty of Canterbury, some including the Government’s preference for the status quo and others wanting a fundamental overhaul. Does the Treaty of Canterbury need to be revisited? You say in your paper, and it is a question you pose, so we would like you to answer your question, “Is it fit for purpose?” What is your view? Nicolas Petrovic: The current governance, as we know, is through the intergovernmental committee, the IGC. What we see as Eurostar is that we need a very strong regulation of the Tunnel, because it is our number one cost and it is obviously our number one supplier and it is very important that we have a strong regulator. There are three areas to regulate: the safety and technical aspects, the economic aspects and all the security aspects. We touched on them earlier. In our view, having a single body, as independent as possible—very independent and very strong—is very important. It is good to have only one committee, because there is just this single piece of infrastructure. Otherwise, as an operator, we would run the risk of having two conflicting pieces of advice, let us say, on safety matters. Then what do we do? Where do we go from there? We would have to have another regulator above that to choose between the two. So it seems to us that to have a single body is the right idea. We would say the more power it has, the better, and the more independence it has, the better as well. We would certainly push in that direction if we are allowed.

Q76 The Chairman: What happens in the alpine Tunnels? Nicolas Petrovic: That is a good question. I do not know, so I would have to check. The Chairman: Could you write to us, please? Nicolas Petrovic: Yes, we will write to you. The Chairman: All right, thank you very much. If there is anything else that you think you ought to elaborate on, we would be very grateful if you could write to us. Nicolas Petrovic: Of course. Yes, we will. The Chairman: Thank you very much.

Q77 Lord Clinton-Davis: What is your view about the access charges at the moment to the Channel Tunnel? Do you think they are right? Do you think they are too high? Does this have an adverse effect on the price of the services that Eurostar charges as far as the Tunnel is concerned? What effect does the setting of access charges have on the prospect of competition through the Tunnel and how would you advocate that the situation could be improved? Nicolas Petrovic: Yes, it is an important matter. I would say, first of all, relative to other infrastructure, the Tunnel is an expensive piece of infrastructure to go through. It is the most expensive. The cost per kilometre is extremely high. That said, it cost a lot of money to build it. There is obviously a link between the two. Is it too expensive or not enough? Eurotunnel, as a private operator, has to make money, otherwise there would be a problem.

111 Eurostar—Oral evidence (QQ 42-86)

So yes, it is high. Is it too high? I do not know. I would say what is more important for us is, first of all, the fairness and the transparency of the charging regimes because there are many operators taking the Tunnel—us, shuttles and freight trains, with Deutsche Bahn starting tomorrow. What is important to us is that the cost base is very transparent and the allocation of the cost is as simple and as fair as possible, so that we make sure we are not paying too much in favour of someone or vice versa. The other thing that would be of interest, because it has a direct impact on the customer, is that today there is a charging regime—that is what it is—where there is a toll that is paid per passenger. It is the only place where you have that. Usually, you pay per train and the fact that you pay per passenger means that, as an operator, we cannot offer very low fares because we would obviously lose money on what we sell; especially with a high market share, we cannot do that. So to have something that is more consistent across geographies would help the economics of the system, I would say, and help the growth of the market. It is a very complicated matter with a lot of legacy in there, but it has to be said that these high charges mean that we cannot offer very low prices to the customers.

Q78 Lord Clinton-Davis: What discussions have taken place on this issue, if any? Nicolas Petrovic: Obviously we talk with our colleagues at Eurotunnel frequently. I think the charging regime has been based on a number of treaties and contracts. I do not detect any plans to modify that. I think at the moment there are questions being asked because of open access and the different operators coming on the line. We have not talked specifically with Eurotunnel about that, but I have said to my counterpart, Jacques Gounon, that obviously the charging regime is not fantastic to grow long-distance markets, but we are just the client. Lord Brooke of Alverthorpe: So the more you carry, the more you pay? Nicolas Petrovic: Exactly. Lord Brooke of Alverthorpe: Rather a disincentive.

Q79 Lord Haskel: Is it a commercial secret as to what the access charge is for each of the different companies? Nicolas Petrovic: It is not a commercial secret but, because of history, there are different bases for that and there are some tariffs for new operators coming in. So, for instance, Deutsche Bahn comes and they have a tariff. But, of course, all the operators have different histories and different contracts and so on. Eurotunnel is working with the IGC to make sure that it is all consistent, but I would say more transparency and more— The Chairman: You would welcome that, more transparency? Nicolas Petrovic: Of course.

Q80 Lord Brooke of Alverthorpe: But life has changed since the original treaty was drawn up. We now have issues like the environment, which I am pretty sure probably were not taken into account when they were drawing up the original treaty and arrangements related to it. Is there an input from Europe on the environmental side and from other quarters to try to push the case for greater use, based on environmental grounds?

112 Eurostar—Oral evidence (QQ 42-86)

Nicolas Petrovic: Of course, as the operator, the lower the charge the happier we are, because we can then have better prices. I think, yes, if we really want people to stop flying, take the train and decarbonise transport across Europe, having more consistent lower charges across not just the Tunnel but Europe would help because then there would be a case for growth. Now I understand the alternative perspective, which is that they want to balance the books. They have that, so it is not an easy situation for everyone.

Q81 Lord Brooke of Alverthorpe: But is it not possible to still balance the books even if you are carrying more people, even though the charges may be less? Nicolas Petrovic: In my view, there is growth to be had, yes, because there is potential to grow.

Q82 The Chairman: Do you have ongoing discussions with the European Commission on these issues? Nicolas Petrovic: Yes, we talk to them. We met Mr Kallas lately. For us, the infrastructure charges are so important—their regulation, transparency, the level of charges—that we have put our points to Mr Kallas lately, yes. The Chairman: I wonder whether you could you send us a brief résumé of the main points of this issue, because I think this is very important. It will fix our minds on what should be the future. Nicolas Petrovic: Okay. Yes, with pleasure.

Q83 The Chairman: Thank you. That is very kind of you. Now, the final question. I am sorry we have delayed you so long but, of course, we were delayed by the Division. Nicolas Petrovic: That is more important, yes. The Chairman: We have received evidence that suggests that consumers experience great difficulty purchasing through-tickets for connecting journeys. How do you think pan- European arrangements for such a service should be developed and would you be willing to participate in such a scheme? Should the CIV apply to all stages of such a journey? Nicolas Petrovic: It is another important topic for us because we want to grow beyond our current market. In connection with other operators—I say this just as background, but I think you have read it—we offer thousands of combinations of destinations between the UK in a general sense and continental Europe. We are doing quite a lot of that and we are doing it through two different mechanisms: through-ticketing with SNCF, SNCB and the Dutch railways, and with other railways, especially in the UK, what we call interlining of some fares. Through-ticketing is a complicated matter, so we want to be pragmatic for our clients. What we really push for is for them to have on, for instance, eurostar.com as many possibilities as possible to get one or two tickets, but at least to get the tickets with a good price, good times and good service. There is a lot of talk across the industry at the moment to develop further ticketing solutions across Europe. The European Parliament, I think, and Commission, want to push for that. Personally, I think it is a good idea. I think we just need to find the right balance between what is commercially interesting versus what could be a big white elephant of IT development—trying to connect too many things when you find there is no market. So we

113 Eurostar—Oral evidence (QQ 42-86) are pushing a lot with our partners in Europe to have more through-ticketing. Any help and any programmes we are always willing to participate in, obviously, but there needs to be a market. My last point on this is my personal view. Because the market was deregulated last year, we will see the market fragmenting instead of being vertically integrated, in terms of distribution, operation, infrastructure and manufacturing. The different layers are going to be separated and you will see new commerce in each of the layers. In my view, there will be private operators trying to distribute tickets better and we know that some are looking at it. I would say that we need to find the right balance—having regulation that helps but leaving the private sector also finding solutions and pushing for it. I would say that good incentives and private operation would be a good combination.

Q84 The Chairman: From the customers’ view point of view, they find it very difficult to get the best price for each segment of the journey. You do not help them on the Eurostar website, although you did say earlier—correct me if I am wrong—that you have all sorts of combinations that you give to customers as options, but they obviously want to know what the best price is they are going to be able to get. Nicolas Petrovic: No, you are right. You are completely right. We are trying on the website to show the best prices on a separate page. The issue we encounter is that, when we negotiate through-ticketing, we need to find the right price point between the two operators and we have a framework of competition law that we need to respect as well. So we need to find the right balance between having the right partnerships but not falling foul of that. We have some good prices on a lot of destinations. Do we have enough capacity, as in enough seats at those prices? I think we can do better and that is what we are trying to do at the moment with our partners in Europe and in the UK—to find more destinations. In the autumn we are going to announce something. I cannot say now, because it is not completely signed, but we are about to sign something to offer more good prices between the UK and the continent in the autumn. These are complicated matters, but we are working hard at it. The Chairman: That is very good news for somebody like me who uses Eurostar very frequently.

Q85 Lord Brooke of Alverthorpe: Separately, we have had evidence from Passenger Focus, which conducts a national passenger survey. They do this primarily on domestic services because Eurostar, for some reason, has declined to participate, so they can only go on anecdotal evidence which they pick up from passengers who travel on your trains. Is there any reason why you refuse to participate in this exercise? What method, as an alternative, do you use for assessing passenger satisfaction or otherwise? Nicolas Petrovic: I think we will have to come back for the reason for us not participating because I do not know. We are following very carefully what the passengers are saying. We have continuous surveys all year long. We are surveying tens of thousands of passengers every year and our job is to please them, because it is a commercial business and we need to. I can tell you that I look at it personally all the time. I travel once a week. The most important thing for our business is the customers.

Q86 The Chairman: I just make the point that Mr Petrovic has not seen the Passenger Focus survey because it has not been published yet on our website, but it will be there. The

114 Eurostar—Oral evidence (QQ 42-86) last question is one that I always ask. Is there anything you think we should have asked you that we did not? Nicolas Petrovic: No. I think it was a very comprehensive set of questions. Thank you very much. The Chairman: Thank you for your patience and for your great contribution. Thank you. Nicolas Petrovic: Thank you.

115 Eurotunnel—Oral evidence (QQ 331-366)

Eurotunnel—Oral evidence (QQ 331-366)

Evidence Session No. 8. Heard in Public.

MONDAY 10 OCTOBER 2011

Members present

Baroness O’Cathain (Chairman) Lord Brooke of Alverthorpe Lord Bradshaw Lord Clinton-Davis Lord Fearn Lord Haskel Lord James of Blackheath Lord Ryder of Wensum Baroness Valentine Lord Walpole ______

Examination of Witness

Witnesses: David Marteau, [European Affairs Officer, Eurotunnel], John Keefe, Head of Communications, Eurotunnel, and Jean-Pierre Ramirez, Head of the Network, Eurotunnel.

Q331 The Chairman: Good afternoon, gentlemen, and thank you very much for coming. This is a very important inquiry; we have had a lot of evidence from a lot of people. Obviously we are very interested in having your evidence, so thank you for coming along. We have not of course had your written evidence, but I take it that will come shortly. John Keefe: Yes. The Chairman: Thank you. The Members of the Committee with relevant interests will declare these before they speak. The session is on the record and is being webcast live and will be subsequently accessible via the parliamentary website. The witnesses will receive a transcript of the session to check and correct, and this will be put on the public record in printed form and on the parliamentary website. Now I want to ask all three of you if you could begin by stating for the record your names and official titles, and whether you would like to make opening statements. Mr Keefe? John Keefe: My name is John Keefe; I am Head of Communications for Group Eurotunnel. I will introduce the other two first of all, and then we will perhaps start with a very brief opening statement. The Chairman: Thank you.

116 Eurotunnel—Oral evidence (QQ 331-366)

Jean-Pierre Ramirez: My name is Jean-Pierre Ramirez. I am the Railway Network Director for Eurotunnel, and I have been with the company since 1992. The Chairman: Thank you. David Marteau: My name is David Marteau. I am the European Affairs Officer, and I have been in the company since 2002. The Chairman: Thank you very much. Mr Keefe. John Keefe: I think the first thing that we would say is very, very simple. Group Eurotunnel is a private railway company. We operate the concession—established by the Treaty of Canterbury, as I am sure you are all very aware—to manage the Channel Tunnel and its infrastructure, and the unique shuttle transport system that runs between and Calais. We also give passage to trains from other railway undertakings. The company lives from the revenues it earns from the passage of trains. We have a fundamental interest in the growth of the European market. Having read the questions given to us as part of the initial request, we will be able to show you in a number of different manners the efforts we have put into achieving that since the Channel Tunnel opened for business and progressively over the last 17 years. The Chairman: Thank you very much. We start with questions. The first question is from Lord Ryder. Q332 Lord Ryder of Wensum: Gentlemen, good afternoon. You have already touched on some of the management of your company in your opening remarks. I wonder whether you would like to elaborate on the management and ownership structure of your company so that we can all set that out as a proper framework for subsequent questions. John Keefe: In terms of ownership, it is very simple. It is a privately owned company. Shares are held by individual and corporate investors. The company is Franco-British in origin. The current structure is a French public company, Group Eurotunnel SA. The management of the company is a combination of British and French experts in various different fields of transport, particularly railway infrastructure management. The businesses of the group are separated very, very clearly. John-Pierre will explain later on his role in managing the network relationships. We manage the infrastructure of the Channel Tunnel and the shuttle services. The shuttle services are effectively a link between the road networks of Great Britain and the continent of Europe, and the network connections are the link between the railway networks of Great Britain and Europe. We have a very clear separation between the various different activities that we are engaged in, as you will see as we go through the evidence in further detail. Jean-Pierre Ramirez: If I might add to that, the group owns a group of rail transport operators made up of Europorte in France and GB Rail Freight in the UK. They are held completely separately in terms of legal and management structure, and decisions, as opposed to what John has just explained for the Eurotunnel concession with the railway network. Lord Ryder of Wensum: Thank you. The Chairman: Any further questions, Lord Ryder? Lord Ryder of Wensum: No further questions, thank you. Q333 Lord Haskel: Could you just say something about the corporate governance, as it sort of straddles both sides of the Channel? How are decisions made? John Keefe: We have a board of directors with a number of independent members on that board. In every annual report that we produce there is a section on corporate governance.

117 Eurotunnel—Oral evidence (QQ 331-366)

Our corporate governance meets the highest standards of corporate governance in both the UK and France, and we are measured on both sides to ensure that we respect those. The board is composed of both British and French, and in fact other nationalities of directors, selected for their experience in a variety of different fields: the transport sector, the financial field, or the running of railways in general. But certainly I think that we have a very, very high standard of corporate governance, and we have maintained it over all the years that we have been open. Q334 Lord Haskel: Is there any conflict between the French and English law as far as you are concerned? How is it resolved if it exists? John Keefe: I do not think we would say there is particular conflict between British and French law. Perhaps David would be able to answer this in more detail in an instant, but as a company established under French law, we apply French law for the French part of our operations; we apply UK law for the UK-based side of our operations. Lord Haskel: English law? John Keefe: English law, excuse me. David, perhaps you could answer this in more detail. David Marteau: I do not think there is any conflict of law concerning the Channel Tunnel. There are different sources of law, of course. There is French law on the French side and UK law on the British side. There is a bi-national law with the rules of the IGC. There is also the Community law that we are applying via the bi-national regulations adopted by the IGC. So there are different kinds of sources of law we are applying with no problems. Q335 Lord James of Blackheath: Do any members of the ERA have a right to sit on your board? Are there any allocated seats for ERA members as a regular course? John Keefe: Not specifically. Lord James of Blackheath: Do they require copies of the minutes of your board meetings? John Keefe: I could not answer that directly. Lord James of Blackheath: Well, do they receive the minutes of your board meetings in the ordinary course of events? John Keefe: I would have to come back to you with an answer to that. I am not 100% sure. The Chairman: Well, perhaps you would, Mr Keefe. Could you just write to us? Thank you. Jean-Pierre Ramirez: Not that we know of. The Chairman: Off on a tangent, it has suddenly occurred to me that I did not warn you that we might have Divisions during this session. I do apologise for being late in starting the session. Divisions will take about 10 minutes each time. I hope and pray that we will get through all of this evidence-taking before that happens.. Q336 Lord Fearn: Good afternoon. How much capacity currently exists in the Channel Tunnel with respect to passenger and freight services? Jean-Pierre Ramirez: At the present moment we have a catalogue of pathways for trains where we allow for four passenger trains per hour in each direction, and we have four rail freight trains per hour per direction at night, and two per hour per direction in the daytime. That is expressed in absolute terms. In relative terms, compared with current traffic, we have less than 50% of the capacity utilised for passenger trains—well, less than that—and we have about 10% utilisation on rail freight paths, meaning that we have the potential to 118 Eurotunnel—Oral evidence (QQ 331-366) multiply and develop rail passenger traffic by at least two, and a capacity to multiply rail freight traffic by a factor of 10 or more. The Chairman: Thank you. That corroborates some information we already had. Q337 Lord Bradshaw: A very small question: how much is allocated to through railway traffic and how much to the shuttle services? Jean-Pierre Ramirez: In absolute terms we currently have a 50:50 split of overall capacity between the road network connection and the connection between the railway networks. There is no absolute requirement for that to be the case, although we have contracted with state railway companies and ministries on both sides to dedicate at least 50% of the capacity to the railway network connection. Q338 Lord Bradshaw: How much of the shuttle capacity is actually used? Jean-Pierre Ramirez: The shuttle capacity is actually well-used. We operate at the moment up to five passenger shuttles per hour, and up to seven freight truck shuttles per hour, not at the same time. At peak times all the paths are utilised, which would be 10 paths per hour, so there are periods when 100% of the shuttle capacity is operated, but there is still spare capacity at night on the freight shuttle capacity, which we could potentially liberate for additional rail freight paths if required; although at the moment, like my answer to the previous question, there is not necessarily the scope for that need. Q339 Lord Brooke of Alverthorpe: Lord Chairman, I was not quite sure whether in fact there is a written submission coming or not. The Chairman: Yes, there is. Lord Brooke of Alverthorpe: There is. Then maybe the question I am going to pose will be answered when the written submission comes in, but I am wondering if you could please demonstrate to us just what the progress has been from when Eurotunnel first opened on the issue of capacity: how many we are taking through both from freight and from train initially, and how that has developed year by year over the—17 years, is it? John Keefe: Yes, it is. Lord Brooke of Alverthorpe: Over the ensuing 17 years. Could you also give us an indication of whether you have set targets on the growth that you will be looking to achieve in the coming years? Jean-Pierre Ramirez: Are you interested in the railway traffic side? Lord Brooke of Alverthorpe: Railway and freight. Jean-Pierre Ramirez: Rail passenger and rail freight? Lord Brooke of Alverthorpe: Yes. Jean-Pierre Ramirez: To begin with, the rail passenger traffic started from 1994. I will express it in millions of passengers because those are the figures we memorised. Lord Brooke of Alverthorpe: I was thinking particularly in terms of trains. The Chairman: The numbers of trains. Jean-Pierre Ramirez: That is slightly more difficult. Trains were running a bit empty, so we will perhaps give you an indication of that, but it will be more approximate. I think the passenger figure is the most significant one. The initial forecast for passenger traffic when it began was around 17 million passengers, and it developed quickly to 20 million passengers

119 Eurotunnel—Oral evidence (QQ 331-366) per annum. Those were forecasts given by the Government and state railways to Eurotunnel as opposed to Eurotunnel’s own forecasts. So rail passenger traffic developed fairly quickly, up to 6 million passengers by 1996 or 1997, I believe. There was a plateau at that level—between 6 million and 7 million passengers—for a long time, up until new high-speed infrastructure was provided on the UK side, the first phase of High Speed 1, through Kent. By then traffic started growing from the 6 million to 7 million passenger level up to 2008, which was the first full year of operation of High Speed 1. Between 2008 and now we are in the bracket of between 9 million and 10 million passengers. In terms of objectives, we believe there is potential in the market to grow that number with well-identified markets up to 15 million passengers within the next few years. It depends on when the barriers are removed for that, so that is something that could happen within the next five or 10 years depending on how things are facilitated. Of course there is still further potential to go up to 20 million passengers by doing more difficult things, perhaps more infrastructure, so that perhaps is for the following decade. Q340 Lord Brooke of Alverthorpe: And on the freight side? Jean-Pierre Ramirez: On the freight side, again, the services started in 1994. The forecast for traffic was in the region of 8 million tonnes for the early years, moving up to 10 million tonnes and beyond because of an annual growth rhythm in the forecast. Again, those were forecasts given by Governments and state railways. Traffic was developed by the state railways for the first four years up to privatisation on the UK side in 1997. It was developed fairly quickly to 3 million tonnes per annum from zero, a growth of about 1 million tonnes per annum additionally. From the moment of BRB privatisation, traffic stagnated at 3 million tonnes for about four years, and then started decreasing thereafter from 2001 to 2007. There was a context where traffic was organised by governments with exclusivity for a couple of railway companies, and that visibly did not work out. Traffic was about to collapse in 2007, at which time Eurotunnel worked with governments to avoid that result. Since then we have managed to rescue rail freight traffic and preserve it at 1 million tonnes of traffic, and we are trying to grow it again in the different conditions. We have got rid of exclusivities created by Governments and we are trying to develop that in open access. Traffic is currently growing in 2011, and has been growing at a rate of 15%, and we believe there is a very strong prospect for growth in rail freight. First, we are looking to redevelop to the previous level of 3 million tonnes. We know where the markets are for that, because traffic was at that level initially when governments did their very initial development. Then we believe we will be able to double that over a longer period of time to bring it up to 6 million tonnes or beyond. Lord Brooke of Alverthorpe: Thank you. The Chairman: That is very encouraging, isn’t it? Jean-Pierre Ramirez: We do believe in the markets that we are trying to develop. The Chairman: Yes, and this indicates that you have faith in the single market, and no barriers. Jean-Pierre Ramirez: We have faith that we will overcome those barriers. I believe you will probably ask me the question later on, but there are barriers that we will need to overcome to make that possible.

120 Eurotunnel—Oral evidence (QQ 331-366)

Q341 Lord Clinton-Davis: Has there been any development in recent years, and do you anticipate in the future there will be, of new international passenger services to the United Kingdom? Have you amended your procedures and practices in any way in that time to take account of these developments? Jean-Pierre Ramirez: Yes, indeed. In the first place I should specify that from the very beginning Eurotunnel was organised in order to authorise passage of trains, including rail passenger trains, from all operators. All our contracts have always been designed in such a way that trains from any European train company wishing to access the tunnel would be authorised to go through the tunnel. We are in the very specific situation that, from the beginning, we have been the very first rail infrastructure company that operated a railway network exclusively for other companies and not for ourselves. We have never initially operated rail passenger services or rail freight services. There is an exception to that, which is that to facilitate the development of the market Eurotunnel has more recently acquired rail freight companies in France and in the UK separately within its group. Otherwise, from the very beginning Eurotunnel has been an infrastructure manager initially, designed for other companies to use the tunnel. Having said that, we have done additional things to prepare for the liberalisation of the market. So initially we had this contract with the ministries and with the operators of the networks in the UK and in France, the British Railways Board, which is controlled by the Department for Transport. We have contracts with them to allow them to send any train through the tunnel that they wish to send to us, owned by any operator. But in light of liberalisation, Eurotunnel developed conditions for other operators to access the tunnel, and for rail passenger traffic we actually published conditions at the end of 2006 for other passenger operators to utilise the tunnel, which was about four years before the passenger market liberalisation came into effect. By the end of 2006 we had already published conditions to allow new operators to take a look at cross-Channel markets and be able to develop services. As a result of that we had expressions of interest from passenger operators very early on, even before the liberalisation came into effect on 1 January 2010. We have published the tariff conditions, those safety requirements of the IGC that we knew of, and the characteristics of the Channel Tunnel and all the contractual conditions for access to the tunnel. We have done that in advance of being obliged to do so. Q342 Lord Clinton-Davis: Are you affected by the economic downturn anywhere, as far as that is concerned? Jean-Pierre Ramirez: Yes, existing services are affected by that. It is more difficult to develop new rail freight services because in order to develop a rail freight service you need to have a certain take-up of a train by shippers and road hauliers before operating the service. I suppose the economic conditions have made it more difficult to get to that target to launch new services. There is a secondary effect, which is that the economic conditions have affected some ferry operators across the Channel. At the moment we have a particular ferry operator that is pretty much on the verge of bankruptcy, and has had distressed pricing practices on the market, which again makes it more difficult for rail freight operators to find customers to put on their trains. It does destabilise the market if road hauliers know that there is an operator somewhere that may offer prices 30% lower than any commercially viable operator for a period of six months or one year. That is the sort of instability road hauliers are forced to benefit from, and rail freight operators find difficulty competing with.

121 Eurotunnel—Oral evidence (QQ 331-366)

Q343 The Chairman: Of course, thank you. What role are you playing, if any, in the negotiations between the relevant actors regarding the prospective Deutsche Bahn service, and is everything proceeding to schedule? Jean-Pierre Ramirez: Eurotunnel is playing a fairly central role in those discussions. We have been working on the project with Deutsche Bahn since January 2010 in the very early stages of the commercial design of their project. We have been helping them understand the market potential in some cases, and helping them go through the process of submitting a submission for a safety certificate to the authorities for the Channel Tunnel. We have helped them develop their dossier prior to presentation to the IGC. We have already responded to the IGC, and participated in the process of modernising the IGC requirements on rolling stock. With our submissions we helped to make sure that the modern types of rolling stock that are available in the market can be authorised for the tunnels. As far as the infrastructure manager is concerned, because the IGC, the regulator, needs to ask the infrastructure manager for technical advice on all these things, we have done all the work on our side to respond favourably to that modernisation. More recently, approximately a year ago, we organised the first test in the Channel Tunnel with an ICE train with Deutsche Bahn. We did both the technical tests, some traction and signalling, to prove that the train could operate through the tunnel, and secondly we organised an evacuation test with voluntary passengers—not fare-paying passengers—to evacuate from the tunnel to demonstrate the evacuation times and possibilities with their type of rolling stock, with the IGC as an observer, which was successful. Since then we have also been working with Deutsche Bahn to document their operational mode through the tunnel, and explain the safety of their evacuation procedures and all the points to the IGC, to help them develop a dossier that was submitted to the IGC at the end of August or September, and which the IGC is currently reviewing. We hope they will authorise this service. As far as we are concerned, from the technical side of the infrastructure manager, clearly the submission that has been presented to the IGC is very serious. You would not expect anything else from the candidate, but we have been able to verify that in detail and confirm that. So that is on the safety side. On the commercial side, we have been working with Deutsche Bahn to put the contracts in place and everything that we will do in order to help them launch the service. The third part is the operational side. We have been working with Deutsche Bahn and with other infrastructure managers in Europe to find the pathways through the networks of different countries in Europe that coincide and allow an efficient service to be produced on an end- to-end basis. The project that Deutsche Bahn are working on is a very advanced type of operation that would use six different infrastructure managers: Germans, Dutch, Belgians, French, the UK infrastructure and the cross-Channel infrastructure. We have been working between infrastructure managers to find the right pathway and a very commercially attractive product, and we have succeeded in doing so. To date on the commercial contractual aspect, we are perfectly in line for the project to take place, if needed, within the next year. On the operational side it is the same thing for the pathways. Your final question was pretty much whether we are on schedule. The answer is no. On the safety authorisation, they still do not have their safety certificate and do not have certainty as to when they will have it. In a project like this, it will probably take at least two years from the time they have their authorisation until the service can start. Considering we started at the beginning of 2010, at the earliest, if all the authorisations and safety requirements had been known from the beginning, the definitive order for trains could have

122 Eurotunnel—Oral evidence (QQ 331-366) gone through possibly within the first six months or so, and services could have been running potentially in time for the London Olympics. Clearly that is not going to be the case; we have known that for some time. Our estimate is that, at best, services will start two years after trains have been authorised. But the service cannot be run without trains, so it will take another two years after the trains have been authorised. Q344 The Chairman: This seems a wonderful collaborative effort between you and Deutsche Bahn, and then it all comes unstuck. There is not a follow through, and there is this delay. Is there any way that this could be hurried up a bit? Is somebody dragging their feet, in a good old English expression? Jean-Pierre Ramirez: There has been some difficulty. I mean the authorisation of the trains has to come from the IGC. That has been submitted to the IGC. The process has been slightly more protracted than the operator expected and than we would have hoped, that is for sure. I could answer it the other way round, which is that, if the European specifications for interoperability were the regulations that applied to the Channel Tunnel, the process would have been much faster. At the moment, the operators have to demonstrate that the standard types of rolling stock that operate in other places in Europe can also operate in the Channel Tunnel, which is a much longer process and much more difficult for the operator than one would expect. Moreover, it is a process that only a major operator such as Deutsche Bahn could have the time, patience and courage to bring forward; with the current set-up for authorisations you could not imagine any small or medium operator emerging and going through the process of authorising trains. The Chairman: I think you have made it very clear—thank you very much indeed. Does anybody else want to ask questions on that particular issue? Q345 Lord James of Blackheath: How and on what basis do you and your officials engage with the Transport Commissioner and officials from the ERA, and could you comment generally on your relationships with them and give us some indication as to how you would react if you found that the ERA had assumed more robust powers? David Marteau: We have regular contacts with the European Commission, and more precisely with DG MOVE— The Chairman: I am really sorry. We have a Division. We will be back as soon as possible. Sitting suspended for a Division in the House. On resuming— The Chairman: I think you were aware of the last question. Would you like to go ahead and answer it? David Marteau: Yes. I was saying that we have regular meetings with the European Commission, or more precisely with DG MOVE, with the unit of Mr Castelletti—now replaced by Ms Sian Prout, I believe. In the past we have had a relationship— Lord James of Blackheath: I find the words “I believe” significant, because it implies you have not yet had a visit or a discussion with her. You do not know her yet. You said “I believe” when you quoted her name, which implied to me that she has not introduced herself to you yet, so you do not have any dialogue with her at the moment. David Marteau: We have a dialogue with the European Commission. We meet them two or three times a year. The relationship is very positive, constructive and helpful on certain subjects such as rail freight corridors, the first railway package and the recast, and for example other technical aspects like the communication system that users would like to install in the future—the so-called GSM-R, which is a part of the TSI, the ERTMS TSI. At the 123 Eurotunnel—Oral evidence (QQ 331-366) level of the Commissioner we have in the past had some meetings with a former Transport Commissioner, Mr Barrot, but so far we not met Mr Kallas. We do not have any relationship with the ERA. We think that the ERA has a relationship with the national safety authorities and not with the infrastructure manager. It is the role of the ERA to say to the national authorities what they decide to apply on the infrastructure. We believe that it is mainly a relationship between the ERA and the national safety authorities. This is why we think that the ERA needs to be an important and independent organisation, and has to impose to the national safety authorities the rules and technical standards that are applied on certain parts of the infrastructure. Q346 Lord James of Blackheath: What about the possibility of the ERA coming out with more robust powers? How would you view that? David Marteau: We are in favour of more robust power for the ERA. This is very important for us. Interoperability is a kind of guarantee for open access for liberalisation to let trains pass through the infrastructure. It is very important indeed. Lord James of Blackheath: So you would see more powers as a positive move, not an interference. Jean-Pierre Ramirez: We would see positively the ERA developing into a regulator of the regulators, as far as defining which rules the IGC can apply to the Channel Tunnel. So if a national regulator wanted to make up a new rule, they should justify that to the ERA. As far as the ERA becoming a regulator for regulators, we would see that positively. If your question is whether the ERA should directly be the regulator of the Channel Tunnel, that is a different question. We see the relationship between ERA and regulators. Lord James of Blackheath: I will conclude just by saying—and it is not really another question—that the answer you just gave would imply that you think the regulators need regulating, and it would be interesting to know why. But we will not explore that one at the moment. Jean-Pierre Ramirez: For coherence, as my colleague said—for interoperability between different countries—it cannot be each regulator in each country defining independently what they think the best railway safety standards should be. It is for standardisation. Q347 Lord Walpole: Do you have a good relationship with the ORR and the IGC? So far we have received conflicting evidence regarding the efficacy of the current governance arrangements for the Channel Tunnel as stipulated by the Treaty of Canterbury. Some, including our Government, prefer the status quo. Others would like to see a fundamental overhaul. What is your view, and if you had an overhaul what would you do? David Marteau: Under the Treaty of Canterbury and the concession agreement, we have a direct relationship with the IGC and the safety committee. We meet the IGC and the Safety Authority every two months, and the relationship is quite positive, and it is very important that this relationship must be positive. We do not see at this stage any necessity to change the current governance framework made by the Treaty of Canterbury and the concession agreement. We think that this framework is flexible enough to accommodate new rules, such as EU rules, in future. I need to say that we have started discussions with the IGC and the special committee, which is the Joint Economic Committee. The discussions are progressing well and we have no problem at this stage. There is no real necessity to change this framework. Changing it would be a huge and very long process, because the two Governments would have to negotiate on the treaty; we would have to negotiate a new concession agreement. It

124 Eurotunnel—Oral evidence (QQ 331-366) would take years, including the different ratification processes in each of the Member States, so we are not sure this is what we want or what the market wants. Q348 Lord Bradshaw: When you answered the question about safety, you actually said that the IGC was extremely slow and was putting years into the process, and that it was too difficult and expensive for smaller operators. How does that tie up with the answer we have just been given, that you are absolutely content with the IGC? Jean-Pierre Ramirez: The problem in this case is not the concession or the Treaty of Canterbury; it is simply perhaps that the IGC should start the homologation process of rolling stock at a higher level with cross-acceptance with other bodies in other European countries. If a specific type of train chosen by a manufacturer has already had a thorough homologation process in one country and has had years of operation, we do not see why the IGC should restart that work from scratch, and we do not see that this is a problem related to the Treaty of Canterbury in any way. It is about the functioning of regulators in general in Europe, and it is more something about defining the working rules of the IGC and other regulators together with the ERA et cetera. But in this particular case it is nothing to do with the Treaty of Canterbury. Q349 Lord Bradshaw: I would like to ask about the level of charges that Eurotunnel are making for the passage of trains through the tunnel. Are those charges set at a level that may stimulate the market or are they actually constraining it? Jean-Pierre Ramirez: The question of access charges is a very relevant one. In the first place the question of access charges is linked to Government policy for transport. Access charges paid by a rail passenger company are the sum of the access charges that are charged by national infrastructures, which are funded by taxpayers for the main part and to a very limited extent by access charges. In that case it is for national governments to define what level of access charges should be charged by infrastructure managers to train operators, and they have been doing that for a certain time. In the case of Eurotunnel, there are also Eurotunnel’s charges. Our access charges have been determined since 1987 by an indexation formula, and there has been no increase in them in real terms since then. There has actually been a reduction of the Eurotunnel tolls since 1987. We have a long-term indexation formula, which is RPI minus 1.1%, which is beneficial to operators. If I may insist on this particular path, we are the only railway network infrastructure manager in Europe that is funded 100% out of access charges and 0% from taxpayers’ money either at the construction stage or operating stage. All other operators are funded in a different way. Since 1987 there has been quite an increase, particularly over the last five years, in access charges charged at national level by the French and UK infrastructure managers, which have more or less come from zero to representing in total about as much as the Channel Tunnel charges authorised by government. So if Government policy is to incentivise an additional development of rail passenger services in Europe, it can be done by backtracking on increases they have brought over in the last five years, which have been quite significant. Or I would suggest the first thing we need is to stop any further increases in charges by national infrastructure managers. Clearly in a global economic context where governments are looking to find funds from everywhere they can, we do not believe that increasing charges by infrastructure managers to extract cash out of each country’s infrastructure assets is a positive way of going forward. National infrastructure charges clearly should be limited at a European level to stop any further increases. Also there is an issue of predictability that you may have seen in other submissions by rail operators. At the moment Eurotunnel’s charges have been predictable since 1987. There has 125 Eurotunnel—Oral evidence (QQ 331-366) been a new charging framework in the UK applied from 2009 for High Speed 1. At least there is a charging framework in place now. Charges were not known before that by operators, so it would have been very difficult for an operator to decide on services without knowing how much they would be charged for running through the UK network. Also, the High Speed 1 charging framework has an indexation formula for the long term, which is positive, but in some cases they are allowed to charge RPI-plus on some elements of the charges, which is not the best solution for train operators. There is no long-term charging framework yet in France, so there have been increases year- on-year in double digits, particularly over the last five years, so very serious increases on the French side. What we need is an indexation formula in the long term there, and ideally for all European infrastructure managers in general if possible it should be an RPI-minus indexation formula. I will explain the detail of that, if you are interested. RPI-plus formulas have been used at national levels, as part of government policy in some cases, in order to allow for a progressive transfer of the charge for the general transport system from taxpayer funding to the user. So that can be coherent at national level because it is simply moving the charge for the transport system from one side of the public to another. At an international level this is very different because rail passenger operators have airlines as competitors, and airlines already work in a competitive environment where in general they achieve productivity gains over time with the purchase of their aeroplanes, the consumption of fuel et cetera and the way they get organised. Over time you will see that the increases in air fares evolve more slowly than RPI; therefore rail passenger companies need a similar environment that converges with airlines. In any case, RPI-plus or any high increases in infrastructure charges are not viable. Coming back to the start of your question, do we believe charges nowadays are at a reasonable level? Again, the main people who can answer that question directly are the last ones to have increased charges significantly over the last couple of years, so it would be for the UK Government to define why they increased charges at the national infrastructure level. I believe they have done studies to analyse that, but we do believe that, at the present level, infrastructure charges overall, the sum of them, are at an appropriate level and still bearable for operators. The evidence of that is that the Eurostar operation is run at break- even or better, and the cross-Channel markets have attracted interest from DB Schenker and other operators, so there is still the belief that those markets can be exploited profitably by operators. But there is this concern for the long term, where this needs to be limited very clearly, because otherwise some operators might even come into the market and go away, which we would not like to see. Q350 Lord Bradshaw: I just have one other point on transparency. It is likely that Eurotunnel will be obliged in future to be transparent about the charges that it applies to passenger, to freight, to your own freight—that is the Europorte stuff—and the charges for the shuttles, because they all use the same infrastructure. The costs should be shared out in some equitable way between them. The shuttles have given rise to three very serious fires in the tunnel, which must have cost a lot of money. Can we be sure that these charges are fairly distributed? Jean-Pierre Ramirez: Your first question was about transparency. We publish a network statement on an annual basis, which defines the charges we apply to rail passenger operators and rail freight operators. We update and republish that document every year. I brought some copies with me for you to have a look at, but these are published on our website and are available to all operators. In terms of the transparency of charges, what we have as part of this charging is an apportionment of the costs of operating the tunnel, which we justify to the state railways and basically to the DfT and to operators. So we have a distinct 126 Eurotunnel—Oral evidence (QQ 331-366) specification of the apportionment of tunnel charges between the railway network and the shuttle operators, which is also very clear. Q351 Lord Bradshaw: Does that take into account the costs associated with the three fires on the shuttles? John Keefe: Perhaps I could just make one intervention there. To be precise, the fires were on lorries being carried onboard shuttles, and I think that is an important distinction to make. One of the steps Eurotunnel has made in the past two and a half years since the fire in 2008 is to introduce a completely new and revolutionary fire-fighting system inside the tunnel that will deal specifically in situ with a potential fire in the future. This is a piece of equipment that has been installed in four different locations. It is over 800 metres long, it can accommodate an entire shuttle, and using a very, very high-specification water-mist system it is able to suppress a fire onboard a shuttle and therefore significantly reduce the risk of infrastructure damage in the future, and significantly aid the accessibility to the environment for the emergency services. Q352 Lord Bradshaw: But the costs of that will be charged to the shuttle operation, won’t they? John Keefe: The cost of that would be borne by the insurers. Jean-Pierre Ramirez: The investment itself is in the region of €22 million. It has been paid by Eurotunnel. The operators did not have to pay for any repairs to the tunnel following that. If I may also add, the tunnel reopened very quickly. Although it was very important, the last fire meant the closure for rail freight operators for less than 24 hours, and rail freight trains ran through within hours because most of the work was done in the daytime when there were few rail freight trains. There was very little disruption to them. During the period we were rebuilding the rest of the damaged portion, rail freight operators were given priority on much of the capacity to run, so they were very much unaffected. The brunt of the disruption was carried by the shuttles. Q353 Lord Walpole: Very quickly I want to ask whether you have to evacuate these trains before you put them in these things to put the fire out, or do people stay in them? John Keefe: No, they are evacuated at the point where the train stops, and that is within this environment. The people are evacuated from the train and the water mist is set off almost simultaneously. Q354 Baroness Valentine: I just wanted to come back to the ticking up of the UK and French governments’ access charges about five years ago. I have two questions. First, was there something that happened five years ago that caused that tick up? Is it more French or more British? Can you give any comment on either of those things? Jean-Pierre Ramirez: It has been done in different ways on both sides, as you would expect. On the French side the access charges are defined by Government on a year-on-year basis by decree, and are reflected by the national infrastructure manager. So it has been done on a year-by-year basis without much of a framework behind that, limiting the increase. So the French railway network is currently looking for the balance of infrastructure costs, infrastructure charges and profit of train operators. There is a debate in France at the moment between the national infrastructure manager, RFF, and the national train operator, the incumbent SNCF, and there is very much a debate that ultimately inspires the political decision on transport policy. But they are both national companies inspiring the government as to what is the right level of infrastructure charges. The answer does not seem to have emerged yet. We have heard there are projects to define a longer-term formula for infrastructure charges, but it has not arrived yet. 127 Eurotunnel—Oral evidence (QQ 331-366)

On the UK side it was a different question. The investment in infrastructure was very fresh and recent; it was High Speed 1. This was made with Government subsidies, with Government guarantees for the loans, and in the end under Government control under a company called LCR. In the end it was a Government-funded infrastructure, and the Government decided to get back part of its investment by selling a concession for the High Speed 1 infrastructure. Therefore, Government defined a pricing level of access charges that would allow them to sell this infrastructure at a value that represented access charges. So in a nutshell, High Speed 1 cost something between £5 billion and £6 billion to be built, and the Government decided to get back about £2 billion from investors, and therefore they defined the level of access charges that was required to obtain that cash back from the infrastructure. If anything, it was more of a remortgaging operation, and the level of access charges was the annuity required to represent the amount of money they wanted back. Of course, we believe that Government also made some calculations as to whether those access charges were sustainable or not, but we were not party to that Government assessment. Q355 Baroness Valentine: Could both governments have conflicted in setting the charges, in effect? Jean-Pierre Ramirez: They both did that independently from the charges. Baroness Valentine: Yes, but internally conflicted, meaning that they are getting money in as an owner as well as regulating, or getting the balance. Jean-Pierre Ramirez: On the UK side it is true; clearly the setting up of charges before anything else is transport policy by Government. Yes, the UK Government was the owner of the infrastructure and had the capability of determining the charges and of imposing those on operators because they also owned or subsidised the operators in the first place. So in many cases the UK Government had a certain degree of flexibility as to whether they wanted to set up high access charges and get more money back to invest in something else, or lower access charges and getting less money back and perhaps encouraging traffic growth after that. It is the same thing in France. Q356 Lord Brooke of Alverthorpe: So on the UK side, then, are they set in concrete? The Chairman: Are they fixed? Jean-Pierre Ramirez: On the UK side to a certain extent the Government has signed a concession agreement but put terms in the concession for the acquiring of High Speed 1, and so the terms are set by that contract as to whether there is flexibility in the UK Government’s contract with the concessionaires for High Speed 1. That is pretty much a question for Government. Q357 Lord Brooke of Alverthorpe: So RPI-minus is another long-distance hope rather than a short-term one. Jean-Pierre Ramirez: We will see. There may be terms for the Government to modify their contracts, but I am not the best person to comment on whether they wish to do so or not. But the main point is that having an indexation formula is better than not having one. The first thing is to make sure that that at least happens overall in the European networks, because operators will need that in order to develop services. The Chairman: You have not asked your question, Lady Valentine. Q358 Baroness Valentine: No, sorry. Is there any justification for the Channel Tunnel having separate safety standards in place that are not necessarily in conformity with the ERA’s TSI, or is a more bespoke approach required because of the particularities of the 128 Eurotunnel—Oral evidence (QQ 331-366) tunnel? We understand that the existing safety regulations for tunnels were reviewed last year and that the issue of distributive power has been resolved. When are the remaining issues highlighted in the ERA’s technical opinion likely to be addressed, if at all, and do you have a dedicated safety board that examines these issues? David Marteau: We think there is no justification for having different safety standards in place. It is absolutely vital that the TSI apply in an open access perspective; I think this is a key issue. We are aware that there is an ongoing process of reviewing the safety regulations both for passengers and for freight. We know that thanks to the ERA the issue of distributive power has been resolved, but there are still some issues. I think the length of trains is a remaining issue. Concerning the last part of your question, we have a dedicated board for safety issues. This part of the company is managed by Bruno Bouthors, and meets the Safety Committee every month or two. Q359 Lord Haskel: Are there any potential problems of conflict of interest? Should there be a greater degree of separation required between the freight operator Europorte and Eurotunnel? Do you accept that in this case the current freight operators are disadvantaged by this situation? David Marteau: In accordance with the EU directive on the bi-national regulation of transposition adopted by the IGC, we have different kinds of separation within the group. The first one is legal separation. Europorte, the subsidiary, is operated by a French company. On the side of the infrastructure manager, the two concessionaires are other legal entities. There are in fact two concessionaires. On the UK side there is the Channel Tunnel Group and on the French side there is France-Manche SA. So we consider that from a legal point of view it is totally different. There is another level, which is a separation of decision-making processes in the organisation. We have two different executive committees, one for the undertaking of Europorte and one for the concessionaire for the infrastructure manager. The premises are different and the information systems are different, so this is why we think that from an organisational point of view things are completely different. There is also another legal separation, which is the separation of accounts. Each company publishes their annual accounts every year. On the British side this is to Companies House; on the French side this is to the Tribunal de Commerce. Another very important thing is the independence of essential functions. There is the charging body on the allocation of paths, but in fact this body is managed by Mr Jean-Pierre Ramirez, who is here. Jean-Pierre, do you want to say something? Jean-Pierre Ramirez: Yes, in terms of the guarantees for rail freight operators, on top of the corporate separation between the operations within the company, for the central roles I am charged within the company with ensuring that I discharge the questions on charging and on capacity allocation. I am ultimately responsible for those operations, and it is part of my job description, and my mission is to make sure that it is done completely independently from any particular relevant undertakings. So I do that in a non-discriminatory framework, and completely separated from transport businesses. I represent the railway network for all railway undertakings. I distribute capacity in the tunnel between railway undertakings perfectly neutrally and according to rules specified in the network statement. I only interact with Europorte as a customer, so I do take their orders for paths and I charge them for access to the infrastructure exactly in the same way as I do other rail undertakings, and we have never had any complaints from any railway undertakings so far in this respect. Q360 Lord Haskel: I am quite sure the two things are operating absolutely separately and independently. But from the point of view of another operator, in view of the fact that you make the decision, do you not think that another operator will think they are disadvantaged because the person who makes these decisions has a conflict of interest? 129 Eurotunnel—Oral evidence (QQ 331-366)

Jean-Pierre Ramirez: The person making these decisions does not have any other connection with Europorte apart from being within a group that owns both sides of the operation. But I do not have any links with the management structure of Europorte in any specific way. I am simply within the infrastructure management, and I do not receive any influence from Europorte. If I may add, we are, as we explained, funded 100% from infrastructure charges, and for me Europorte represents in the region of 10% of rail freight traffic. Therefore, if I were to disadvantage 90% of my customers I would probably be shooting myself in the foot. John Keefe: Just taking that from a group perspective, we come back to the position—and Jean-Pierre is absolutely right—that the group earns its money from customers. There is absolutely no interest at all in putting barriers in front of customers. We are very much interested in making sure that open access works fully, properly and to the advantage of all, because the more the merrier as far as we are concerned. Jean-Pierre Ramirez: In any case I discharge these essential functions within a clear, transparent framework. I apply charges that are published, and if required I am able to justify to the IGC that I have applied those charges without any discrimination between different railway operators. I have an audit trail for all the charges that apply to operators, and I am extremely confident I can demonstrate very clearly for any audit the fact the right charges have been applied to each operator. In the same way for capacity allocation, we allocate those in a transparent way, and I do not have any scope for giving advantage to one or the other. Nowadays, in the first place, with 90% of capacity remaining available for rail freight operators, it would be a statistical rarity if two of them wanted the same path. But I suppose, going forward in time, as traffic grows there may come a day when two operators ask for the same pathway through the tunnel. In that case we have a conflict resolution procedure where we will have to treat those requests along a set of priorities. So passenger operators will have to determine how the decision on allocation was made between one operator and the other. We will have to apply a predetermined set of priority rules depending on the longest distance or the ability for one or the other operator to use an alternative pathway. We will have to do that in a way that is demonstrably and transparently non-discriminatory. Q361 Lord Haskel: I am sure what you have described is absolutely right from the point of view of Eurotunnel, but from the point of view of another freight operator, it looks different. Jean-Pierre Ramirez: Yes, but we have to put in place those processes, and if the day comes when an operator believes he has been unfairly treated he can appeal to the regulator, to the IGC, and we will both have to present the case to the IGC. I will have to explain how the decision was reached to allocate a pathway to one rather than the other, and the IGC will rule on whether that decision was correctly taken or not. We have a process for dealing with that, and we have not yet had a complaint. If the day comes when we have a complaint, you will be able to judge. Lord Haskel: Thank you. Q362 The Chairman: I am going to join the last two questions, because Lord Clinton-Davis was supposed to be asking one of them and he has had to leave. Are you in contact with the infrastructure managers of other rail tunnels in Europe, including the Alpine tunnels? If so, how does their management approach regarding train operators compare with your own? In other words, is there a transferal of expertise? Do you learn from them and do they learn from you? Secondly, could you tell us about your security role with regard to the passage of people and goods through the Channel Tunnel, including your relationship 130 Eurotunnel—Oral evidence (QQ 331-366) with the UK Border Agency and their French equivalent—in other words, the issues that most people and most customers are most concerned about? Jean-Pierre Ramirez: The question is indeed very relevant regarding contact with infrastructure managers. We have very regular contact with infrastructure managers, in the first place with our neighbouring infrastructure managers and those that are involved in forming a train path for a specific service. We have been doing a lot of work, as I explained earlier, with the British, French, Belgian, German and Dutch operators to create those train paths. Moving specifically to rail tunnels, we also have exchanges of experience and knowledge with rail tunnel operators. I would say that on the side of the infrastructure and its safety, and the design of tunnels and their safety features, we generally attract interest from other infrastructure managers. The Chairman: Yes, I have heard so. Jean-Pierre Ramirez: We see regular visits to the tunnel. The fact that we have had three fires before has allowed us to demonstrate the safety features of our tunnel, which is having three tunnels with a service tunnel in the middle with good evacuation procedures, et cetera, and then, in addition to preserving the safety of users, also trying to limit damage to the infrastructure itself. The Channel Tunnel has been at the forefront of technology and design in all those aspects. Regarding rolling stock, if anything we are more envious of other tunnels because they use different types of rolling stock and they have been developing other types of trains that are allowed to use the tunnel. In that case we tend to go and visit others and try to see if their rolling stock could be authorised in our tunnel to allow new types of service. So there are two different things. In terms of exchanges of knowledge, there is also the tunnel being constructed between France and Italy under the Alps. There is a line called Lyon-Turin being built. We have received loads of visits and we have more exchanges with them. Actually some Eurotunnel staff went to work for them to share experience. There is a third aspect in those exchanges. I explained the operational side, particularly for forming paths on passenger services. But also on rail freight there is the question of trying to undo or resolve the constraints posed to services by infrastructures, including the Alpine crossings. On that side, again, the Eurotunnel has the largest gauge, so we allow higher, wider and longer trains than anybody else, which is extremely important for the profitability and competitiveness of services. That really is a key point. We are currently also working on an initiative of corridors with other infrastructure managers to resolve the problems of infrastructures along those freight corridors. On the UK side, on the classic line we have the problem of gauge, which is very constraining for the economic efficiency of rail freight; with a Victorian infrastructure on the classic network, trains have to be narrower, containers have to be narrower and lower, and we need special wagons with smaller wheels and lower platforms to fit in a slightly larger load. That is called the , and on the UK side it is pretty restrictive and makes trains less efficient in terms of length. You can load fewer things on a metre of train due to the UK constraints. In Italy, there are overall train length constraints to cross the Alps to Milan. In both cases it results in a train having 30% less capacity, or even less, than it should otherwise have to carry goods. Basically, for the same cost of running a train from the Midlands to Milan, they could fit in 30% more goods, which is dramatic. When the question of charging came in I explained that we are at the right level, but trains could be running at a 30% profit rather

131 Eurotunnel—Oral evidence (QQ 331-366) than a marginal profit if those problems were resolved. So we need to resolve those over time. I saw the questions on TEN-T funding and different things. Funding needs to be focused also on resolving those problems and making rail freight more efficient. On the French side the problems are more to do with reliability of the infrastructure. They have had problems with the long-distance paths. They are not reliable enough and are causing the rail freight operators to lose some customers because of bad co-ordination of works and sometimes industrial action. The Chairman: Delays. Jean-Pierre Ramirez: Delays, which freight customers have very little patience for, understandably. The Chairman: Neither do passengers actually, let me tell you. Jean-Pierre Ramirez: Yes, but usually quality on the passenger side is much better because trains operate over a high-speed infrastructure that is geared towards quality. On rail freight it reflects in the competitiveness of services, so that is something we are trying to work on. But it will only be solved if there is investment by transport ministries and European funds in improving the infrastructure and building not only a high-speed rail network for passenger services but also a high-capacity, high-gauge network for freight services in Europe, and eventually having better networks. People very often ask why Europe does not develop rail freight in the same way as the USA. Well, they have bigger trains. Q363 The Chairman: Quite. What about your security role and relationship with the UK Border Agency? Jean-Pierre Ramirez: Security is also a very important question for rail passenger services. It is one that will limit growth in the long term. It is probably already limiting it today and will limit it going forward. First, I would clarify there are two aspects in security, broadly speaking. One is border control and immigration. That one is part of the sovereignty of countries and is here to stay. It is perfectly normal. Cross-Channel services cross an international border and so there will be passport controls for passengers going through one way or another. On the other side there is also the luggage search and people search question. We believe it needs very clearly to be rationalised going forward. It will limit growth. Nowadays there are high-speed train services running non-stop between Brussels and Nice, for instance, through the Côte d’Azur, for which there would be a market coming from London, approximately the same distance. They were operated at a certain stage with Eurostar train sets, but only going from Brussels to Nice and stopping at different stations on the route. Security is essential for those services because having a security base at every station with security equipment and four, five or six people ready to search passengers before going onboard is simply not affordable, so straightaway it kills any service that needs to stop at four or five stations. You can afford those security constraints on major cities such as Paris, Brussels, Amsterdam, Cologne and London, but you will never have a development to medium markets as all other high-speed trains manage to develop. So there is the question of affordability, and it equates overall to another £500 to £1,000 of access charges per train in terms of security charges, so it is an economic burden to operate it, although they do their best to meet those obligations currently. Secondly, those constraints are discriminatory. Nowadays the rail passenger services that cross the Channel are the only ones on which there is anything similar across Europe or in the world. You have TGV services in France crossing all of France and up to Calais. You can 132 Eurotunnel—Oral evidence (QQ 331-366) walk in with the shoes and belt that you want without having your pockets emptied. You have the same thing in the UK with South Eastern services on the high-speed line running from Folkestone to St Pancras on the same track, through the same tunnels. You can board those trains wearing and carrying what you want. There is the London Underground, the Paris Metro—all those are the same things, where people can walk freely. Clearly there is an issue of double standards, because it is the same public travelling on those services. The third issue is that they are excessive. The initial justification for having such measures was to protect the infrastructure of the Channel Tunnel. That is the only question, because they are clearly not there to protect the High Speed 1 infrastructure since the other trains do not have it. They are not there to protect the French TGV infrastructure since the other trains do not have it either. It was to protect the tunnel, and nobody has really come to Eurotunnel to see what real and relevant type of protection there should be. Q364 The Chairman: May I just interrupt you there? Surely the situation is that the tunnel has been there for 17 years. Jean-Pierre Ramirez: Yes. The Chairman: We did not have all this emphasis on security until after 9/11. In France you have not been affected to anything like the same extent as we have over here. So there is a national reluctance to free up security. It is something outside our hands anyway. But there is a definite difference of attitude between people on mainland, continental Europe, and people living here. Jean-Pierre Ramirez: There is a difference, but at the same time the South Eastern services on the high-speed line, on High Speed 1, were only initiated at the end of December 2009. 9/11 had happened and there is absolutely no control. 7/7 happened in 2005, I am afraid, and there will always be people trying to damage innocent people. The Chairman: Yes, it is a bit of a red herring, but it is outwith our responsibility; we cannot get anywhere near security for obvious reasons—that is why it is security. Jean-Pierre Ramirez: But I would observe that at the moment there are airline industry standards being applied to trains. In a way you could clearly do away with searching people’s pockets to get on the train because it is not going to damage the tunnel. Of course if somebody wants to do something mad they can do so, but they can do so also on South Eastern trains or on the London Underground. The Chairman: Well, they did on the London Underground, as we know. Q365 Lord Brooke of Alverthorpe: What you are saying is that we had a major incident on the Underground and there have been no security measures taken subsequently, yet you have had no incidents but you have to go through all this security. Jean-Pierre Ramirez: Yes, it is a question of double standards. You can interpret the question as to there being too little on one side or too much on the other side. The Chairman: Yes, but we just do it because we have had the same evidence about putting security checks along the line. It is just so expensive that it is not going to work. Jean-Pierre Ramirez: It is a burden eventually on the development of rail passenger services internationally. The Chairman: And it is a burden on passengers too, because that cost goes back to them. Jean-Pierre Ramirez: Yes.

133 Eurotunnel—Oral evidence (QQ 331-366)

Q366 The Chairman: Thank you very much. Are there any other questions that the Members of the Committee want to ask? If not, I just want to thank you very much indeed. We look forward to receiving your evidence. Is there anything you would like to add to the session? If there is anything you think about that we should have asked you, would you like to write to us about it? John Keefe: I do not think there is anything we need to add. But in summary, as a private operator living on its own resources generating revenue from its customers directly, we think that the expansion of railway services across Europe is very much in our interest and something that we are very, very keen to see happen as soon as possible and in as continuous a manner as possible. The Chairman: I think we would agree with you there for all sorts of reasons. Thank you very much. It has been very interesting. John Keefe: Thank you.

134 Eurotunnel—Written evidence

Eurotunnel—Written evidence

Q1 How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

1. Directive 2007/58/CE launched the liberalisation of international passenger rail services and was subsequently transposed in the Member States. Eurotunnel supports this approach, which aims to create an integrated European rail area.

2. Some barriers remain, however, due to specific features inherent in the rail industry. The launch of new services is an extremely lengthy process: a number of permits need to be obtained, including safety certificates and approval for rolling stock to be used on the infrastructures along which it will travel. Our experience shows that it can take years for a railway undertaking to obtain authorisations from the authorities before a service can start.

3. Another barrier is the increase of access charges at the level of national infrastructure managers. In the case of Eurotunnel, these charges have been based on an indexation formula since 1987 and there have been no increase since then. On the contrary, there has been a significant increase, particularly over the last five years, of the access charges levied at the national level by the French and UK infrastructure. Eurotunnel does not support this government policy and believe that national infrastructure charges should be limited at a European level to preserve their coherence and predictability on the long term.

Q2 How has the liberalisation of the international passenger rail market has been developing since January 2010?

4. The Tunnel is an infrastructure which is open to all rail traffic, in accordance with its initial aim to develop intra-community trade, as set out in the Treaty of Canterbury.

5. Conditions for access to the Channel Tunnel are described in accordance with the rail directives in the Network Statement, with drafts being issued each year to interested parties, including the IGC and the European Commission.

6. More specifically this document sets out the access fees for international passenger services, which are designed to offer fair access. It should be reiterated in this regard that the access fees, together with shuttle tolls, are the company's only sources of income. Eurotunnel bears the financial risk of its operation alone and receives no subsidy; this is a unique case in the European Union for which no provision has been made in the railway directives.

7. At the moment, only Eurostar passenger trains are permitted to use the Channel Tunnel on the cross-Channel rail market. The number of passengers carried is between 9 million

135 Eurotunnel—Written evidence and 10 million per year. This market is beginning to open up to competition with plans by the company Deutsche Bahn to launch new international rail services between London, Germany and The Netherlands.

8. Obviously Eurotunnel welcomes this initiative, together with all other initiatives to allow more rail traffic to travel through the Channel Tunnel, whether transporting passengers or freight. Eurotunnel does believe there is a potential for the market to grow with certain markets up to 15 million passengers within the next few years depending on when the last barriers will be removed.

9. Furthermore, Eurotunnel would like to point out that starting up new services remains dependent on the key role played by the IGC, a bi-national body which represents the British and French governments, and a safety body for the Channel Tunnel, which establishes safety rules and allocates the necessary authorisations The process for the acceptance of DB trains has been longer than expected by the operator and up to now the company do not have a clear visibility on when the services will run. This is a process that only a major operator can follow.

10. Eurotunnel has repeatedly called on the two governments not to delay the acceptance procedure for the new trains and thus to implement the liberalisation process made possible by Directive 2007/58/CE.

Q3 Should the European Rail Agency should have a stronger role in this regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

11. The European Railway Agency demonstrated through its opinion on distributed power that it plays a vital role as far as railway safety and interoperability are concerned. The legitimacy of the ERA is even clearer in the case of safety issues with a transnational aspect, as is the case with the Channel Tunnel.

12. Its status as an agency answerable to the European Commission provides a precious guarantee of independence and objectivity for the rail industry as a whole. In this context, the only possible relationship must be between the agency and national safety authorities such as the ORR . The ERA should be in a position to impose the rules it prepares on behalf of the Commission to these authorities.

13. The RU wishing to get access to the Channel Tunnel should know that if it brings a Technical Specification of Interoperability compliant rolling stock, it will be approved by the IGC unless the IGC has demonstrated that additional rules should apply.

136 Eurotunnel—Written evidence

Q4 How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN- T projects?

14. This funding should not only aim to develop new lines but also include consolidation and technical upgrades to ensure the interoperability of existing lines. 15. Eurotunnel is astonished in this regard that despite repeated applications to the European Commission it has received none of the funding for its GSM-R/ERTMS interoperability project even though it is responsible for a vital infrastructure which provides a rail link between the United Kingdom and the continent and allows a major natural obstacle to be overcome.

Q5 Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

16. Eurotunnel has no information to assess the application of existing ten regulations to the whole of the core network, but it notes that the European commission has recently adopted a proposal for a regulation on Union guidelines for the development of the trans- european transport network. Eurotunnel notes that in this new proposal from the Commission, the “core network” includes the Channel Tunnel both for freight and passengers traffic. .

17. Additional procedures are not necessary as there are at the moment too many concepts for defining the same idea: TEN-T, freight corridors, RNE corridors, ERTMS corridors. The concern of Eurotunnel is that we need less regulation including at a European level and a more market and customers needs focused approach

Q6 What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport and others such as cross-Channel ferries?

18. This question is more relevant to passenger rail companies.

Q7 Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

19. In its role as the manager of a railway infrastructure, Eurotunnel does not have any information to measure the satisfaction of customers who use the rail companies. It should be pointed out, however, that the results achieved by Eurostar indicate a degree of success for this mode of transport compared with air travel.

Q8 In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

137 Eurotunnel—Written evidence

20. There is no real necessity to review the current governance framework as created by the Treaty of Canterbury and the Channel Tunnel Concession agreement. This framework is flexible enough to accommodate new rules, such as EU rules. Moreover, such a process could take years.

21. Eurotunnel will remain a staunch supporter of the fundamental principle that decisions should be taken bi-nationally and that the safety and economic regulatory authorities should be independent, as provided for in the European texts.

Q9 The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

22. The Channel Tunnel cannot represent a bottleneck between the United Kingdom and France. In terms of infrastructure capacity, less than 50 % of the available capacity is utilised for passengers trains and about 10% for freight. These figures show that there is a large potential to develop rail traffic both for passengers and for freight.

23. The issue today is more one of coordinating available capacity across all the rail infrastructures which a passenger or freight train would use.

Q10 What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

24. Eurotunnel is of the opinion that greater volumes of passengers from new services raises the issue of how checks are organised in stations within the context of access to these services for new entrants.

25. The controls or checks (luggage search or people search) raise a question of affordability if they need to take place on others stations than Paris, Brussels, Amsterdam, Cologne or London. It is clearly an economic burden for the development of the development of medium markets.

26. The controls are also discriminatory and excessive because the cross-channel passengers services are the only ones in Europe with that level of security constraint if we compare with other services like the TGV, London Underground or Paris metro. We are in a situation where security standards applied in the context of cross-channel passengers services are inspired by airline industry and therefore not adapted to the operating conditions of trains.

9 November 2011

138 Ferrovie Dello Stato—Written evidence

Ferrovie Dello Stato—Written evidence

1. Ferrovie dello Stato (FS) welcomes the House of Lords inquiry into the development of international rail passenger services in the EU and is delighted to offer its view on this topic.

2. Railway transport is one of the few European sectors in which a true single market has not been achieved. After the liberalisation of freight, successful, and of international passenger transport, with scarce results, it is essential to complete the process with the opening, at European level, of domestic passenger transport and to remove the existing barriers to the development of the international transport operations.

To liberalise domestic passenger transport to boost the European railway industry

3. Domestic passenger transport has been already liberalized in Italy, Germany, United Kingdom, Sweden and Denmark. The scenario is not homogeneous and the current asymmetry has led to unfair competition between those railway undertakings operating in open markets and those enjoying monopoly in their own countries.

4. FS supports the opening of the national transport markets which, representing about the 75% of the market in terms of economic value, is the biggest share of the railway transport. This is crucial to push all the players to enhance their efficiency and the quality of their services.

5. In fact, operating in closed domestic markets does not press the operators to face each others in the international transport. In fact, all the current international operations are run in joint venture by national incumbents or by firms controlled by national incumbents. Like it has been for the air transport, the liberalisation of national transport can lead to open competition between former national incumbent and offer new chances to newcomers to offer low-cost or more commercial attractive services. Air traffic liberalisation in the EU provides a very good example of what can be achieved.

6. Opening the domestic market to competition would boost the share of the railway industry vs other modes of transport with positive effects in terms of cost efficiency. On the other hand integration between rail services and infrastructure management remains the most efficient way to run services as shown by the USA, Japan and several EU railway cases.

To remove the existing barriers: a true European safety and interoperability system

7. A full European harmonisation of safety and interoperability rules is crucial to develop the railway transport. The difficulties that many European railway undertakings are facing in order to obtain the homologation of their national high speed rolling stock in foreign countries show that this aspect is becoming the main obstacle to international train operations.

8. FS supports a stronger role of the European Railway Agency (ERA) on all tasks related to the homologation and certification of rolling stock compliance with the technical 139 Ferrovie Dello Stato—Written evidence standard for interoperability. If done at ERA level, these activities could bring a better harmonisation and a cost reduction. Indeed ERA should have a stronger role in the coordination, supervision and audit of the National Safety Authorities (NSAs). In the longer term, NSAs should become, following the example of the aviation sector, ERA’s national branches. Practices and regulations must be applied coherently throughout all Europe.

To implement a true European wide network

9. In the view of the European Commission the new TEN-T core network must become the back-bone of the European transport infrastructure system ensuring synergic connection between all transport modes, but especially between rail and ports and rail and airports.

10. Within this framework, FS thinks that the core network should include all high speed railway connection to thus reinforce the concept of a trans-European high speed network that from the technical and commercial point of view serves to complete the integration sought by the single market. Accompanying measures to network planning are essential to allow infrastructure to fully achieve its potential. In the rail sector greater importance must be attributed to the technological systems that are essential in order to maximise the efficiency of infrastructural systems, and at the same time, ensure that accessibility and interoperability follow. It is therefore necessary to move towards the European Rail Traffic Management System (ERTMS) from national signalling systems to the whole European high speed network and thereafter to the entire core network. The ERTMS implementation should be compulsory to obtain the TEN-T funding for railway infrastructure projects.

11. High Speed is a powerful engine for any economy both the most industrialised and those that are emerging. High speed trains are complex realities that require the merger of technical, financial, commercial and operability aspects, all of which are upheld by highly sophisticated technology.

12. Due to the current fiscal constraints, public private partnership should have a significant role in funding high speed projects, real-estate revenues of high speed stations and areas around the stations should be used to fund such projects.

Ferrovie dello Stato S.p.A is an industrial holding managing a wide business portfolio ranging from rail transport to other related services through dedicated subsidiaries. It’s the third rail operator in Europe and the leading market operator in Italy providing long distance and local passenger and freight rail services on the safest rail infrastructure in Europe.

Within the Group, Trenitalia is the railway undertaking, Rete Ferroviaria Italiana is the Italian national rail infrastructure manager, the engineering company, and are in charge of the commercial exploitation of the main and medium-size railway stations respectively, FS Logistica is a logistic services’ provider.

6 June 2011

140 High Speed 1 Ltd—Written evidence

High Speed 1 Ltd—Written evidence

1.0 Introduction

HS1 Limited (HS1 Ltd) welcomes the opportunity to give evidence in relation to the inquiry into the European Rail Market and the role of the Channel Tunnel. HS1 Ltd recognises the efforts and steps which the House of Lords Select Committee on the European Union has previously taken in relation to the international rail freight market and appreciates the interest which it continues to show towards growth and competition within the international passenger market.

2.0 Overview

HS1 Ltd believes that:

2.1 the three European Railway Package Directives for rail market liberalisation (the Directives) have been integral to the development of the international rail market and provide an effective framework for competition in the European rail market;

2.2 full and consistent implementation of the Directives across all EU Member States is essential to realise the objectives of the Directives, to avoid market distortions and to ensure that there is transparency for Railway Undertakings – there are many components of this but central are the separation of Infrastructure Management from operations and independent, transparent and consistent regulation;

2.3 the existing disparities in the implementation of the Directives across EU Member States increases the costs and efforts which are necessary for a Railway Undertaking to commence international operations;

2.4 it is important for Infrastructure Managers to have similar, efficient and integrated timetabling processes so that access is made as simple as possible;

2.5 border controls need to be strong but efficient so that travel times (including security checks) are kept as low as possible and the relative competitiveness of international rail travel is maintained;

2.6 independent regulation of the railway market is essential to promote competition and access to the railway market;

2.7 the clarity of the trans-European transport network (TEN-T) and increasing focus on rail mode share given the environmental benefits of rail travel assist both in the creation of markets and in providing equal opportunities for all Railway Undertakings; an environment in which competition can thrive;

2.8 it should be increasingly recognised by the EU and reflected in its legislation and regulation that there is private investment in some railways across Europe; this 141 High Speed 1 Ltd—Written evidence

requires certainty of regulation including over the long term given the nature of the investments;

2.9 the Treaty of Canterbury and its relationship to other regulations and contractual frameworks relating to the Channel Tunnel is not clear to HS1 Ltd and so it is difficult to assess the implications for competition in the international railway market, although it remains desirable to ensure full and consistent application of the Directives;

2.10 competition in the European rail market can be hindered by longwinded and difficult processes, such as in relation to the approval of Deutsche Bahn’s Inter City Express (ICE) trains, where the European Rail Agency (ERA) has supported the new trains whereas the Inter-Governmental Commission (IGC) is yet to conclude.

3.0 Background

3.1 High Speed 1 (HS1), formerly known as the Channel Tunnel Rail Link, is a 109 kilometre high speed rail line which connects London and the Channel Tunnel, passing through Kent. HS1 is operated by HS1 Ltd under a 30 year Concession Agreement with the Secretary of State for Transport. HS1 is Britain's first high speed railway and the UK leg of the Paris-Brussels-Köln-Amsterdam-London (PBKAL) TEN-T priority project. The line successfully carries international and domestic passenger high speed services and freight services are currently in the test phase.

3.2 The regulatory framework applied to the use of HS1 is compliant with the Directives. In accordance with the Directives, HS1 Ltd has published a Declaration of Specialised Infrastructure giving priority to international high speed passenger services.

3.3 HS1 has delivered and will continue to deliver a wide range of economic and social benefits, particularly a reduction in journey times on various international and domestic routes. HS1 is making an important contribution to the economic regeneration of Kent and the areas around both it’s London stations. It is a critical component of London’s delivery of the 2012 Olympic Games. In addition, rail travel is a more environmentally friendly form of travel than alternative modes: a passenger

travelling on a Eurostar train produces one tenth of the CO2 emissions of a plane making the same return journey. Without HS1 and its neighbouring infrastructure, the Channel Tunnel, these on-going benefits would not be realised.

3.4 At present, the sole operator of international passenger services on HS1 is Eurostar International Limited (EIL), which has been running services for over 15 years. Completion of Section 2 of HS1 in November 2007, which cut journey times by 20 minutes, alongside better onward rail connections from St Pancras International, contributed to significant growth in international rail travel. In addition, with the liberalisation of the EU passenger rail market in 2010, other operators are expected to apply for access to operate international passenger services on HS1. Deutsche Bahn has declared its intention to operate its ICE services into St Pancras from December 2013.

3.5 There are attractive growth opportunities derived from connecting other European towns and cities with London, particularly those within a 4 hour travel time. The

142 High Speed 1 Ltd—Written evidence

Channel Tunnel is a vital link for market growth and competition in international rail transport between the UK and mainland Europe.

4.0 Specific Questions

The Directives have been successfully and properly implemented in the UK and HS1 Ltd believes that, if fully and consistently implemented across Europe, the Directives would provide a practical framework for rail market liberalisation. HS1 Ltd believes that the focus should remain on ensuring that all EU Member States become compliant with the Directives. Turning to the specific questions:

4.1 How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

4.1.1 The Lords have already highlighted a number of initiatives driven by the EU to achieve this objective. As noted in the Overview, HS1 Ltd believes that the existing legislation and contractual frameworks are sufficient to promote competition in the international rail market. With better definitions in certain areas, HS1 Ltd believes that the existing legislation can work; competitive behaviours of commercial organisations will enhance the aims of the Directives further. Accordingly, HS1 Ltd supports the need for the recast of the First Railway Package aimed at providing better clarity within the legislation. A balance between stronger legislation on the one hand and competitive and entrepreneurial behaviour on the other is vital to the success of achieving the vision contained within the European Transport White Paper.

4.1.2 The disparity in the application of the Directives between EU Member States can bring out anti-competitive and protectionist behaviours. Where the Directives have been fully adopted, HS1 Ltd would expect commercial businesses to adopt adventurous competitive behaviours. For example, the European interest in running services into the UK has encouraged EIL to actively engage in marketing its services further into Europe.

4.1.3 Additional or amended legislation or contractual structures may not encourage the competitive behaviours sought. Economic issues such as the level of state funding, condition of rolling stock, cost effectiveness of operations and risk appetite need to be assessed when considering the best methods of promoting international competition. As part of the merger clearance arrangements in the context of the recent restructuring of EIL, commitments were given by EIL and HS1 Ltd to encourage further competition. The main UK commitments were EIL releasing at least one key train slot, providing access to Temple Mills Depot (a HS1 Ltd facility currently leased to EIL), and sharing station facilities at St Pancras International Station.

4.1.4 The need for greater clarification within the Directives (i.e. the recast) is supported by HS1 Ltd. However, HS1 Ltd is concerned that the revised legislation could become over specified and/or creates a greater divide between the original intentions and principles of the Directives and also create further inconsistencies and limitations in application within EU Member States. In particular, areas such as path allocation and the charging rules for such allocation should be consistent. Detailed processes inbuilt into legislation provide practical problems and reduced flexibility in application, particularly around cross border path allocation. From the perspective of a Railway

143 High Speed 1 Ltd—Written evidence

Undertaking, a certain level of flexibility in management activity and cooperation between neighbouring Infrastructure Managers is essential to ensure an efficient and seamless timetable which delivers the end customers’ needs.

4.1.5 The EU Transport White Paper sets out challenging targets for increasing mobility and reducing emissions in the delivery of the Single European Transport vision over the next 40 years. In delivering the transport vision for rail, the Association of European Infrastructure Managers (EIM) highlights that the main focus areas should be on: (1) Competition and Interoperability by: (a) removing the barriers to market entry; (b) ensuring independence of infrastructure from operations; (c) enhancing the role of Regulatory Bodies; and (d) technical harmonisation; (2) Investment, both private and public to increase capacity and reduce bottlenecks; and (3) Technology to improve overall customer experience such as European Rail Traffic Management Systems (ERTMS) and Intelligent Transport Systems (ITS). In developing the rail transport vision, consideration should be given to creating a level playing field around funding levels provided to support the initiatives. Organisations that are unsubsidised or 100% privately owned should not be disadvantaged in comparison to state funded entities.

4.2 How has the liberalisation of the international passenger rail market been developing since January 2010?

4.2.1 HS1 Ltd has seen significant interest from international passenger Railway Undertakings and consortia seeking to capitalise on the liberalisation of the international passenger market. Economic factors have prevented some of these aspirations coming to fruition and the current complexity and lack of transparency highlighted in the Overview section may also have hindered these aspirations. However, HS1 Ltd is encouraged by the impact that liberalisation will bring. HS1 Ltd’s analysis of the competitive market conducted in 2008 showed that there is room for growth in services, and competition between operators, on both of the existing international routes from London to Paris and London to Brussels. We expect competitors to enter these UK international markets over the next 5 years.

4.3 Should the European Rail Agency have a stronger role in regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

4.3.1 HS1 Ltd believes that the ERA (an independent body) is the appropriate body to advise on and bring about harmonisation of safety across Europe by setting standards and producing Technical Standards for Interoperability (TSis); and to conduct this role in an independent manner, clear of any funding considerations required for implementation. In this independent advisory and guidance role, the ERA will be most effective. National safety authorities should be responsible for ensuring that the EU Member States implement the TSis set, how and when these standards are to be achieved, in addition to ensuring that an unreasonable financial burden is not placed on the organisations implementing the TSi requirements. It is not clear how giving the ERA a stronger role in regulating rail safety will assist in implementing the ERA’s own TSi requirements or to assist in overcoming the issues faced at local EU Member State level. The ERA has had a significant role in the accommodation reached between the French and British delegations of the IGC. The frustrations experienced by those 144 High Speed 1 Ltd—Written evidence

dealing with the IGC exist from the differences and co-operative approach required in reaching agreement between the EU Member States Regulators and particularly the lack of a French Regulator. It is anticipated that the recent appointment of the Independent French Regulator will improve matters. The ORR conducts its functions in accordance with EU legislation.

4.3.2 HS1 Ltd can, however, in certain circumstances see the benefit of implementing guidance and advice made by the ERA, when formally asked to do so by national safety authorities on specific local matters. For example, the ERA has supported the use of shorter 200m ICE trains with distributed power capability through the Channel Tunnel, a decision yet to be made by the IGC.

4.4 How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN-T projects?

4.4.1 The Commission recently gave a presentation to the EIM, outlining the future development within the TEN-T structure. As HS1 itself was a TEN-T project, HS1 Ltd is interested in these developments, particularly in what better use can be achieved from these TEN-T resources. Whilst funds should not be diverted away from construction of new high speed lines that bring valuable journey time savings, there are other investment opportunities where TEN-T funding can be sensibly used. For example, funding might also be used to promote new traffic flows on existing infrastructure or to upgrade the capacity of existing infrastructure, for example on the networks between Frankfurt and Brussels and between Brussels and Amsterdam.

4.4.2 A strong balance between the freedom to make a reasonable return on private investment and certainty in regulation to achieve the same is needed to obtain to private investment into the rail industry. Whilst a degree of regulation provides private financiers in infrastructure projects with some certainty, it also brings cautiousness with regards to investors making a reasonable return on investment. Over regulation and/or prescriptive regulations providing for detailed rules and limitations of cost recovery would restrict the ability of potential investors to make a reasonable return on investment, whether the investment is to fund a new project or to upgrade or renew existing infrastructure.

4.5 Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

4.5.1 Under and within the scope of the existing legislation, HS1 Ltd has by far the most advanced regulatory framework across the EU, enabling it to: (1) promote competition; (2) price a marginal cost of access for freight; (3) implement cost efficiency for maintenance and operation; (4) implement performance regimes; and (5) achieve a reasonable return on investment. Regulation of other networks is not as developed as the HS1 framework. HS1 Ltd believes that valuable lessons can be drawn from the experiences and processes used to achieve this status for HS1. Rather than more vigorous application of existing regulations on TEN-T core routes, to achieve a successful commercial outcome, processes and procedures, along with guidelines for implementation would be useful. In order to achieve these aims: (1) better definitions of terms; (2) consistency and transparency of application across EU Member States; (3) encouraging private sector investment and returns; (4) full separation of Infrastructure 145 High Speed 1 Ltd—Written evidence

Managers and Railway Undertakings; and (5) acceptance of a reasonable return on private investment, is required.

4.6 What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport and others such as cross-Channel ferries?

4.6.1 There is interest in and scope for more international rail services between London and continental destinations. A number of measures should be considered to ensure effective implementation of transport policy covering road, air and rail: (1) consistency of implementing regulatory frameworks and interoperability policies is key in achieving any form of modal shift or modal share; (2) independent cross-border regulation, not only on identified corridors but also on key strategic routes; (3) separation of Infrastructure Managers from Railway Undertakings; and (4) alignment of operational and business continuity plans for transport modes working together in times of major transport disruption.

4.6.2 To encourage modal shift from road/air to rail transport, competitive pricing policies, effective service operation and journey time savings are key. The most significant modal shift is likely to be from air to other modes of transport, given the total travelling time (including security checks) in the air market. However, given the economic impact of modal shift between transport modes, consideration should focus around ‘mode share’ rather than ‘modal shift’ i.e. encouraging more overall travel and encouraging that to come by rail. For example, focus should be on factors such as point to point journey times or city to city journeys, along with relative competitive pricing.

4.6.3 In addition, policy makers should bear in mind that any changes within air and/or road legislation should not have an adverse impact on the charging and cost allocation framework set in rail legislation. A specific example here would be noise charging under Eurovinette legislation, whereby if the EU Member State implemented a noise charge to discourage traffic away from road, the rail network also needs to automatically levy a charge. Road legislation should not automatically trigger revisiting rail charging mechanisms. Whilst Eurovinette has been approved, the implementation of this issue is currently being revisited within the First Package Recast and the removal of the automatic trigger would be beneficial.

4.7 Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

4.7.1 HS1 Ltd believes that Regulation 1371/2007 on Rail Passenger Rights and Obligations which came into force on 1st January 2010 adequately addresses this issue and provides passengers with a significant set of rights which HS1 Ltd supports. However, at the same time, if such rights place too onerous a burden on the Railway Undertaking, this could be a disincentive to the operation of international services and could be a barrier to entry into the market. The rail passenger rights legislation follows the same principles as passenger rights for air travel. HS1 Ltd is concerned to ensure that the potential levels of financial liability for Railway Undertakings is commensurate with the level of benefit received by the Railway Undertaking through the sale of tickets. For example, air carriers faced considerable financial liability as a result of the volcanic ash in April 2010 which was often disproportionate to the value of the fare sold. Given 146 High Speed 1 Ltd—Written evidence

the size of the issue to air transport, Railway Undertakings responsible for shouldering additional liabilities may see the passenger rights legislation as a deterrent in the development of international rail markets.

4.8 In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

4.8.1 Greater understanding of the relationship between the Treaty of Canterbury, the EU Directives and how they work and fit together would provide better transparency to all. We do not know enough about the specific regulations and commitments governing the Channel Tunnel to make specific comments on fit for purpose. However, HS1 Ltd is aware that such regulations and commitments do not currently align with the Directives. HS1 Ltd is of the opinion that bringing the Channel Tunnel arrangements into alignment with current the Directives would provide for easier train path identification, allocation and scheduling. Following the introduction of the rules on liberalisation of the rail market, the charging and allocation regime for HS1 provides for greater visibility on the regulation of the use of HS1 aimed at: (1) promoting transparent charging of operation, maintenance and renewal costs across all users; (2) a consistent approach to train path allocation (3) a marginal cost of access charge for freight services; and (4) implementation of incentives for cost efficiency for maintenance and operation, including performance measures. These areas were seen as essential to building a business case for encouraging competition, growth and the development of new markets.

4.8.2 Protecting the investment made by the private sector needs to be maintained in addition to growing the international market. We are aware of the substantial private sector investment in the Channel Tunnel. This was made on the basis of one form of regulation of the market. Any changes would need to reflect and understand this.

4.9 The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

4.9.1 Eurotunnel has stated its appetite to encourage market growth and the development of the international passenger market. To this end, it has demonstrated its willingness to work with the rail industry and neighbouring Infrastructure Managers to promote cross-channel rail traffic. The current frustrations faced by Deutsche Bahn around the safety implications of rolling stock operating through the Channel Tunnel, as governed by the IGC, are also shared by Eurotunnel. As set out above, the creation of the independent French Regulator is expected to improve the transparency and responsiveness of the IGC. In addition, better alignment in: (1) priority for high speed traffic; and (2) timetabling activities, across Infrastructure Managers would provide more opportunities for the development of the international market.

4.10 What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

147 High Speed 1 Ltd—Written evidence

4.10.1 HS1 Ltd does not believe that greater passenger volumes would have a negative impact on security running through the Channel Tunnel. External screening of trains entering the Channel Tunnel is part of the current process of scrutiny as is the checking of tickets and passports of passengers. Together with other security arrangements at HS1 International stations these arrangements ensure very few migrants would be successful in entering the UK illegally.

5.0 Conclusion

5.1 HS1 Ltd sees merit in ensuring that the Channel Tunnel is regulated in a manner which is consistent with the Directives, for the reasons set out above. However, in doing so, it is essential to ensure that the private sector investment is recognised and the commercial balance protected. Providing an environment appealing to both public and private investors and to ensure investment in railway projects on a fair and non- discriminatory basis is also essential.

5.2 HS1 Ltd supports measures which will result in greater competition in the provision of international rail services and the liberalisation of the rail market. HS1 Ltd believes that the Directives provide an appropriate framework to achieve these aims, as is shown by their full implementation within the UK. Any recast of the Directives which provides greater clarity, without increasing the onerousness of the legislation, would also be supported. The key priority is to ensure that the Directives are applied consistently between EU Member States. Doing this should ensure a more consistent and transparent approach across Europe, resulting in benefits for both Railways Undertakings and Infrastructure Managers in a more liberal and competitive market and overall, therefore, an environment more likely to encourage more passenger travel by rail – an environmentally friendly mode.

10 June 2011

148 High Speed 1—Oral evidence (QQ 132-162)

High Speed 1—Oral evidence (QQ 132-162)

Evidence Session No. 4. Heard in Public.

MONDAY 11 JULY 2011

Members present

Baroness O’Cathain (Chairman) Lord Brooke of Alverthorpe Lord Clinton-Davis Lord Haskel Lord James of Blackheath Lord Plumb Lord Rowe-Beddoe Lord Ryder of Wensum Baroness Valentine Lord Walpole ______

Examination of Witness

Witnes: Nicola Shaw, [Chief Executive, High Speed 1].

Q132 The Chairman: Good afternoon, Ms Shaw, and welcome.

Nicola Shaw: Thank you. The Chairman: Congratulations on your recent appointment. Nicola Shaw: Thank you very much. The Chairman: Thank you for giving up the time to come and see us. Members of the Committee will declare their relevant interests before they speak the first time. The session is on the record, and is being webcast live and will be subsequently accessible via the parliamentary website. You will receive a transcript of the session to check and correct, and this will be put on the public record in printed form and on the parliamentary website. I would like you to state for the record your name and official title. Nicola Shaw: Yes. I am Nicola Shaw, and I am the Chief Executive Officer of High Speed 1 Limited. The Chairman: Would you like to make an opening statement? Nicola Shaw: I would not like to give a long opening statement, but I would like to make one point of clarification in relation to our written submission, if that is all right. The Chairman: Yes.

149 High Speed 1—Oral evidence (QQ 132-162)

Nicola Shaw: When we responded, we understood that the French regulator had been established as ARAF, and we believed that the French regulator was going to be appointed as the French component of the Intergovernmental Commission, just as the English regulator is part of that. I now understand from ORR that is not the case, and that the French part of the IGC is still provided by the Ministry of Transport in France, not from the new regulator. So it is a correction to our submission. The Chairman: All right. Does that mean that it is going to stay that way or do you think that there will be an independent regulator appointed? Nicola Shaw: As far as the ORR knows, and has told us, it is going to remain with the Ministry. The Chairman: With the Ministry of Transport? Nicola Shaw: Yes. The Chairman: Thank you for that clarification. We will start with the questions.

Q133 Lord Clinton-Davis: First of all, congratulations. Nicola Shaw: Thank you. Lord Clinton-Davis: My interest was that I was a European Commissioner in charge of transport, environment and nuclear safety. The question I wanted to put to you is this: HS1 will play a significant part in developing the international rail services on the route between London and the continent. What role do you think HS1 will play as far as that is concerned? Nicola Shaw: I think it will play quite a critical role, because we are the key link into the continent from the UK at high speed. The major point about that is that, in order to encourage passengers to travel by rail rather than taking another mode, we need to have good journey times from city to city. So the high speed connection is really important. We play various roles. The first is to make sure we keep that high speed and very punctual delivery, and we are doing that at the moment. On average the delay to trains is less than six seconds, so we are doing very well in relation to the delivery. The second point is that we have to keep costs down because, as long as we can keep our costs down, then our customers can keep the charges down to the end user, the passenger. Therefore, we work quite hard with our suppliers to make sure that all of our costs are as low as they can be. We then have to work with various bodies and our colleagues in Europe to make sure that the timetable works, so that you can get the train paths from London through to the continent that you want to offer to your customers. We work with Government agencies in the UK, such as the Border Agency, to make sure that the facilities available are correct over here. The good news is we know we can do it. When we introduced domestic services on to the high speed rail line, that was an addition to the services we were already operating for Eurostar. We maintained punctuality; punctuality is now at the level it was when we introduced the domestic services, so it is possible. Indeed, they introduced the domestic services six months early. So my job is to make sure that we keep the railway running and running well.

Q134 Lord Clinton-Davis: What relationship do you have with the civil servants in Brussels and the Commissioner involved with transport?

150 High Speed 1—Oral evidence (QQ 132-162)

Nicola Shaw: Largely through the organisation of European Rail Infrastructure Managers. We work with our colleagues—other people who own and operate railways—to make sure that the points that we want to get put into the recast, for example, are made well. Lord Clinton-Davis: Is there any direct relationship between you and the Commissioner? Nicola Shaw: On occasion, but not a frequent meeting. The Chairman: Thank you very much.

Q135 Lord Brooke of Alverthorpe: Good afternoon. Nicola Shaw: Good afternoon. Lord Brooke of Alverthorpe: How much spare capacity is there on HS1 at the moment and through the Tunnel? Nicola Shaw: I would say there is no problem with spare capacity. We have absolutely sufficient. Indeed, for freight services, we are already operating new services this year and we have some new services coming on the domestic side this year. We are looking forward to Deutsche Bahn in 2013, so capacity is not a problem. Lord Brooke of Alverthorpe: So you anticipate growth taking place already, as spelled out with Deutsche Bahn coming? Nicola Shaw: Absolutely. Lord Brooke of Alverthorpe: Is there scope for further growth? Would you want to see that? Nicola Shaw: I absolutely would, yes. That would be very helpful to my business case, as you can understand. I think generally, yes, there is scope for growth and scope for sensible growth. There are a few places where there might be pinch-points over the longer term, but I do not think we see them in the short term.

Q136 Lord Haskel: Is it 50% spare capacity that you have, 70% spare capacity, 20% spare capacity? Nicola Shaw: I am reluctant to say and I will tell you why; I think it is the usual problem with railways. Trains all operate at different speeds and they want to stop in different places, so in broad order of magnitude we are probably more in the 50% line than we are in the 90% line, but it depends about where you can fit things in, really. The Chairman: That is a very useful answer. We have tried to find out and it seems to be clothed in secrecy, so you have given us some measure of it. We did not know whether they were operating at 90% or 93% or 97% or 15%. Nicola Shaw: There are so many constraints. When I first joined, you can imagine I asked this question. They are not trying to be difficult. It is because you have platform constraints; you have station constraints; you have signalling issues. There are problems in different places, and when you add them all up along the line it is not as much of a pipe as it looks on the map. So I would say we are in the middle, probably slightly under it, but that is the sort of area we are in.

Q137 Lord Brooke of Alverthorpe: Do you think the problems are all solvable?

151 High Speed 1—Oral evidence (QQ 132-162)

Nicola Shaw: Yes, mostly. If we got to real capacity constraints at St Pancras, then we have difficulties solving them.

Q138 The Chairman: Yes. This means that your growth depends on solving some of these problems, like platform lengths, does it? Nicola Shaw: No. I do not think it does. I think the growth is more likely to be constrained on the other side of the Channel, around some of the pinch-points—maybe at Lille, maybe at Brussels—where there are platform constraints, or there are not sufficient loops in and out of stations. Those are quite important points of our access to the rest of the European network. The Chairman: I see. Thank you very much.

Q139 Lord Ryder of Wensum: First of all, welcome and good luck, and thank you very much indeed for coming this afternoon. Are there any significant interoperability problems that you face on running HS1 through the Tunnel or on the mainland of Europe? Nicola Shaw: No. The good news is that, because we are quite a modern railway—with “quite” in the English sense—no, we do not have that problem. It was built according to the TSIs, except in relation to a couple of things around signalling, and those will evolve as the infrastructure evolves over time, so I do not see that as a major problem. Lord Ryder of Wensum: Thank you.

Q140 Lord Plumb: I also welcome you. I am a fairly regular traveller to Brussels, more so a few years ago but not so much recently. Therefore, I declare my interest in travelling on the train. I think you have given us some good news so far. In relation to growth, I think it is a question that comes into this, because this question is related to the measures that are in place under the rail packages. Are they sufficient to promote open competition in international rail services? If there are any problems, are these as a result of legislation or implementation? I was going to give my opinion, but I will not. Nicola Shaw: To start off with, there is quite a lot of legislation. Lord Plumb: Yes. That is what worries me. Nicola Shaw: There is a process going on to try and bring it all together, through what is called the recast of the legislation. That is trying to bring it together to get rid of any definitional differences and to try and simplify things. I support that process; I think it is very sensible. You mentioned implementation versus legislation, and I think there is a difference of implementation across Europe, and ironing out some of that—as much of it as we can—will be very useful. It is complicated to start a railway service, no two ways about it. At one level you would want that, because there are real safety issues and managerial issues to make sure you get right. Broadly, the planning horizon is going to be three or four years from thinking, “I would like to run a service somewhere across Europe,” to getting it implemented. You have to find the rolling stock; you have to understand what rights you want; you have to make sure you can get all those facilities lined up. Within that time you are pretty much going to learn about how the regulation works as well. I think, yes, there is an argument for simplification and proper implementation across Europe, which we do not have yet, completely, but I do not think it is as awful as lots of new legislation required. 152 High Speed 1—Oral evidence (QQ 132-162)

Q141 Lord Plumb: How are they responding on the continent to the two points you make? Nicola Shaw: I think the attitudes are changing. The English and the European systems have changed at different rates, and in different countries they have changed at different rates. To start off with, or 10 years ago, there was great scepticism about the way the English had approached it. Obviously that scepticism grew following the demise of , and the notion that Network Rail is much more expensive than European railways obviously continues those concerns. On the other hand, I think a lot of the European railways now want to see growth into other areas. They want to provide the connections across Europe, and they see the benefits of having some of the clarity that we have in the UK system coming through. They are also facing some of the questions we faced some time ago: how do you measure punctuality? How do you measure the quality of the infrastructure you are providing, and what is the cost of providing that quality? So then they are seeing some of the questions that we have been looking at before and learning from us. I think it is a phasing issue rather than hostility. Lord Plumb: You are learning from each other, in other words. Nicola Shaw: Yes. Lord Plumb: Well done. Thank you. The Chairman: Does anybody else want to come in on that question? You did make the comment that Network Rail is much more expensive. Is that a situation that pertains now? Nicola Shaw: It does if you look at the McNulty report that was published earlier this year, which was an 18-month review of the cost of providing the railway in the UK. That comes up with a very stark finding that Network Rail is significantly more expensive. The Chairman: By “significantly”, how much do you mean? A measure of what? Nicola Shaw: 30%. The Chairman: Wow. Nicola Shaw: If you look at it from a different perspective, our charges and the charges in the UK are lower for train operators— The Chairman: Access. Nicola Shaw: —and for access to the network than they are in Europe. It is about how you look at the questions and what numbers you are adding up in which direction, as usual. The Chairman: Is there no way you can find out who is the best operator and who is more competitive? Nicola Shaw: Well, you are talking to High Speed 1. High Speed 1 is certainly the best operator. The Chairman: Silly me.

Q142 Lord Rowe-Beddoe: Good afternoon. Nicola Shaw: Good afternoon. Lord Rowe-Beddoe: Yes, I found your paper very helpful. You deal in one paragraph with security. If I may, I am going to ask four related questions to do with the special security and

153 High Speed 1—Oral evidence (QQ 132-162) immigration requirements for passing through the Tunnel. How do those requirements affect the operation of HS1? The second question is: are those requirements proportionate? I would be interested to hear your views on that. Is there an alternative to juxtaposed controls? Lastly, looking into the future, what is your view about the Alpine tunnels and the security problems or opportunity that that might pose? Nicola Shaw: First of all, what issues do they present to us? Lord Rowe-Beddoe: Yes. Nicola Shaw: On the whole the security arrangements for the Tunnel are useful to me, in that I am sure they reduce the number of people stowing away on trains and help us make sure that we get a good flow of trains through the UK network. So, on the whole, I would say they were quite useful from an operations perspective. Lord Rowe-Beddoe: Yes. Nicola Shaw: Are they proportionate? I think that is very difficult to tell. I do not have all the information about what is going on on the continent. Obviously that is held by their security forces. I do not have all that information, so I cannot really tell you, but they are working effectively from the perspective of what we have to provide in the UK.

Q143 Lord Rowe-Beddoe: Do you get any customer complaints about it? Would you get it from St Pancras? Nicola Shaw: No. The customer complaints would probably go to Eurostar. We have not had any about that, but if there were any they are probably going to Eurostar. They have not mentioned it to me. In my discussions with them, we ask, “What can we do to make your business better for your customers?” and that is not something that is coming up. We provide a lot of facilities for security at each of our stations, on both the departure side and on the arrival side. We have various cells that are not used. I think there is an issue and we will be talking to the security agencies about that, about the way we can best provide for that. Is there an alternative to juxtaposition? Yes, I think there is. I think you could probably check people on the trains, and we are talking to the Border Agency about that. The benefit for that would be that you would reduce travel time overall for passengers. As I said at the beginning, that is very important for encouraging people to travel by rail. Lord Rowe-Beddoe: Do they think that could be as effective? Nicola Shaw: I think they are concerned about the usual things: how they manage their staff, where their staff would start and end their days, that sort of thing. Lord Rowe-Beddoe: It is back to where we all began. It is Inspector Clouseau and Agatha Christie and all that sort of stuff. Nicola Shaw: If we got him that would be good. Lord Rowe-Beddoe: Right. Well, fine. Nicola Shaw: I am afraid I do not know about the Alpine tunnel issue.

Q144 Lord Rowe-Beddoe: No. One other question. I wonder if you would care to comment generally—it is not a recurrent theme, but you do refer to it two or three times— on this question, namely on your suggestion that there is not full and consistent 154 High Speed 1—Oral evidence (QQ 132-162) implementation of directives throughout the European Union, which does not make the life of HS1 that much easier. Is that correct? Nicola Shaw: You ask me whether it is not fully implemented across Europe. I do not think it is. Does it make my life more difficult? I am not sure. We talk directly to the other infrastructure managers. On the whole, that is transparent now and we know who we are talking to about scheduling and timetabling. That is the critical issue for us: what time are the trains going to arrive at Eurotunnel and what time are they going to come through? We talk to them about people who are coming to them for access to their network, and that piece— the division between the infrastructure operator and the service provider—is pretty clear now.

Q145 Lord Haskel: However, you do say in your paper that there is increased cost, management and effort because of the existing disparities in the implementation of the directives. Then you go on to say that the ERA is the appropriate body to advise and bring about this harmonisation, particularly as regards safety. Do you think then that the ERA should have a much stronger role, and, indeed, you should have the power to direct national regulators? Nicola Shaw: Standing back, does it increase the cost of doing business? There are a number of different organisations. The Chairman said how difficult it had been to get to the bottom of things and I think that is the case for everybody. It is complex and it is quite difficult to find things out; it takes a while, you have to get used to things. That must increase the costs of doing business, yes. In relation to the ERA, its role is advisory in relation to the standards, implementation and the interoperability. On the whole, national regulators have to look at the specifics of the case and to look at what the effects are overall on implementing things. To say that they should have a directive role implies that they are going to have to know everything that the national regulator knows, as well, to ensure that what they are directing fits with everything else that goes on. I would say that is probably a doubling up, and an unnecessary doubling up. At the moment it is not causing huge problems. I would say what would be better is if the regulators could, all of them—including the IGC—talk about what their process for approval for things is, what they take into account and how long it is going to take them to make decisions on particular issues. They should make their process very clear so that, if you do want to do something different, if you do want to take a new service through the system, then you know what you have to do, whereas, at the moment, you have to go looking and finding out, and sometimes you do not know how long anything is going to take.

Q146 Lord Haskel: Then how are you going to get harmonisation of safety, for instance, which we are told is a problem, if the ERA does not have a much stronger enforcement role, because presumably you are not going to have 27 countries just sitting around discussing it? Nicola Shaw: No. Currently, they are giving quite strong steers about how to implement the TSIs and those things are then being taken down to the local level. There are a few issues around the relationship between the ERA, the IGC and the CTSA, but I think that is more to do with process than it necessarily is to do with what the final answer is.

Q147 Lord Haskel: So this harmonisation then is not a problem?

155 High Speed 1—Oral evidence (QQ 132-162)

Nicola Shaw: In your hierarchy I think I would focus first on getting clarity of timetable for things happening, so that at least you will know the certainty of when you will find out whether or not it is allowable. At the moment you do not even have that.

Q148 Lord Haskel: Do you see a relationship developing between the ERA and the newly established Independent Regulators Group? Nicola Shaw: The Independent Regulators Group is very new, and it seems to me that it is quite like the UK’s regulatory group. We have a group of utility regulators. They get together; they talk about what they do and how they do it, and try and make sure that there is consistency on similar issues across the regulators. That seems like a good idea for the European regulators to deal with too. Whether they need to have a similar relationship with the ERA, I think that will probably come over time.

Q149 Lord Haskel: So do you think that this is not a task that the ERA could do and there needs to be a separate organisation? Nicola Shaw: The ERA is principally safety and the financial implications of any of the safety decisions. The regulators group will deal more with the commercial regulation rather than the safety regulation. Lord Haskel: That is a separation, right.

Q150 The Chairman: Is the separation necessary or could it be bolted on to the ERA?

Nicola Shaw: They are different skills. The Chairman: Yes, of course there would be a different skills level, but it does seem that there are organisations growing up like mushrooms all over the place. Nicola Shaw: Yes, I have sympathy with that position. The Chairman: Exactly. Lord Haskel: To the outsider, it does appear that you have all of these organisations mushrooming. The Chairman: Yes, exactly, and apparently also from the inside. Nicola Shaw: In principle, it must be good that the different regulators are talking to one another. The Chairman: That is true. Nicola Shaw: So you start from, “This is a good development; if it could be done as one organisation rather than two, an even better development.” But I start from, “It is positive that they are talking to one another.” Lord Haskel: The ERA does have certain powers—or powers of suggestion, should we say—to the national regulators. I would have thought that they would be the organisation to do what you are saying the Independent Regulators Group does. Nicola Shaw: I am only saying they do not do it because they are covering different issues at the moment. I can see you could bring them together, like the ORR brought together commercial and safety some years ago.

156 High Speed 1—Oral evidence (QQ 132-162)

Lord Haskel: Okay, thank you. The Chairman: That is very interesting.

Q151 Lord James of Blackheath: This is a slightly daft question, because I think there is only one answer you can give if you want to keep your job. Nicola Shaw: I hope I get it right then. Lord James of Blackheath: I think we are more interested in the spin you put on the answer than the inevitable answer, but should TEN-T funding be prioritised in any way, particularly between high-speed and normal speed rail? Nicola Shaw: I think it should be prioritised, yes. The Chairman: Of course. Nicola Shaw: If you stand back, I am not sure the distinction between high-speed and normal speed is the critical one for these purposes. I think I talked about the fact that there are some bottlenecks in places in Europe for us. There are some bottlenecks around Lille; there may be bottlenecks around Brussels as traffic grows. In this case, the high-speed and domestic classic networks are much more integrated than the question would suggest, because you are talking about the same stations being used for the different services. Lord James of Blackheath: Can we just refine the question a bit and ask: how would you like to see the spend prioritised in such a way that it would ease those bottlenecks for everybody’s benefit? Nicola Shaw: Yes. I think that is about looking at where those bottlenecks are and then making a case for the spend, just as you would in the normal way for getting TEN-T funding. At the moment, it is not accepted that you can spend that money for enhancements to existing infrastructure. So, as part of the review of TEN-T funding, the first thing is to say it can be spent on existing infrastructure to upgrade it, and then allow the priority to work across the network based on what their business case is.

Q152 Lord James of Blackheath: Do you see any scope for greater private investment in the rail structure? Nicola Shaw: I do not see why not. My business is owned by two pension funds, and they have taken a long-life view of the asset. I think the important part there is: how do you make sure that the regulation is sufficiently consistent over the long period for private companies to put their money in? Lord James of Blackheath: Thank you. The Chairman: That is very interesting, thank you.

Q153 Lord Haskel: In your paper, you remind us that HS1 was a TEN-T project. I do not know whether you saw an interesting letter in Saturday’s Financial Times, which said that the Channel Tunnel Act of 1987 prohibits Government subsidy for what is now HS1. It gives that as the reason why France had their line built 14 years before HS1. As this was a TEN-T project, I wondered whether you have any observation as to whether this kind of investment could not be speeded up by Government assistance to investment, rather than just leaving it to the private sector, because the point in the letter is that, because France does that, they got their equivalent railway line 14 years earlier. 157 High Speed 1—Oral evidence (QQ 132-162)

Nicola Shaw: I do not know. I have to say, I do not know what the answer really is, in relation to why the French railway line came earlier than the English railway line. It may be that it starts much further back in public and political support for the project. That seems to me to be the critical thing for getting HS2 off the ground. The Chairman: Indeed. As we read, yes. Lord Haskel: Sorry to spring that one on you. The Chairman: It was very interesting. Thank you.

Q154 Lord Walpole: Yes, I wonder if I could just say what my interests are. I do come by train; I come from Norwich via Stratford. I rather like Stratford, and I know you have problems with it because something is happening there next year. In the future, once you have the Olympics out of the way, when it is going to be absolutely amazing if you are going to be able to organise things—and I am sure you will—why should I not be able to come down from Norwich by train and change on to a passenger train for Europe, which I cannot do now? Nicola Shaw: No, there is no reason why you should not be able to. We have a station that is set up to allow us to take international traffic, so now I have to encourage an international operator to think it would be a good idea to stop there. I am working very hard with all of the customers and potential customers we have to put together the business case. The answer to this is the trade-off between time of travel to continental Europe and access to central London. I am sure you can make the case just as well as I can that you would get the benefits of access to Canary Wharf and other east of central London developments that would be faster from Stratford. It is all about how they want to position their services to their customers, and we need to think very hard with them about what the best way of doing that is. Lord Walpole: It is very interesting when you come down on that train from Norwich. I know you stop at several places on the way down, but the number of people who get off at Stratford is great. I have no idea where they go or whether they are going on to the Tube— there are various things they can do—but Stratford is a very, very busy station now. Nicola Shaw: Yes. You and I have the same emotional connection to Stratford. One of my early jobs was replacing the bus station at Stratford in my youth, so that bus station is emotionally satisfactory. Lord Walpole: I might also admit that I am a member of the Carpenters’ Company, so I am involved in the land that you built all these things on and all the rest of it. Nicola Shaw: Joking aside, there are real developments, very strong developments at Stratford, and there is a good consortium with the local authority, Newham, really pushing hard on those developments to happen, both before and after the Olympics. The shopping centre will open in September. The new infrastructure on the DLR into Stratford International Station will open in the autumn. There are lots of things happening now and there will be more coming after the Olympics. I see all those as very positive reasons why we will get an international operator there. We just need to make it all stack up for them.

Q155 Lord Walpole: That is super. Now the question I meant to ask was: what are the considerations of a track operator with regard to competing demands for developing inter- regional services across borders and providing a fast link between major cities on the same lines? 158 High Speed 1—Oral evidence (QQ 132-162)

Nicola Shaw: For us, that has not posed a problem on High Speed 1, because the way the infrastructure was built provided for both domestic services and the international services. The international services do run faster than the domestic services, so we have to think about it as we schedule them and, as we have just discussed, they stop more frequently. We do think about that scheduling interface, but on the whole we have the platforms, the stations and the infrastructure we need to facilitate it. Lord Walpole: Thank you. I am very interested in railways and I am also, I can tell you, trying to undo what Dr Beeching did in north Norfolk. We are trying to get something on railways right the way through to Wymondham and to King’s Lynn in the long run, and we are fully supported by the bus services, who want us to do it. Nicola Shaw: Oh, very good. Lord Walpole: Which I think is interesting. I think bus services can be brought into these things as helpers. Thank you.

Q156 Baroness Valentine: First of all, I should declare that I am Chief Executive of London First, with various members who have an interest in this subject. We have received conflicting evidence regarding the efficacy of the current governance arrangements for the Channel Tunnel, as stipulated in the Treaty of Canterbury. Some, including the Government, prefer the status quo and others would like a fundamental overhaul. I notice in your evidence you have said, “We do not know enough about the specific regulations and commitments governing the Channel Tunnel to make specific comments on fit for purpose”. Is that because these are secret, opaque or not relevant, and do you have any view you would like to express? Nicola Shaw: I think the statement we made in the submission was partly because we have not spent a great deal of time investigating that, because it is not central to our business. Of course, in preparing for coming today, as I told you we found out more about the Intergovernmental Commission. If I stand back and say, “What do you want if you are a regulated entity or if you are working with a regulator?” certainly you want consistency in application across all of those regulated entities. You want transparency of approach—how are they going to do things and how they make their decisions—and you want timely decision-making, as I said before. This consistency point is obviously very important for private investment. We need to know what the payback will be over the long term if we make investments, and certainly, if we do things to enhance our network over time, that will be important to me. These are complex questions usually; the things we have been talking about today are quite complicated. So, when you come down to the specifics of any individual point that you are in discussion with the regulator about, you need to understand how things are going to be done. The more that can be open and clear in advance, the easier it is to do business. That transparency is really important. In terms of whether I think there is a need for an overhaul of the Channel Tunnel, I think the point there is that you need to have consistency for the long term. I am sure the investors in Eurotunnel made investments on certain bases, so that needs to be thought about. On the other hand, could it be clearer and could it be more transparent? Yes, absolutely, it could. I think there is a lot of good work going on around the Intergovernmental Commission, the establishment of the website, the establishment of their decision-making processes now being public, so you can find out information about what has been decided. That is all very good. So it is going in the right direction but the more of that the better.

159 High Speed 1—Oral evidence (QQ 132-162)

Q157 Lord Brooke of Alverthorpe: If I may, could I just focus on the additional information that you brought to us to supplement your written evidence? Who are the people who have been suffering the frustrations to which you refer and, given the change that you anticipated has not occurred—instead, the French Minister of Transport will continue presumably to function the same way as previously—what will be the consequences of that and for whom? Nicola Shaw: I have not asked the ORR about the timetable for this but, if you stand back, the people and organisations most affected by it are Eurotunnel, Eurostar, the freight operators and Deutsche Bahn, who are now wanting to run services, and any other people who have been trying to set up services to run through the Tunnel and then their customers. So those are the categories of people who are most affected. As to how long it has been going on and whether the changes that we have seen already will continue, I see no reason why they should not continue—the good changes I referred to— because they have been happening while the Ministry of Transport in France have been members. So I do not see that there is necessarily going to be a problem there.

Q158 Lord Brooke of Alverthorpe: Is there any reason why you think they have not followed through with what was originally proposed, to have the French regulator working alongside the British? Nicola Shaw: I am not sure what was originally proposed. It is what we assumed would happen when the French regulator was set up, because that was consistent with what happened in the UK. It does not necessarily mean that is what they proposed. I think we made an assumption in our heads, which was not necessarily according to how the French were going to do things. Lord Brooke of Alverthorpe: Do you think our arrangement is better? Nicola Shaw: I think it does provide more certainty for the private sector in their investments, yes.

Q159 The Chairman: May I ask a supplementary to Lord Brooke’s question? Do you have regular meetings with the Government as to why, as they say, they prefer the status quo? Are they not looking forward to the opportunities that might exist if they smoothed this all out? Nicola Shaw: I have not spoken to the Government about this. The Chairman: Do you have a regular forum for meeting with the Government? Nicola Shaw: With the Department for Transport, yes, but we have not discussed issues around the regulation of the Channel Tunnel.

Q160 The Chairman: I see. Thank you. Now it is my turn to ask you a question. How are access charges to HS1 set, and how does that compare with charges for the Tunnel? What effect does the setting of access charges have on the prospects for competition, and what improvements to the system would you advocate? I think you have answered several of those, or partially answered them, during your excellent evidence, but if not perhaps you would like to answer them now.

160 High Speed 1—Oral evidence (QQ 132-162)

Nicola Shaw: Thanks. High Speed 1 access charges are set. They have three broad categories of access charge. First, there is a fixed charge for access to the infrastructure, which is charged on a per train basis. Then there is a variable charge for the operations, maintenance and renewal of the infrastructure, again charged on a per train basis. For those of you who are into the minutiae of this, we calculate them on a per minute basis and then multiply up on the basis of the average number of minutes spent on the infrastructure by the train. In the end, it ends up as per train. I did not want you to think I was misleading you. The third point is on charges for access to the stations; again, they are on a per train stopping at the station basis. Nicola Shaw: I think the key difference from the Channel Tunnel is that they have a per train fixed charge, then for most of their trains they charge a supplement based on passengers on the train. What would be the best way of getting more passenger trains on the European rail network? Have no charges whatsoever. The Chairman: Exactly. Lose the charges, precisely. Nicola Shaw: These pieces of infrastructure cost a lot of money and they have to be paid for in some way, and different European Governments have chosen to pay for them in different ways. The Chairman: It does seem a bit complicated, though. Nicola Shaw: Yes, but, as I said, I think that in planning for railway delivery across Europe you are going through several different national jurisdictions and you have a long time to plan.

Q161 The Chairman: I thought it was a single market, actually. Perhaps I should not have said that. Thank you very much, Ms Shaw. It has been a terrific session, but there is a final question I would like to ask, which is not on the paper: is there any question that we should have asked that we have not asked you, and would you be prepared to let us know now what the answer is? Nicola Shaw: I was having a think about that on the way over. One question that comes up sometimes is whether cabotage is an appropriate thing. The Chairman: Yes. Nicola Shaw: While it might seem attractive, I am not sure that it does add the benefits people think it might have. At the operational level of how you provide for domestic passengers on international trains—and going back to this question of the number of stops an international train would make—I am not sure that it is a thing that we should spend much time on. I think the things that you have been focusing on are probably more relevant.

Q162 The Chairman: Do the other major operators in Europe, like SNCF and Deutsche Bahn, operate on a cabotage basis? Nicola Shaw: No, we do not have cabotage in Europe at the moment. The Chairman: I see. It is a very old airline concept. Nicola Shaw: Yes. The Chairman: Again, thank you very much. We shall let you have a transcript, but your evidence—both your written evidence and your evidence here today—was excellent. Thank you. 161 High Speed 1 Ltd—Supplementary written evidence

High Speed 1 Ltd—Supplementary written evidence

Evidence Amendment Note

1. Introduction In relation to the inquiry into the European Rail Market and the role of the Channel Tunnel, we refer to the oral evidence provided by Nicola Shaw, Chief Executive Officer of HS1 Limited (HS1 Ltd) in July 2011. HS1 Ltd recognises the considerations of the House of Lords Select Committee is nearing conclusion, however, HS1 Ltd would like to make an amendment to its position in relation to the specific topic of cabotage that arose at the hearing. 2. Amended Evidence At the oral hearing, HSI Ltd believed that cabotage was not in operation across Europe. However, HS1 Ltd has now researched the matter further and has found that: 2.1 the principles of operating an international commercial service using the concept of cabotage is not precluded from the vision for developing competition within the international market place; 2.2 several services already provide such passenger opportunities, in particular between France, Germany and Belgium; and 2.3 further liberalisation of the rail market into a single European railway, along with the separation of the Infrastructure Managers and Railway Undertakings from Member State, as envisaged by the Commissions Transport White Paper, should strengthen the regulatory framework making cabotage a more attractive option for those International Railway Undertakings who are able to compete in the domestic market. Balanced against, however, other factors such as the economic climate, market forces, and high barriers to entry (for example around border and security control) remain strong. 3. Conclusion HS1 Ltd recognises that the amendment does not impact on the core topic of the Inquiry; however, HS1 Ltd would like to apologise for unintentionally providing misleading evidence. We apologise for any inconvenience that this may have caused to your ongoing deliberations.

21 October 2011

162 Interfleet—Written evidence

Interfleet—Written evidence

1. Interfleet Technology Ltd (Interfleet) is grateful for the opportunity to respond to this Call for Evidence, and strongly supports measures and the removal of barriers to stimulate high speed passenger services across Europe, thereby encouraging important modal shift from less environmentally friendly modes. In this context, we have addressed the following questions:

Q1. How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

2. Interfleet supports the development of European high speed rail passenger services in line with the European Commission’s objectives set out in its recent White Paper. In this respect, we support new entrants in a liberalised European railway market to stimulate a competitive market environment and services tailored to the customers leading to greater market share from other less environmentally friendly modes such as road and air. The liberalisation of the passenger market has stimulated interest to run new high speed passenger rail services across Europe and through the Channel Tunnel from parties other than Eurostar. Deutsche Bahn, for example, has expressed an interest in running ICE trains through the Channel Tunnel. Measures to further strengthen transparency and clarity of rules and tariffs across Europe to enable new entrants and existing operators to access new markets, new countries and new infrastructures, will contribute to this.

3. High cost and risk are barriers to entry in the European high speed passenger service, given the level of investment necessary for a new service. This restricts competition as only existing major players are able to participate. The availability of grants and easily accessible information about these to new entrants could help to alleviate this problem.

4. Interfleet supports developments and regulations leading to the harmonisation of railway safety and operations, and standards to facilitate the development of new services. New standards set out in the Technical Standards for Interoperability (TSIs), such as rolling stock and signalling TSIs, have made a significant contribution to growth of the railway market in Europe. Such TSIs have facilitated and continue to facilitate the development of interoperable rolling stock and infrastructure, with the relative economic benefits this can provide in the cost of rolling stock and components. Interfleet supports further harmonisation in this respect.

Q8. In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

5. The requirement for specialist rolling stock for the Channel Tunnel limits access to this market, as new entrants face high related costs and risks, and there is no second hand rolling stock available. Consequently there is very little actual competition on this route and the existing international offer is provided on a collaborative basis. Access to improved financing arrangements to new entrants and measures to stimulate leasing companies to

163 Interfleet—Written evidence provide for this specialist market could facilitate competition and growth for high speed rail services with Great Britain.

6. With regard to growth of high speed rail services through the Channel Tunnel, Interfleet supports a redefinition of the additional safety and operational processes and requirements imposed to bring them in line with the modern liberalised European railway landscape. This is particularly relevant given the safety improvements made by Eurotunnel and the developments generally in materials and traction technology since the original requirements were defined, together with changes in Eurotunnel’s and users’ operational practices. With regard to the TSIs, Interfleet would support a review of these additional requirements, to establish if they can be brought in line with European harmonised results and regulations, such as the Railway Tunnels TSI without compromising the overall safety levels within the Channel Tunnel.

7. Clarity, and harmonisation where possible, in technical, safety and commercial requirements and consideration of new rolling stock to run through the Channel Tunnel without compromising safety will contribute to the stimulation of the European high speed rail passenger market, in line with European Commission objectives. Interfleet strongly supports such measures which will facilitate the growth of high speed rail passenger traffic in Europe. This is particularly relevant with the ongoing development and investment in high speed networks in the UK, including HS1 and the future planned HS2.

8. The UK Government has invested substantial amounts into high speed rail in the UK, and stimulation of the high speed rail passenger market through the Channel Tunnel will enable the benefits of this investment to be fully achieved. This will subsequently provide new opportunities for and growth of high speed passenger rail services further afield across Europe.

Q9. The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

9. Interfleet believes that in order to ensure that capacity remains through the Channel Tunnel and on the UK rail network to cater for the anticipated growth in rail freight, transparency of capacity allocation is required.

10. The impact of UK rail schemes such as Crossrail and HS2 needs to be monitored to allow good connections yet preserve existing freight capacity.

This response is submitted for and on behalf of Interfleet Technology Limited

7 June 2011

164 International Air Rail Organisation—Written evidence

International Air Rail Organisation—Written evidence

Below are the responses from the International Air Rail Organisation to this enquiry. Our area of expertise is air-rail intermodality: we have therefore only responded to a few of the questions posed.

Question 4 1. TENs projects are happening disappointingly slowly, although the appointment of champions for each corridor project was valuable.

2. There is a need to focus on cross-boundary routes, because these are the ones which are not likely to be justifiable financially by one individual member state.

3. For example the French section and the Italian section of the Lyon – Turin high speed line make little financial sense to the French and Italian governments in isolation. They are, however, valuable when combined as a cross-boundary route.

Question 6

4. A switch from short-haul air to high-speed rail really needs high-speed rail stations at airports. Is this a possible destination for TEN funding?

5. Amsterdam – Antwerpen, Paris – Brussels and Frankfurt – Köln are routes where all flights have been withdrawn 1 because of a mutually beneficial air-rail code-share system. Air passengers - for example travelling between New York and Brussels – change between plane and train at Paris Charles de Gaulle airport. This only happens because there are high speed train stations at Schiphol, Frankfurt and Charles de Gaulle airports.

6. Without those stations, the interchange would not have been sufficiently convenient and attractive to airlines and their passengers: flights would not have been withdrawn.

7. Compare this with the shuttles on the Northeast corridor (Boston - New York - Washington DC). Passenger numbers dropped by around 50% between 2000 and 2008: flight numbers hardly changed. Instead, the airlines used smaller aircraft – so that they retained the same number of flights and the attractiveness of their network to interlining passengers.

Question 7

8. Passenger rights need to be enhanced so that there is commonality - especially between air and rail, but with bus and coach transport too. At the moment rights vary between mode, and some harmonisation would be valuable. A recent analysis by the International Rail Transport Committee (CIT) highlights some of the differences.

1 Brussels Airlines still flies once a day between Brussels and Paris 165 International Air Rail Organisation—Written evidence

Question 8

9. Whereas one can catch a Eurostar train between Calais and Paris or between Lille and Brussels, one cannot between Ashford and London.

10. Whereas one can catch a train between Helsinki and St. Petersburg and have one’s passport and (if necessary) visa examined on the train, this does not happen on Eurostar. One has to have a passport check at the station of embarkation.

11. The futility of this was demonstrated in 2005. Two weeks after the 7 July bombs, a further series was planned and the perpetrators identified. Despite this and the consequent heightened security levels, one of them was able to get through both UK and French passport inspections at Waterloo International.

12. Are these restrictions – which, of course, reduce use, value and earning capability of the trains – necessary?

Question 9

13. As with question 6, rail stations are needed at airports. So is adequate intermodal onward travel information.

June 2011

166 Ivor Morgan—Written evidence

Ivor Morgan—Written evidence

1. Summary: This evidence lists some additional benefits of rail travel, beyond reduced carbon emissions. It also discusses potential negative consequences of both increased competition, and an exclusive focus on high-speed rail. However, its main focus is on the measures required to encourage passengers to switch from road and air to rail, in particular noting that:

• rail fares should be competitive with budget airlines; • overall journey times for rail should be made comparable with air as far as possible (including by appropriate use of overnight trains); and: • through tickets should be made available for easy purchase online.

2. Benefits of Rail Travel: This submission takes as granted that the free movement of people within the EU (ie: facilitated by international passenger transport mechanisms) is a positive thing. However, the benefits of rail travel (as opposed to alternatives such as air or road) are not limited solely to reduced carbon emissions (which seems to be the focus of the Call For Evidence), but may also include the following:

3. Benefits of Rail Travel – Environmental:

• Reduced carbon emissions: The sub-committee is already aware of the lower carbon emissions of rail travel compared to air or road, so no further details are needed here. • Reduced reliance on oil: In the long-term, it seems likely that oil prices will continue to increase, and supply will eventually decrease. Reducing reliance on oil (and prioritising available oil resources and finances for uses for which there are currently no practical alternatives2 ) should therefore be a strategic objective for government. Most international rail networks in the EU are electrified and therefore train travel (unlike air or road) does not necessarily require oil as an energy source. Indeed, it is theoretically possible for rail to be powered solely by renewable energy sources (as apparently is already the case in Sweden).

4. Benefits of Rail Travel – Safety: It is understood that passenger rail travel is significantly safer than travel by car, and at least comparable to (if not safer than) passenger travel by air or coach. (Specific figures are no doubt available from the relevant experts).

5. Benefits of Rail Travel – Social:

• Social cohesion: Although it is difficult to provide evidence for this, rail travel also seems able to provide important benefits in terms of ‘social cohesion’. Personal observation indicates that travel by train is more likely to generate positive interaction between passengers than travel by car (in which people are isolated in

2 ie: It may be better to use the world’s finite oil resources for purposes such as plastics, or other advanced industrial chemical uses (for which there are few realistic alternatives) rather than for the generation of energy (for which there are many alternatives, especially for powering surface transport)). 167 Ivor Morgan—Written evidence

their own metal box) or by air (where the combined pressures of security hassles, cramped aircraft cabins and reduced service standards seem to lead at best to a studied ignoring of fellow passengers, and at worst outbreaks of frustration). • Better international understanding: International rail travel also offers passengers a far better understanding of the countries they are passing through than that gained by flying overhead at 30,000 feet3 . While increased rail travel alone is unlikely to resolve cultural tensions or nationalistic disputes, it can hopefully make at least a positive contribution to better understanding between peoples and to friendly relations between nations.

6. Benefits of Rail Travel – Resilience: At least in theory, rail travel should be more resilient to disruptions than other forms of transport. It does not (currently) have the same security constraints as air travel, and is not as vulnerable to extreme weather as other options are. (eg: air travel may be disrupted by fog, high winds or ash-clouds; ferries by high seas and storms; roads by rain or snow. While trains can be disrupted by snow, this does not need to be the case 4 ). A well-connected rail network should also be able to respond to problems at any one point, by diverting trains via other routes.

7. Q1 – Relevance of Competition: The EU’s fundamental commitment to free markets, and the benefits that can be achieved by competition in many situations, are well understood. However, it should not be considered axiomatic that increased competition within the international rail sector will necessarily result in benefits to passengers. While competition may be effective on short distance, high volume routes (eg: between adjacent capital cities) many potential rail journeys are not limited to such routes. In particular, it should be noted that in many cases train operators are not (or should not) be competing with each other, but rather should be collaborating with each other, in order to compete effectively with other forms of transport (especially cars, budget airlines and perhaps long-distance coaches).

• For example, if I wish to travel from, say, Andover in the UK to Bayreuth in Germany, no single operator covers that entire route. So, my journey will of necessity include SouthWest Trains, Eurostar, possibly Thalys, and then Deutsche Bahn (DB). If these operators cooperated effectively, then I would be able to buy a single, reasonably priced ticket that covered the entire journey, with well-timed connections. Even if other operators competed with each of these companies in their specific regions, it is unlikely that any one operator would cover this entire route (or many of the other medium distance journeys that could be envisaged within the EU). So, in order for the journey to be viable it would still rely on some grouping of the various operators collaborating together to offer through fares and reasonable connections for passengers.

• As a specific example of where competition has arguably been detrimental to passengers, consider the Brussels – Köln route, the only part of the hypothetical journey above where there is currently significant competition (ie: between DB and Thalys). Between the two operators, there are frequent services on this route.

3 As a trivial example: I have never set foot in Slovenia. While I certainly have no great understanding of the country, I feel I have much better insights into its geography and economy following a single train journey from Croatia to Austria (which passed through Slovenia) than from numerous flights passing through Slovenian airspace. 4 During the 2010/2011 winter, trains in the UK were brought to a virtual standstill by a few cm of snow. At the same time, I travelled over 800 km by train in central Europe. Despite thick snow (so deep that the rails could not be seen) the train ran exactly to time. 168 Ivor Morgan—Written evidence

However, tickets are generally not cross-recognised. So, although DB will sell a ticket from London to Germany, it is only valid on DB’s services on this route (not Thalys) which results in significantly worse connections and hence journey times, than if Thalys could be used. Similarly, although Eurostar/Thalys will sell tickets from destinations within the UK as far as Köln, these are only valid on the Thalys services, not DB – which again can cause problems with onward connections in Germany.

If ‘more competition’ means the current (or even marginally increased) number of services being provided by a larger number of operators, each with their own ticketing restrictions that tie passengers to their own services, then it is likely to worsen, not improve, international passenger rail travel. Regulation should encourage and enable rail operators to cooperate (rather than compete) when it is in the interest of passengers.

8. Q2 – Liberalisation of Rail Market: As less than 18 months have passed since liberalisation in January 2010, it is still somewhat early to judge the impacts of this. However, in the short-term, there do seem to be some negative developments. International rail services to Italy seem to be a particularly problematic example 5 , with rail services to Slovenia reduced; services to Germany and Austria restricted (resulting in ÖBB having to run a bus from Vienna to Venice, and DB considering suspending its passenger service); the ending of the Cisalpino joint venture with SBB; and reports of poor management of the joint-venture with SNCF (which will now be terminated this year). It remains to be seen whether ‘more competition’ will actually result in more (or better) trains running. The example of DB and Thalys on the Brussels – Köln route mentioned in paragraph 7 also highlights some of the problems inherent in liberalisation.

9. Q4 – Appropriateness of High-Speed Rail: While zipping around central Europe on an ICE3 is fun, it should not be assumed that investing in high-speed rail is necessarily the only (or best) way of improving international rail transport. While high-speed rail may be required to challenge airlines on certain medium-distance, high volume routes (eg: between adjacent capital cities) it is also very expensive (in terms both of construction, and of ticket prices). There are other ways of improving journey times, that do not require expensive and time-consuming investment in high-speed rail and may be more appropriate in some circumstances. It seems that many trains (both high speed and regular) often travel at speeds significantly below their designated ‘cruising’ speed. Finding ways to ensure that regular trains actually travel at their designated speeds (for example, by addressing track speed restrictions; improving signalling; reducing pathing conflicts; allowing drivers and locomotives to operate cross-border 6 ; etc) may be more cost-effective than investing in high-speed rail. Similarly, scheduling improvements (ie: more frequent services; better connections; direct routes where possible) may reduce actual journey times, for a lower cost. Overall, a frequent (and affordable) service provided by a ‘regular’ that can and actually does travel at 160km/h, may be a better option than an expensive and infrequent high-speed train that can theoretically travel at 300km/h, but actually travels much slower than that.

5 The author has no direct personal experience of these routes, so comments are based on information from various internet sources. It is not clear if all these problems have occurred since January 2010, or whether some pre-date liberalisation. 6 I have no formal information on this, but I have observed on several international connections (on both high-speed trains and local services) that trains stop at borders, apparently to change drivers – presumably because each driver is only authorised to drive in their own country. Similarly, on non high-speed trains, locomotives often seem to be changed at or near borders. Adapting regulations (and operating practices) to enable drivers and locomotives to operate cross-border without restrictions could save several minutes off every international journey. 169 Ivor Morgan—Written evidence

10. Q4 – Specific Disadvantages of High-Speed Rail: In addition to the overall opportunity cost (in terms of both money and time) of investing in high-speed rail, there are several other potential disadvantages to consider:

• Undermining regular rail infrastructure: in France, although SNCF has invested heavily in high-speed rail over the past decades, this reportedly has been at the expense of its regular rail infrastructure (which is still needed for local connections, cost-effective alternatives to high-speed trains, etc).

• Complexity of pricing: by contrast, in Germany DB seems to have managed to successfully develop a three-tier structure (of local trains; regular long-distance, inter-city trains; and high-speed ICEs). However, this has resulted in a complex pricing structure. While this can be advantageous to frequent travellers in Germany (who know how to obtain the best fare for a given journey at a given time) it is more problematic for ‘normal’ passengers (who may end up paying for an expensive high- speed ticket, when a regular train would have offered a similar journey time for a much lower price). It is clearly not realistic to expect international rail passengers to understand the complexities of rail pricing in each country they are passing through, so this undermines the requirement for simplicity in ticketing (see paragraph 16).

• Reductions in ‘through carriages’ and overnight sleepers: In the past (and still today to some extent, especially for night trains and in eastern Europe), specific train carriages were often coupled and uncoupled to different trains, to enable ‘through carriages’ between distant locations that would not support a full train in their own right, and also to enable night trains to provide direct connections without requiring passengers to change trains in the middle of the night. However, this approach requires rolling stock that can be coupled and uncoupled in this way (ie: locomotives and carriages which are basically all interchangeable with each other). However, high- speed rail relies on specific train-sets, that always operate in the same formation with their own dedicated locomotives. While this speeds up the operation of the high- speed train itself, it makes it impossible to add (or remove) specific wagons as ‘through carriages’ or sleepers. As it is not viable to run specific trains just for a handful of such through carriages, it seems the use of through carriages and night- trains is being steadily eroded – which in turn undermines the viability of rail for long- distance journeys within Europe.

Overall, it seems that high-speed rail can be beneficial for high-volume, short-to-medium distance routes (perhaps under 500km – for which a few hours in a daytime train is a good option). However, an undue focus on such high-speed rail can undermine the provision of effective options for longer-distance journeys (perhaps 500 – 1,000km, which would take up most of a day even on a high-speed train, but can easily be covered overnight on a regular train with sleeper compartments) 7 . Investments in high-speed rail must be carefully considered and balanced, to ensure they do not undermine services which they are not directly replacing.

7 The sad demise of the original Orient Express is perhaps the best known example of this. Until recently, there was a time- effective sleeper train from Paris to Vienna. However, the opening of the high-speed line in eastern France undermined this train – meaning there is no longer a direct service from Paris to Vienna (and travelling by day-time trains, even high-speed ones, on this route takes all day). In China, there are high-speed overnight sleeper trains – but there are currently no such trains in Europe. 170 Ivor Morgan—Written evidence

11. Q6 – Measures to ensure passengers switch from road and air to rail: Overall, it seems that for most passengers, decisions of which transport modality/ies to use for a specific journey will be based on a combination of three factors: cost; time/schedule; and convenience (or quality). These are discussed below:

12. Q6 – Cost: As noted in paragraph 6, international rail operators are generally competing not with each other, but with budget airlines and, potentially, private cars. Unfortunately, it is difficult for passengers to directly compare the costs of these options. While railways may offer start-to-finish fares, with a generous baggage allowance and no ‘hidden fees’, the headline price of a ticket with a budget airline generally excludes costs such as transport to/from the airport and various ‘optional’ fees, and often comes with a more restrictive baggage allowance. For both rail and air, fare conditions (eg: options to change or cancel after purchase) may vary, and can affect prices significantly. And in both cases, the advertised ‘starting from’ price may be very different to the fare that is actually available when a passenger tries to book a specific journey. However, overall, the price of international train journeys are generally not competitive with budget airlines. Rail will never be competitive with air, if EasyJet can offer a one-way ticket from London to Dubrovnik for £29.99, while Eurostar want at least £39 (and normally nearer £100) just to go from London to Paris. There are some positive examples of exceptions to this – for instance, DB offer a ‘London-Special’ fare from London to anywhere in Germany starting from €49. However, availability of these fares is extremely limited, they are restricted to just a couple of connections a day, they are not widely publicised – and they are not much use for journeys to places other than Germany. With the price of a ‘London Special’ usually being around €129 - €149 one way, budget airlines are often attractive price-wise even for relatively short journeys between the UK and Germany.

If passengers are to be encouraged to switch to rail, then international rail fares must become genuinely competitive with budget airlines. Although this submission is not able to prescribe the regulatory decisions needed to achieve such competitive pricing, it is hoped that the regulatory framework can support rail travel in being competitive to other, less environmentally friendly, alternatives.

13. Q6 – Time/Schedule: Journey time is another important consideration. Few passengers wish to spend a couple of day travelling by train for a journey that could be done in a couple of hours by plane. However, comparisons with airlines are again not straightforward. Although a plane can fly from London to almost anywhere in Europe in a couple of hours, the minimum journey time (even for a short distance route such as London-Amsterdam) is more realistically 5-6 hours 8 . Consequently, it is reported that high-speed rail operators feel they can compete with airlines if they can offer a city- centre to city-centre journey time of around 6 hours or less (hence DB’s interest in providing a London-Frankfurt service). Unfortunately, a failure to coordinate schedules effectively (as discussed in paragraph 7) can result in rail journey times being unnecessarily long 9 .

8 ie: Up to 1 hour to reach the airport; 2 hours recommended for check-in; minimum scheduled flight time of at least 1.5 hours (even for a 40 minute flight, as the airline has to allow for taxiing, delays, etc); up to 1 hour to wait for baggage; up to 1 hour to get into the town centre. 9 As a specific example, uncoordinated schedule changes by DB and Eurostar mean that a morning journey between London and Köln takes 2 hours longer in 2011 than it did in 2010! 171 Ivor Morgan—Written evidence

If passengers are to be encouraged to switch to rail, then overall rail journey times (not simply the speed of individual trains) must be comparable with the overall journey time of flying. Regulators should encourage and enable train operators to cooperate when setting schedules, and support initiatives that reduce journey times.

14. Q6 – Time/Schedule – Overnight Trains: Unfortunately, it is often not realised that rail can be more time-effective than air over much longer journeys than just 5-6 hours – by the use of overnight trains (especially with sleeper or couchette compartments). Flights within Europe generally do not operate overnight (and are too short to sleep on, anyway). However, spending the night on a train can be a time-effective option for journeys of 500 – 1,000 km 10 . Unfortunately, there are no direct overnight trains from the UK 11 ; the increased use of high-speed rail for short journeys has undermined some overnight trains for longer journeys (see paragraph 10); and all overnight trains from Belgium have been cancelled (see paragraph 13).

15. Q6 – Time/Schedule – Reliance on connections in France and Belgium: As the Channel Tunnel only provides the UK with direct train connections to France and Belgium, international travellers from the UK are particularly reliant on what happens in those countries, even if they are eventually travelling to another country. Particular problems recently include:

• Cancellation of all sleeper services from Belgium: Until recently, overnight trains connected Brussels with Berlin and Hamburg 12 , enabling time-effective journeys from the UK with a single change. Unfortunately, for some reason (reportedly due to haulage fees charged by SNCB) all such services were cancelled a couple of years ago. Although Amsterdam still has overnight trains to a wide range of destinations, which pass through Köln and so can be picked up there, this requires an additional change and a significantly earlier departure from London. Similarly, overnight train connections from Paris are relatively limited. Although providing direct overnight sleeper trains services through the Channel Tunnel may (at least in the short-term) be unrealistic, ensuring good overnight connections from Paris and Brussels would bring much more of Europe within reach of the UK by train.

• Increased connection times in Brussels: Brussels is a key connection point for rail journeys between the UK and the Netherlands, Germany and beyond. Although Eurostar technically has a 30 minute check-in requirement for inbound journeys from Brussels, until last year it would actually allow 23 minutes connections off some ICEs coming from Germany, which enabled particularly time effective journeys to the UK. Unfortunately, in 2011 SNCB has insisted on a minimum 45 minute connection time in Brussels (for onward Eurostar journeys to the UK), which has added 2½ hours to some journey times from Germany. As discussed in paragraphs 6 and 12, streamlining schedules and connection times is crucial to ensuring rail journeys are competitive with airlines timewise.

10 For example, spending the night in a sleeper compartment on a train that leaves Dresden at 9pm, and arrives in Budapest at 8am, is much more time-effective than spending half a day traipsing to, from and around airports. 11 Apart from a weekly Eurostar ski-train service in the winter – but as this is a standard Eurostar trainset with no sleeper or couchette berths, it is not the same as a traditional overnight train. The NightStar service that was envisaged when the Channel Tunnel was constructed has never operated. 12 And possibly other destinations 172 Ivor Morgan—Written evidence

• Strikes: Unfortunately, there have been a number of rail strikes in France. This disrupts train travel not only to France itself, but also to destinations beyond.

16. Q6 – Convenience – Booking Tickets: Another key consideration for passengers is the convenience of booking a ticket. Unfortunately, rail travel compares very poorly to air in this regard. There are any number of websites (provided both by airlines themselves and by online travel agencies) that enable easy price comparison and booking of flights throughout Europe, all using convenient e-tickets. For passengers who do not wish to use the internet, most high street travel agents are familiar with booking European flights. However, for rail there is no single website allowing booking of affordable train journeys throughout Europe 13 . Most national websites are restricted to selling tickets for trains travelling within or directly to/from that country. Some sites are poorly designed, not properly translated into English, or struggle with foreign credit cards. In most cases, even if a ticket can be booked online, genuine e-tickets are not available and a printed ticket (sometimes self-printed, sometimes printed by the railway) is required. Operators in eastern Europe often have only limited online booking facilities. It seems almost incredible that a private individual has had to create a dedicated website (www.Seat61.com) simply to explain how best to book international train tickets from the UK to Europe.

If passengers are to be encouraged to switch to rail, then booking options need to become much more simple and straightforward, ideally available online and using genuine e-tickets. Regulations should encourage the development of such online booking systems (in particular, that enable passengers to book tickets from that operator, even if the passenger is in another country).

17. Q6 – Convenience – Complexity of Tickets: As noted above, airlines will generally sell through tickets from the UK to any destination in Europe (or even worldwide). However, it is generally impossible to book through tickets to international rail destinations from the UK (even though this was possible in the past). Eurostar.com (and SNCF/SNCB) will book tickets from certain destinations in the UK through to France, Belgium and a limited number of destinations in Switzerland and Germany. DB (bahn.de) will book tickets from London (but not other locations in the UK) to Germany. However, onward connections to other destinations generally require a separate booking, often on a separate website. It often becomes extremely complicated even to work out how to book an international rail ticket online, let alone find a competitive price 14 . High street travel agents are also generally not familiar with such bookings. Combining several tickets often results in a much higher fare than would be the case with a single through ticket.

13 Raileurope is possibly the best online option, as it will book many trains throughout Europe, not only those in France (where SNCF, its parent company, is based). However, it appears to have several significant restrictions: for non-SNCF- related trains, it only offers full fare tickets, not any discounted options; most tickets have to be delivered by post; it will not make reservation-only bookings (useful for some journeys in eastern Europe); it does not book some overnight trains properly; and it does not book some trains (especially in eastern Europe) at all. RailTeam were planning to provide an integrated booking website for their combined high-speed services. However, reportedly they decided this would be “too technically difficult” (even though airlines have provided similar systems for years) and so customers have been left to struggle on with an assortment of individual systems. 14 For example, for the past ten years I have booked all my European flights online, and received a genuine e-ticket. However, in the past 6 months I have booked international train tickets: online, receiving a self-print ticket; online, receiving tickets by post; online, collecting tickets at the station; by phone, collecting tickets from a machine; by phone, collecting tickets at the station; in person with a rail operator; and in person from a travel agent. This variety in methods was not out of choice, but due to being the only available option in each case. 173 Ivor Morgan—Written evidence

If passengers are to be encouraged to switch to rail, then affordable through tickets from the UK to a wide range of international destinations must be made available. Regulations should support (or require) operators to collaborate to offer through tickets.

18. Q6 – Lack of awareness of Rail as an option: Anecdotal evidence suggests that many passengers are simply unaware that rail travel is even an option for international journeys (especially beyond Paris or Brussels). While this perception is arguably true to some extent (due to the aforementioned problems with prices and ticketing) it seems that much more could be done to make passengers aware of international rail services. It often seems that every other advert on the London Underground is for a budget airline – but international rail options (even the genuinely cost-effective ones, such as DB’s ‘London Special’) do not seem to be advertised anywhere, even at St Pancras International.

Increased advertising and awareness raising, if linked with the other improvements to price, schedule and booking options outlined above, could help encourage a switch to rail.

19. Q6 – Convenience – Local Transport at Destination: One of the advantages of international travel by car (compared to rail or air) is that one has the use of the car for local transport at the final destination. While this may not be a significant problem for rail passengers in destinations with good local public transport networks (and not having a car can be a positive advantage in some crowded urban areas) the lack of public transport at some destinations may encourage people to travel by car. Although there are no easy solutions to this, at least two options deserve further consideration and support:

• Bicycle: travelling with a bicycle means one can easily travel around short distances having reached ones destination. However, this requires being able to transport a bicycle on the relevant international trains. While this is straightforward on some routes (especially on local trains, or older trains which still have guards vans) it can be very problematic on many key international routes. In particular, high-speed trains often do not allow transport of bicycles (one of the few weaknesses with DB’s otherwise excellent ICEs), which again highlights how the focus on high-speed trains has undermined some other important aspects of rail travel. As bicycles have both limited impact on the environment, and positive health benefits for the user, it would make sense for their use to be encouraged and facilitated. This would involve ensuring that all trains, including high-speed and long distance ones, are able to carry bicycles, ideally at minimal cost and with as little need to pre-book as possible.

• Motorail: taking one’s car on the train combines the environmental and safety advantages of rail travel, with the convenience of having a car at one’s destination. Although motorail options were common a few decades ago, they have substantially declined, for a number of reasons 15 . Some options do still exist, in particular for holiday routes in western Europe, and for more general routes in eastern Europe. Unfortunately, the costs in western Europe seem to be prohibitively expensive, and/or require booking significantly in advance. Obviously, if the costs of motorail (or other alternatives, such as car hire at the destination) are too high, then people will

15 The inability to attach car transporter wagons to modern high-speed trains, while such wagons can easily be attached to traditional trains, is perhaps another example of high-speed rail undermining other useful options. 174 Ivor Morgan—Written evidence

be encouraged simply to drive all the way instead. While motorail may not be a widespread solution in future, it certainly deserves further consideration and attention.

20. Q6 – Impact on Non-Channel Tunnel Rail/Ferry Options: Although the Channel Tunnel provides the UK’s only fixed international rail link, various other environmentally friendly surface transport options still exist – in particular, rail/ferry connections. While some of these options appear to have prospered despite the Channel Tunnel (eg: the ‘DutchFlyer’ from London to the Netherlands via Harwich; and combined ferry/train tickets from the UK to Ireland), other useful links have been undermined (eg: there are no longer combined ferry/train fares between the UK and France; train services to harbour-fronts in locations such as and Dover have been discontinued; and various ferries that used to carry passengers now transport vehicles only). While some of this decline is probably inevitable (and a sign of the Channel Tunnel’s success) it does reduce options for some passengers (eg: those wishing to travel to/from a location that is far from the tunnel, but near to a channel port; or those wanting to have a cheap walk- up-and-go type fare, rather than an inflexible book-in-advance Eurostar ticket). The existence of such alternative options is also important for ensuring system resilience (see paragraph 21 below).

21. Q6 – System Resilience: Increased use of the Channel Tunnel places increased reliance on a relatively small piece of infrastructure, which can easily be shut down (as evidenced by problems in 2009 with snow, and various fires previously). Other modes of transport are also vulnerable (for example, the ash-cloud problems with flights), and similar ‘unexpected’ shutdowns could occur for different reasons in future. It will be increasingly important to ensure that transport options are resilient in themselves, and also have (or can rapidly bring online) additional capacity to compensate for shut-downs in other systems.

22. Q7 – Passenger Satisfaction with International Rail Services In EU: Many of the above paragraphs have dealt with this topic (especially with regard to price, scheduling issues, and the difficulty in actually booking tickets). It is also worth noting that there is wide variation within the EU. Services in western Europe tend to be faster and supposedly better quality – but are often more expensive, with more restrictive ticket conditions. Services in eastern Europe tend to be slower, with older (but often more comfortable) carriages, and cheaper and more flexible tickets.

23. Q7 – Passenger Rights: The ‘Convention Internationale pour le transport des Voyageurs’ (CIV) provides for passengers to be carried on subsequent services, if they miss a connection due to delays to a previous train. While the application of this is straightforward when using a single through ticket (as used to be the situation in the past), there seems to be a grey area if a passenger is using two or more separate tickets for an international journey (which is often unavoidable these days, due to the lack of sensible through ticketing – see paragraph 17). It would be useful to confirm that CIV conditions do indeed apply for continuous journeys using separate tickets (assuming relevant conditions, such as minimum connection times) have been met.

24. Q10 – Security Implications: This submission is not in a position to comment in detail on security matters. However, it is noted that:

• System resilience should be strengthened wherever possible (see paragraph 21). 175 Ivor Morgan—Written evidence

• However, as far possible the delays and frustrations associated with ‘airport style security’ should be avoided, as the absence of such delays is currently one of the strong positive attributes of rail travel.

25. Other Sources of Evidence: If it has not already done so, the Sub-Committee may wish to consider seeking evidence from the following sources (both of which are far better informed than this author):

• Mark Smith, author of the www.Seat61.com website: Seat61 exists to “tell you how to travel overland comfortably & affordably where you might think that air was now the only option”. I have no connection to Seat61.com (other than occasionally submitting updates on train schedules from journeys I have done). • Deutsche Bahn: Based on personal observations, DB is probably the best passenger rail operator in Europe (based on a combination of the criteria outlined in paragraph 11), although Eastern European operators are often considerably better in terms solely of price). DB offer an extensive network of international rail connections (including high-speed and regular trains, and overnight as well as daytime services) and may have many insights which are relevant to this inquiry.

26. About the Author: I have no professional expertise in, or connection to, the rail industry. However, I am a UK citizen, married to a German, and work in international aid and development, being based in Africa for most of my career to date. I have therefore travelled widely by train (sometimes for business, but often for personal reasons) in the UK, central Europe, Africa and Asia, and have a personal interest in passenger rail travel. I also travel frequently with commercial airlines (in particular on long-haul routes).

June 2011

176 MDS Transmodal—Written evidence

MDS Transmodal—Written evidence

Sub-Committee B Inquiry into the development of international rail passenger services in the EU, using the Channel Tunnel as a case study.

Although the Committee is primarily inquiring into international rail passenger services, we understand that it is also interested in rail freight services, and I have been asked to submit evidence about the charges for rail freight through the Channel Tunnel.

I have been asked to put forward my experience from the various studies my company has made of the potential competitiveness of rail freight through the Channel Tunnel. These studies have been made over a period of 25 years, starting before a final decision was even made to proceed with the Tunnel’s construction.

This work has been conducted for a wide range of clients; Eurotunnel itself, the State railway authorities prior to privatisation in 1994, shipping lines, ports, trade associations, public sector organisations and train operators. The most recent exercise my company completed was earlier in 2011. My company is also responsible for the GB Freight Model (upon whose projections the case for much of the UK Strategic (rail) Freight Network is based) and national port forecasts for the DfT. Our experience extends onto the Continental mainland.

Channel Tunnel rail freight volumes were initially forecast by British Rail in the late 1980’s to reach some 6m tonnes per annum when the overall UK – Continent non bulk freight market was under 30m tonnes. However, Channel Tunnel rail freight volumes have never even reached 4m tonnes and today languish at around 1.5m tonnes despite the fact that the market being addresses now amounts to around 100m tonnes per annum, a market share of therefore under 2%.

Intermodal rail services within Britain are far more successful. At least a quarter of all deep- sea container traffic uses rail to travel inland from the port of landing. Between 2003/4 and 2010/11, total intermodal rail traffic within Britain grew by 61% (7% p.a.) over a period when total road freight fell by 13%. The liberalization of the rail freight market, transparent infrastructure charges and active ‘on-rail’ competition have had a very positive impact. Major retailers are now investing in rail specific distribution terminals. We have reached the position where the mean inland length of haul for intermodal rail freight within Britain is under 350 kms while rail fails to be competitive from the Continental mainland over distances of over 1,000 kms even though road freight from the Continent has also to face the cost and ‘friction’ of a ferry crossing en route.

Why should this be the case?

Initially, poor reliability of rail services in some Continental countries, inflexible operating practices and interruptions through (for example) the activity of migrants seeking to enter the UK illegally on freight trains were certainly factors. However, all these conditions have now improved significantly, although there is much further work to be done across Europe as evidenced by the current debates about the Recast of the First Railway Package.

177 MDS Transmodal—Written evidence

Intermodal trains are operating in France and elsewhere on the Continent at costs which are not very different to those in the UK, carrying temperature controlled supermarket traffic for rapid delivery. There is more than enough freight in the market place to fill trains from the Channel Tunnel from major industrial centres such as Northern Italy, the Ruhr and elsewhere. Altogether, inbound unit load freight currently using road and ro-ro ferry from the Continent to the UK equates to over 250 train loads per day. Where there is inadequate traffic for a daily train between a given pair of regions, such traffic could be readily re- consolidated at a ‘gateway’ terminal for the cost of a container lifted between trains.

The explanation for the Channel Tunnel’s poor performance now lies in pricing. Depending upon the time of day, Channel Tunnel trains pay around €3 - 4,000 per transit, in addition to the charges and delays imposed at the transit yards at Frethun and Dollands Moor. The charge for using any other length of 50 kms. of track within the UK would not exceed $1000.

I shall try to illustrate the significance of this charge by using the market from the Ruhr (Koln) to the UK Midlands (Daventry) as a benchmark. This is a busy corridor. Its length is longer (700 kms via Calais) than the very successful rail corridor between the same terminal at Daventry and Central Scotland (around 500 kms.). By contrast to the UK domestic route, non rail users have to face the interruption of a ferry crossing en route. It follows that if rail can succeed on the UK domestic corridor, it should also be able to on the route from Germany.

The typical charge made by train operators to shipping companies for long distance intermodal freight trains along the Italy – Benelux corridor is around €14 per train kilometre (including the infrastructure tariff) plus terminal handling charges. Based upon the simple cost model I have employed (see the worked example below), for a train journey from Koln to Daventry (700 kms via Calais and the Tunnel), carrying 30 units per direction and excluding Tunnel tolls, the single direction trip cost would be expected to be €20,600 including terminal handling charges and local road collection and distribution cost. While it may not be reasonable for Channel Tunnel rail to expect to succeed over shorter routes and those with an origin further north on the Continental mainland, the Koln – Midlands route does appear to be a perfectly reasonable comparator to conditions that apply within the UK.

Estimated one-way costs between Koln and Southern Midlands via the Tunnel and railhead at Daventry: theoretical calculation by rail, excluding Channel Tunnel toll

Rail traction 700 kms @ €14: €9,800 Terminal lifts 2 x 30 @ €30: €1,800 Local collection and delivery 2 x 30 units @ €150 €9,000 Total €20,600

By contrast, the cost of a road and ferry haul can be estimated as €21,450 for the equivalent volume of freight. This takes into account the saving in road haulage costs that can be made by delivering to the southern Midlands (Milton Keynes – Birmingham range) from Daventry as compared with from a terminal on the Thames.

Estimated costs between Koln and Daventry via maritime terminal on the Thames: theoretical calculation by road and ferry

178 MDS Transmodal—Written evidence

Road haulage Koln to Zeebrugge: 30 units @ €290*: €8,700 Ferry crossing, 30 units @ €200 €6,000 Road delivery to the Midlands ex Thames (30 @ €225): €6,750 Total €21,450

Saving per train ex Koln exc. Channel Tunnel tolls: €850

* €80 + €0.7/km

That is, excluding specific tolls for the Tunnel, routeing by rail appears to offer a saving of €850 per single train trip. The clear implication is that a toll of (say) more than €1,000 per one way transit per train is likely to render a service uncompetitive in competition with road and ferry.

The Channel Tunnel’s competitiveness can be expected to be higher for origins south or east of Koln or north of London. However, the margin of additional advantage will be limited because, for these longer journeys, the valid comparator is not long distance overland haulage via the but rail to Zeebrugge (or a competing port such as Rotterdam, Dunkerque or Le Havre). In practice, large volumes of intermodal traffic already move by rail to these ports and cross to the UK by ferry. The initial calculations initially made by the State railway operators at the time the international agreements were made concerning the Tunnel (which have generally not been challenged) was that forwarders would compare a single road based option with a single (monopolistic) rail option delivered by (in effect) a cartel of State owned railroads coordinated by Intercontainer. In fact, of course, rail freight liberalisation has changed this environment completely and encouraged rail service providers to continue to develop to Channel and North Sea ports for loading onto (mainly) ro-ro ferries for the UK.

For example, should the origin for goods to the UK be Milan instead of Koln, then a forwarder with the option of rail haulage to Zeebrugge (1285 kms) or Daventry (1650 kms) will conclude that rail haulage to London will add €5,110 per rail train journey. There will, on the other hand, be a saving from avoiding a ferry tariff and from the reduced cost of delivery ex Daventry as compared with from a Thames wharf to the southern Midlands. This would lead to an overall saving of €3,090 per train per direction. i.e. added +365 kms of rail haulage @ €14/km: (€5,110) road delivery cost ex Daventry, 30 units @ €150 (€4500) saved ferry charges (30 units @ €200): €6000 saved delivery costs ex Thames (30 units @ €225) €6750

Saving per train ex Milan exc. Channel Tunnel tolls: €3,090

Geographically, it would be difficult to identify a Continental mainland location that offered a greater competitive advantage than from Milan. The implication is that for Channel Tunnel tolls to not choke off rail freight traffic, for a rail service from the Ruhr the toll should not exceed around €1000 per transit and for a train from Milan the toll should not exceed €3,000 per train per transit, in both cases to the southern Midlands.

However, it is by no means clear how price discrimination could be exploited between origins. There is no reason why, for example, a train operator should not forward a train 179 MDS Transmodal—Written evidence from Milan to (say) Lille and then seek a transit from a location where other rail traffic could only be expected to pay €1000 per transit (including charges made at the yards at each end of the Tunnel) to be viable.

It is unlikely that higher tolls could be set for trains bound for northern Britain because there is also be no effective means of price discriminating between sections of the same train destined for London, Birmingham or Manchester. In any event, there is direct competition to Northern England from ports on the Humber and Tees, receiving ferries directly from Benelux ports, which would further reduce the Tunnel’s competitiveness.

Given that Eurotunnel also has no means of price discriminating between trains from different Continental origins, it follows that a simple choice is available. If a rail tariff as high as €3,000 per train is levied, Eurotunnel cannot hope to attract a substantial market share for rail freight from origins except those in Italy and (perhaps) south-east France. In any event, rail has always been successful at winning freight from Northern Italy for the UK, generally via Benelux ports. The rail industry itself secures little net benefit from the Tunnel. On the parallel route from Northern Spain. operators are already finding that at current Tunnel tolls that direct maritime routes are more competitive than rail freight services via France. Only if tariffs are set that can attract traffic that currently uses road freight services from the Ruhr or much of France will Channel Tunnel rail freight secure significant volumes. Given the much higher toll levels currently set, it can be no surprise that the Channel Tunnel currently captures only1.5m tonnes per annum by through rail out of a total unit load market with the Continental mainland of around 100m tonnes per annum.

In summary, I therefore conclude that on the basis of a wide range of studies for different commercial interests that a Channel Tunnel tariff greater than around €1,000 per train, including charges levied for security at Frethun and Dollands Moor, will lead to traffic which could reasonably move by rail to remain by road. This conclusion is consistent with work done by my company for the Office of Rail Regulation in 2006 in its review of UK infrastructure charges. The current position is inconsistent with European Directives, particularly Article 8 of Directive 2001/14, that advise that while rail freight should cover its long run incremental costs, equally rail freight should not be discouraged by infrastructure managers charging tariffs that are greater than those same long run incremental costs. Infrastructure tariffs within Britain, which do cover long run incremental costs, are between €1 and €2 per intermodal train km, so that a tariff of €1,000 for a passage of only 50 kms (i.e. €20/km) through the Tunnel could be expected to cover the associated costs.

5 September 2011

180 Network Rail—Written evidence

Network Rail—Written evidence

In terms of the inquiry’s specific terms of reference, members will appreciate that the principal infrastructures concerning International Passenger traffic in the UK are the Channel Tunnel and HS1 (for whom Network Rail operates a management concession), whereas with international freight there is a more direct involvement for Network Rail with the operation of international freight on the national network.

We note that the Committee have sensibly decided to focus on the Tunnel as a case study since it is the common factor in all current and potential future UK international rail journeys. Since we are neither a customer nor supplier to the tunnel our contribution to observations to the case study element of the inquiry are, necessarily, limited.

Across Europe however, a range of issues are often variously cited as pertaining to the development of international rail transport including access to information by potential railway undertakings (freight and passenger operators), independent capacity allocation, effective regulation, and competent operational exchange between infrastructure managers.

In respect of the UK infrastructure necessary for international journeys (Network Rail and HS1) we believe that existing and potential undertakings are well served in respect of each of the above. Of course, for international traffic to develop the same needs to be true of access and use of infrastructure both through the tunnel and on the continent and the committee may wish to extend its enquiries to the experiences and observations of railway undertakings in other markets.

Furthermore, the Committee will appreciate that as part of UK treaty obligations the UK maintains 8m tonnes per year freight access to the tunnel on the national network – this equates to 36 train paths per day. Since currently freight traffic to and from the tunnel is around 1 million tonnes p.a this capacity means that Network Rail stands ready to accommodate the needs of what we hope to be a robust and growing international future freight market in the UK.

The committee’s questions do not touch on the role of the recent EU Regulation concerning a freight oriented network and the benefits it may bring to the international freight market. The UK is not on a mandated corridor, but fully anticipate establishing one with infrastructure managers in France and potentially Belgium (and de facto including the tunnel) the political initiative and ultimate governance lies with the member states, but initial discussions are taking place between infrastructure managers to prepare the grounds for a market study to help guide the establishment of a UK oriented corridor.

Further to the Committee’s call for evidence, Network Rail would wish to make the following observations in respect of a number of the Committee’s specific questions.

1. How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

As described above, we believe that the key barriers to growth of all international services are the implementation of the measures in the existing rail packages – particularly the first

181 Network Rail—Written evidence and third which aimed at opening up, respectively, the international freight and passenger markets. The current infraction proceedings against a number of EU member states shows that this basic requirement has yet to be met. The completion of a European wide network of regulators will be a major step towards removing the remaining barriers. In France for example, the new Regulator, ARAF has only been recently established and begun to make its first rulings.

2. How has the liberalisation of the international passenger rail market has been developing since January 2010?

The official monitoring mechanism of the EU rail market is the EU’s Rail Market Monitoring Study (RMMS). Unfortunately the survey is biennial and the most recent report was in 2009, before the official date of international passenger market opening. In its last report it did note that: “despite the effects of the current economic crisis, the development of a European rail area based on the gradual opening up of the market to competition has allowed a stabilisation of the rail’s share in the transport sector.”

( http://ec.europa.eu/transport/rail/market/market_monitoring_en.htm )

A more recent study, the IBM Rail Liberalisation Index 2011 commissioned by DB, assesses legal barriers and practical barriers to market access across the EU, Switzerland and Norway. The Index shows that the UK scores highest; four of the top five positions taken by distinctively liberalised railway industries from member states not being infracted by the EU under the first rail package (attached).

3. Should the European Rail Agency have a stronger role in this regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

The Agency’s core objective and role is strictly defined in Article 1 of Regulation (EC) No 881/2004 as amended by regulation 1335/2008. It is:

“to contribute, on technical matters, to the implementation of the Community legislation aimed at improving the competitive position of the railway sector by enhancing the level of interoperability of railway systems and at developing a common approach to safety on the European railway system… “.

In this context the Agency already has a significant and growing range of responsibilities ranging from Technical Standards for Interoperability (TSIs) and Common Safety Methodologies (CSMs), through to Databases and Registers.

In some of these areas the Agency still has to deliver (specifying a register of infrastructure, merging TSIs, establishing databases) and we would suggest that the Agency demonstrates its competence in respect of its existing and new responsibilities before taking on additional powers.

We do however believe that the Agency has a unique ability to bring together the national safety authorities to benchmark their activities and share best practice and would welcome the development of additional activities to enable safety regulators to identify appropriate learning from each other. 182 Network Rail—Written evidence

4. How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN-T projects?

The TEN-T Policy review is expected to result in a focussing of funds on a core network with priorities that complete sections and remove bottlenecks being given priority. The funds could more effectively used where they unlock projects that would not proceed without assistance (rather than acting more as a cash-back mechanism), if they could be committed to longer term projects than the TEN-T funding windows dictate, and if they took return on investment more clearly into account.

5. Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

In terms of infrastructure, where regulations have been disapplied to the (proposed) core network it will often be because of physical characteristics of elements of the network, such as gauge limitations, or because the financial costs of meeting a regulatory measure are so great that they would have a negative socio-economic (e.g. Freight Regulation), overall network costs (e.g. TSI Chapter 7) or project business case (e.g. Interoperability). In such circumstances a blind adherence to regulations regardless of circumstances would potentially have negative effects on the cost and viability of activities. In respect of regulations such as 1371/2007 (passenger’s rights and obligations) we would similarly expect an impact assessment to identify the costs of a positive application upon the railway undertakings before a view can be taken.

6. What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport, and others such as cross-Channel ferries?

The key factors that influence choice of transport mode include: journey time, price, experience and the wider door-to-door journey.

7. Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

We would expect that Passenger Focus would most clearly be able to inform the Committee of the response to this question. We note that Regulation 1371/2007 did enter into force on 3 December 2009, in full for international passenger services but only in respect of the core provisions for domestic services and was implemented through SI 2009/2970.

The recast of the first railway package currently under discussion in Europe, and as proposed by the Commission would give Regulators the Powers for own initiative investigations in respect of the passenger market, a suggestion that is echoed in the Rail Value for Money’s

Not withstanding that, passengers in the UK do have a wide range of compensation and other benefits that this regulation was effectively trying to roll-out across Europe.

183 Network Rail—Written evidence

8. In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

We understand that regulation through the IGC is slow compared to our own experience of domestic regulation. Our understanding is that the Treaty obligations require charging in the tunnel to recover capital costs in all charging rates, rather than marginal cost charging. If this is correct then the IGC and member states may need to look at whether this is consistent with letter and spirit of EU rules that require efficient charging with mark-ups that the market can bear.

9. The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

Multimodality is an important freight growth area and while the white paper does suggest a range of measures to assist multi-modal shipment experience of dealing with freight forwarders is that they are generally well informed purchasers and will utilise the available systems effectively if price and quality are right. In addition, a key to unlocking the potential increase will be the necessary growth in terminal capacity.

Recent EU legislation to develop freight corridors across Europe, recognises the role of terminal owners in helping to deliver this growth and establishes specific roles for them in developing the corridor strategies.

10. What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

None, the existing regimes should be fit for purpose regardless of volume.

7 June 2011

184 Office of Rail Regulation (ORR)—Written evidence

Office of Rail Regulation (ORR)—Written evidence

The Office of Rail Regulation (ORR) is grateful for the opportunity to submit evidence to the Committee on the European rail market and the role of the Channel Tunnel.

Reflecting our role, this response will cover only the following questions:

• 1. How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

• 2. How has the liberalisation of the international passenger rail market been developing since January 2010?

• 3. Should the European Rail Agency (ERA) have a stronger role in regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

• 7. Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

• (partially) 8. In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

Role of ORR

ORR is the independent safety and economic regulator of Britain's railways. It is a non- Ministerial Government Department which is independent and accountable to Parliament.

ORR promotes safety and value in railways in England, Wales and Scotland. We

• Determine Network Rail’s outputs and funding, reflecting government specifications and the money available • Monitor and enforce delivery of those outputs • Ensure compliance with health and safety legislation for all railways in Great Britain, by inspection, audit and enforcement • Approve or direct applications from train operators for access to Network Rail’s network • Monitor and enforce compliance with competition and consumer law in the rail sector

However we do not regulate train franchises or fares - this is done by government.

ORR also provides the secretariat to the Channel Tunnel Safety Authority and the Inter Governmental Commission (IGC).

185 Office of Rail Regulation (ORR)—Written evidence

Headline responses

ORR believes that EU member states need strong and effective regulatory bodies, and other steps are needed to achieve a genuine single railway market.

ORR supports the development of an international passenger rail market, but notes that progress is slow and tentative.

In terms of safety, the ORR supports a harmonised approach, with little need for a ‘super- regulator.’

Detailed responses

1. How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

A broad legislative framework aimed at promoting market opening and improving competitiveness of rail has been introduced gradually by the European Commission.

ORR believes that further steps are needed to remove the remaining obstacles to a genuine single railway market and address in particular three major problems:

• insufficient enforcement of market access rules due to lack of independence, competencies and powers of regulatory bodies • lack of effective competition • and an inadequate level of investment.

The absence of strong and effective regulatory bodies, with sufficient powers and resources, is a real issue in many Member States.

Vigorous enforcement of EU legislation by the European institutions is also necessary and in this respect the infringement procedures launched by the Commission in 2009 against a large number of Member States for failing to implement the First Railway Package properly should ensure an effective regulatory framework across Europe.

ORR has ensured that the IGC, as economic regulator of the channel tunnel, has begun to investigate the compliance of Eurotunnel with the requirements of the First Railway Package. This work is still in progress and its successful completion is critical to the development of both international passenger and railfreight services using the tunnel.

ORR believes strongly that European regulatory bodies must work together to ensure that international corridors are appropriately regulated in a way which facilitates the introduction of new international services. In this respect, the establishment of the new French regulatory body (ARAF) at the end of 2010, and of IRG-Rail (an association of independent rail regulatory bodies) in June 2011 are very positive developments.

We also strongly support the uniform reinforcement of the powers of European regulatory bodies which have been proposed in the recast of the First Railway Package.

186 Office of Rail Regulation (ORR)—Written evidence

2. How has the liberalisation of the international passenger rail market been developing since January 2010?

A small number of passenger operators have expressed interest in developing existing services (Eurostar) or introducing new services (most notably, Deutsche Bahn).

We view these developments as very encouraging, but note that they must be facilitated by the removal or simplification of obstacles to the introduction of such services. If this does not happen, we fear that these nascent developments will be smothered.

We are particularly concerned at the difficulties experienced by train operators trying to obtain access to the different parts of European infrastructure, and to obtain appropriate commercial train paths from the respective infrastructure managers. These issues need to be vigorously tackled in the context of streamlined international corridor management and regulation. As we have stated above, ORR is working hard to make this happen.

3. Should the European Rail Agency have a stronger role in regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

ORR takes the view that safety priorities which will assist in developing a robust European regime are:

• ensuring proper implementation of the obligations and responsibilities in the second railway package • and continuing to develop co-operation between national safety authorities to ensure effective supervision and enforcement.

The European Railway Agency has delivered a significant package of safety measures but any extension of its role in safety regulation would need strong justification and may not be the best way to proceed.

Encouraging ERA’s facilitation of harmonised practices by National Safety Authorities (NSAs), and the recent introduction of a cross-audit programme of NSAs, seems more likely to be effective at present.

The IGC is NSA for the Channel Tunnel. As such, it issues appropriate safety certificates and authorisations and is responsible for authorising relevant projects under interoperability provisions.

4. How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN-T projects?

5. Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

187 Office of Rail Regulation (ORR)—Written evidence

6. What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport, and others such as cross-Channel ferries?

7. Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

ORR does not hold any data on passenger satisfaction with international rail services in the EU. However, the European Commission recently published a Eurobarometer report on passengers' satisfaction with rail services in their own country - available on the DG MOVE website.

European legislation protecting the rights of rail passengers came into force on 3 December 2009 ("Regulation on rail passengers' rights and obligations"), following similar legislation in the airline sector. Common minimum rules now apply throughout Europe and train operators are obliged to inform passengers of their rights.

Certain provisions of the Regulation are mandatory for railway traffic within the European Union: rules on availability of tickets, through tickets and reservations; liability of railway undertakings for passengers and their luggage; minimum level of insurance for railway companies; right to transport of passengers with reduced mobility; information on accessibility of rail services; and obligations on passengers' personal security. However, Member States may grant an exemption for their purely domestic railway traffic for a period of no longer than five years, which may be renewed twice up to a maximum of fifteen years. The Department for Transport has invoked this exemption for domestic services in Great Britain, to be reviewed in December 2014.

ORR is a National Enforcement Body, responsible for the enforcement of the Regulation, monitoring the compliance of railway undertakings, station managers and ticket vendors with its provisions, and applying penalties, where appropriate. We are working with National Enforcement Bodies in other Member States to develop common processes and approaches to the requirements set out in the Regulation.

In its 2011 Transport White Paper, the European Commission outlined its intention to review existing rights legislation with a view to define a minimum set of passenger rights common to all transport modes. There are two short-term objectives: to improve the application of the existing legal frameworks through uniform and consistent interpretation and a more harmonised and efficient enforcement at EU level, notably through the network of National Enforcement Bodies; secondly, to contribute to develop a worldwide approach to passenger care by including appropriate provisions in bilateral and multilateral international agreements.

There is no existing EU legislation on the rights of passengers which, in the course of one journey, use two or more transport modes and have bought the different tickets under a single purchase contract. The European Commission has said it intends to work on promoting and developing the concept of integrated tickets and may, therefore, examine the question of the rights of passengers with integrated tickets on multimodal journeys.

ORR also has powers to enforce some consumer law in the domestic railway sector. We monitor complaints and can take action where we have evidence of harm to the collective

188 Office of Rail Regulation (ORR)—Written evidence interests of consumers. We also work with the rail industry to raise awareness of consumer issues on the railways.

8. In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited? Regulation is a matter for Government but ORR’s concern is to ensure that European requirements are met, and the regulatory structure facilitates achievement of the objectives of EU rail policy.

9. The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

10. What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

June 2011

189 Office of Rail Regulation—Oral evidence (QQ 163-198)

Office of Rail Regulation—Oral evidence (QQ 163-198)

Evidence Session No. 4. Heard in Public.

MONDAY 11 JULY 2011

Members present

Baroness O’Cathain (Chairman) Lord Brooke of Alverthorpe Lord Clinton-Davis Lord Haskel Lord James of Blackheath Lord Plumb Lord Rowe-Beddoe Lord Ryder of Wensum Baroness Valentine Lord Walpole ______

Examination of Witness

Witnesses: Alan Bell, [Head of Railway Safety Policy], Michael Beswick, [Director, Rail Policy], Brian Kogan, [Deputy Director, Railway Markets and Economics] Office of Rail Regulation

Q163 The Chairman: Gentlemen, welcome, and thank you very much. Members of the Committee will declare their interests, if they have any. The session is on the record and is being webcast live and will be subsequently accessible via the parliamentary website. The witnesses will receive a transcript of the session to check and correct, and this will be put on the public record in printed form and on the parliamentary website. Unfortunately, it looks as though we might be disrupted during this session, because we think there might be a Division, which means that we will be absent for most of it, probably for about 10 minutes. Please could you begin by stating for the record your names and official titles? Michael Beswick: I am Michael Beswick, and I am Director of Rail Policy at the Office of Rail Regulation. On my right is Alan Bell, and Alan is our Head of Safety Policy, but he is also a member of the Channel Tunnel Safety Authority, which of course advises the Intergovernmental Commission. On my left is Brian Kogan, who heads up track access at the Office of Rail Regulation, but he is also a member of the Intergovernmental Commission for the Channel Tunnel. The Chairman: Thank you very much. Apparently, you have already said that you do not want to make an opening statement. Does that still hold? Michael Beswick: Perhaps I can just say or one two brief words. 190 Office of Rail Regulation—Oral evidence (QQ 163-198)

The Chairman: Yes, that will be fine. Michael Beswick: As you appreciate, ORR is the independent safety and economic regulator for railways in Great Britain. We strongly support improved passenger and freight services between the UK and the continent via the Channel Tunnel, and we think that the European Union’s liberalisation agenda—in particular the additional competition—will facilitate growth in traffic between the UK and Europe and through the Tunnel. We think it is very important to deal with things looked at from a corridor perspective and, in a sense, that is how we see it. We are the regulator for the Great Britain domestic railway and also effectively for High Speed 1. We work very closely with the Intergovernmental Commission to try to facilitate growth in freight and passenger services through the Tunnel, and we are now working closely with our regulatory colleagues in Europe, particularly in France, both the newly established independent regulatory body on the economic side and the safety authority, and of course we work closely with regulatory colleagues across Europe as well.

Q164 The Chairman: Just on that last point, Mr Beswick, we were told that the French regulatory system was out of kilter or was not prepared to buy into the group regulatory system in Europe. Is that right? It is still going to be run directly by the Ministry of Transport? Michael Beswick: I think Mr Kogan can properly summarise it. As things stand, there is now an independent regulatory body in France, but representation on the Intergovernmental Commission is done by the Ministry. Brian, do you want to add to that? Brian Kogan: Yes, thank you. I think the situation, until the end of last year, is that there were some weaknesses in the regulation of the railways in France. The French Government has responded to that by establishing a new regulatory body, ARAF, and certainly we have already started improving our relations with that body. From what I can see, they are well- resourced and very competent at what they are starting to do. They have quite a task ahead of them. As Mr Beswick said, they are not involved in the regulation of the Channel Tunnel. To the extent that there is input from the French delegation to the IGC into economic regulation, that comes from the French Transport Ministry. The Chairman: I see. All three of you seem to be relaxed about that, yes? Brian Kogan: I think that there are always ways in which you could improve the approach. We work within the frameworks that we have. I am conscious that the IGC is a bi-national body, and you are always going to have the problem of working together with another country that may have a different approach to regulation.

Q165 The Chairman: Yes, and the ORR and the Intergovernmental Commission do work well together? If we leave France out of it now, are relationships there good? Michael Beswick: Well, the ORR—

The Committee suspended for 10 minutes for a Division in the House.

Q166 The Chairman: The only thing following my question that I would like just a moment on is that we did hear comment about things being untimely. What was the comment? The decision-making, yes, was a bit tortuous.

191 Office of Rail Regulation—Oral evidence (QQ 163-198)

Michael Beswick: What, for the IGC? The Chairman: Yes. Michael Beswick: It may be worth just saying what ORR’s role in the IGC is. We advise the Secretary of State on three appointments to the IGC: one is the Chairman; one is a safety member, who is also the head of the UK delegation to the Channel Tunnel Safety Authority that advises the IGC; and the third is Mr Kogan, who is the member for economic regulation. You may want to comment on timeliness of decision-making in the IGC. Brian Kogan: Yes. Plainly, there are two main kinds of decision-making. One will relate to safety regulation and one to economic regulation. Looking at decisions made on economic regulation, the first thing I should say is that so far the IGC has made no decisions on economic regulation. However, I was appointed member of the IGC just over two years ago and one of the first things that I did was identify that there were no published procedures for dealing with things like complaints and appeals, on which we would be required to make decisions. I can say that we do now have a published procedure in place that is consistent with the legal requirement as set out in the First Railway Package, which is that decisions have to be made within two months of the receipt of the last piece of information. I have to say, from experience in Great Britain of dealing with complaints and those sort of things, that sometimes these complaints are extremely complex and they need an awful lot of consideration, and there is a lot of information required before the regulatory body can actually make a decision that is going to be a legally sustainable decision. That is not a cop- out, but what I would say is that, if we were required to make a decision on the economic side, we are equipped to do that. The Chairman: Thank you very much indeed.

Q167 Lord Haskel: We have been told that there are problems of harmonisation, particularly on safety, and that is one of the things that is holding up the development of international rail travel, that there are problems with setting standards and that the ERA has been set up to try and harmonise these things. How do you interact with the ERA? Do you think it has the right amount of authority, too much or too little? Michael Beswick: We work very closely with the ERA. Mr Bell can probably say a bit more about that. Alan Bell: Yes, it is very important that we influence effectively the ERA because, of course, much of our railway-specific safety law originates in Europe. ERA does not make that law but it develops it and sends its recommendation through to the European Commission. We work very closely with them. We support the overall aims, as Michael said, and we are involved in the work in a number of ways. The ERA generally works through working groups for particular types of work, and we send a lot of representatives from ORR on to those working groups. Sometimes we second staff to the ERA; that is another good way of influencing the development. More widely, we work with DfT and industry to put forward an effective UK position. Developing the overall safety regime does take time, and I think I would say that we are in a position where the work of the ERA is really just coming to fruition in terms of the measures that they have been putting in place.

Q168 Lord Haskel: How about your relationship with the other national regulators? Alan Bell: It is also very important that we work with them because there are a variety of approaches to safety regulation in Europe. We prefer a management system approach, so we 192 Office of Rail Regulation—Oral evidence (QQ 163-198) are very much based on the safety management system and the assessment of risk when it comes to operations of the railways. Although I think that is in keeping with the approach that the European Commission and the ERA see, in terms of developing an open market, it is not the case for all of the safety authorities. We have to be influential because there is a risk that we will get something imposed on us that actually does not really fit with the approach that we believe is right. To do that we run a liaison group; we hold the secretariat for a liaison group of safety authorities throughout Europe. The group is quite longstanding so it predates the ERA, but that is a good way of understanding and working out the practicalities of measures with other safety authorities.

Q169 Lord Haskel: How are disputes settled? Alan Bell: To be honest, the disputes are most likely to occur when it comes to voting on particular measures. There is a committee that is run by the European Commission on which Member States get together. Lord Haskel: I see. So settled by voting? Alan Bell: Qualified majority voting, that is right. Lord Haskel: How democratic. Alan Bell: Obviously the more we can do to get understanding ahead of that the better.

Q170 Lord Clinton-Davis: Do you have regular meetings with the Transport Commissioner and his civil servants? Alan Bell: Yes. From a safety perspective it is more often DfT that will do that, but as a safety regulator ORR does, as necessary, meet Commissioners or Commission officials, but it is more likely to be DfT. Michael Beswick: One thing we have been doing, in the past year or so, is developing this group of economic regulators, which parallels the group of safety regulators, very much to try to increase the leverage, both to get a more co-ordinated approach among the economic regulators but also to increase our leverage with the European Commission. Brian, do you want to say anything on that? Brian Kogan: Yes, you may not know that the First Railway Package actually requires economic regulatory bodies to co-operate with each other, and we do that. As Mr Beswick has just said, part of our development of that has been to be founder members of IRG-Rail. We think that it is critical to the development of proper regulation of railway corridors that we work together with our colleagues, and on many things there are no arguments. We operate on the basis of the same European law. Sometimes there are either cultural or legal differences in the approach that regulatory bodies take, but that is part of the purpose of having IRG-Rail in place. For example, one of the first things we did, with the launch of the body, was to set up a working group exactly to work out how we would regulate international corridors. That is not the only problem; it is just one of the more pressing ones.

Q171 Lord Brooke of Alverthorpe: I think my question is really about whether you want the ERA to have a stronger enforcement role or even the power to direct national regulators. To a degree you have answered that in your written submission to us. I think I am right on that? 193 Office of Rail Regulation—Oral evidence (QQ 163-198)

Michael Beswick: In summary, we think the priority is very much about getting the directives in place and probably independent safety authorities—and, indeed, economic regulators across Europe in the way we are. It is very important that the safety authorities work together and that is what we have been trying to encourage. We think it is very important that safety authorities trust each other, so we have been pushing the cross- acceptance stuff so that we can rely on decisions that are made by other safety authorities and vice versa. Indeed, our Director of Railway Safety, Ian Prosser, chairs the ERA’s Audit Committee for the cross-acceptance stuff, so there is a lot of work going on to try to make the arrangements work more effectively. We are not convinced that giving the ERA a supranational role will add anything to that. It is all about getting the right degree of confidence and trust between the relevant safety authorities.

Q172 Lord Brooke of Alverthorpe: There is more to it than just safety. There is the economic side as well—the economic regulation. Here there are, in fact, variations on the theme in different places. Indeed, as we heard in the opening session, there is a variation on the theme with regard to the relationship with the IGC, where you have a role, yet the French regulator does not have the same role. We have economic regulation in a sense emerging from the French Government rather than from the regulator. Is that an ideal state to have? Even though people do not usually want to see a Europe-wide regulation intervention, is that is an area where there could be some change? Michael Beswick: As things stand, clearly the European Railway Agency does not have an economic regulation role in the way it has a role for safety and interoperability. I think our view is that there is quite a lot to be done, through basically putting in place the requirements of the directives and then the regulatory bodies working together. Brian may want to comment further on that. Brian Kogan: Yes. I would add that the First Railway Package, which is what underlies the establishment of regulatory bodies in this case, only came into force in 2005. A lot of Member States in Europe have been very slow in implementing it. You may know that some of them are on the receiving end of complaints about that. For us, what is really important is that all of the Member States involved in a system of regulation are working on the basis of the same rules. Working in ORR and working as a member of the IGC, I have no indication that the different arrangements in France are affecting our ability now to regulate the Tunnel properly and in accordance with the law.

Q173 Lord Brooke of Alverthorpe: I have some experience of dealing with the aviation industry, where the economic regulator has quite a significant impact and has a fair degree of influence over charges. This is not the case, though, in the railway industry in this area, is it? Brian Kogan: In many respects, the French rail regulator has the same kind of powers over the French national network that we have over ours. However, like ORR, it has no involvement itself in the regulation of the Tunnel. It is the IGC that is the regulatory body for the Tunnel. The difference is that ORR is involved in advising the IGC on our side. In France, the French regulatory body is not. In my view the important thing is: what is the outcome of that? Does that absence affect the effectiveness of the IGC as a regulatory body? The answer is that it is too soon to tell because we have only started regulating in this area properly in the last year or so.

194 Office of Rail Regulation—Oral evidence (QQ 163-198)

Q174 Lord Brooke of Alverthorpe: How long do you think it will be—too soon to tell? Brian Kogan: What I can tell you is we are conscious of the urgency of this, particularly because there are a number of operators not currently using the Tunnel who want to. I am in regular touch with some of those operators and I am aware of the problems that they are experiencing. If you would like, I can tell you about the work that we are doing at the moment and the progress that we are making. What I cannot tell you is exactly how long it is going to take until— The Chairman: For it to pan out? Brian Kogan: Yes. The Chairman: Yes, I think it would be very useful if you could give us a résumé of how you think it is working and what the major problems are. Brian Kogan: I let myself in for that. The Chairman: Yes, you did, but it would be very useful because we need to know. Brian Kogan: I think you have to start off with the understanding that Eurotunnel is a private sector company. It receives no official state subsidy, so it is quite different from all of the other networks that I have been aware of up until now. What we started off by doing is looking at the arrangements there. The best first arrangement to look at is the network statement, which is a statement made by an infrastructure manager of the terms of access— in other words, how its customers can make use of the network, what the charges are, what the rules are for access, and so on. We started nearly two years ago by making criticisms to Eurotunnel of problems that we saw in the network statement. The next area is to do with the separation of activities. Groupe Eurotunnel owns Europorte, which is a freight operator. There are obviously potential problems with conflicts of interest if an infrastructure manager is also running a train operator. There are restrictions placed on that kind of conflict in the legislation, and one of the really urgent things that we saw was the need to ensure that there was a proper separation and, if not, to make sure that changes were made to Eurotunnel’s operation to effect that separation. Indeed, since then you may have noted that Europorte’s accounts are published separately from those of Groupe Eurotunnel, that personnel are separately appointed and are separately located, and that members of the Europorte board are not members of the Groupe Eurotunnel board. So there are a number of measures in place. We are continuing to make that assessment and to understand exactly how full the separation is. Plainly, if you had a situation where a competing freight operator goes to Eurotunnel, wants a path through the Tunnel, and is met by someone who it knows works for one of its competitors, then you have a problem. That is a statement of the obvious. The third area that we have been looking at is the fact that there appears to be an obvious breach of the legislation, in that Eurotunnel has no performance regime in place. That is a legal requirement. We have directed Eurotunnel to provide us with information about what arrangements it does have in place to incentivise both operators and Eurotunnel to improve their performance. It does have some arrangements in place, so I believe it is not a complete breach. Also, we have told it to provide us with detailed timescales and project management details of how it proposes to implement a fully acceptable scheme. Fourthly, there is the issue of access charges, which I know you will already have heard about. Charges for access to the Tunnel are extremely high relative to other networks. There are some mitigating factors and at the moment, as I speak to you, I do not know 195 Office of Rail Regulation—Oral evidence (QQ 163-198) whether the charges are just inexcusably high or whether they are justifiably high. The next area of work for us, having ensured that costs are properly allocated within the organisation and that there is proper separation, will be to understand and to try to reconcile if possible the charges that are being imposed with the legal requirements in the railway package as they are set out. There are a number of different work streams going on and we are carrying out those work streams together with our French counterparts.

Q175 Lord Haskel: If you come to the conclusion that the charges are too high or too low, what happens then? Brian Kogan: That is a very difficult question to answer. I can tell you that in those circumstances we would initially state that the charges that were being imposed by Eurotunnel were not consistent with the directive and with the domestic legislation that we are required to impose. We have the ability to direct Eurotunnel to make whatever changes are necessary to ensure that they are compliant. There have been doubts expressed about our ability to enforce our decisions. As far as I am concerned, the IGC has very similar enforcement powers to those of ORR. ORR in the past has enforced its decisions on a number of occasions and has not experienced difficulty in doing so. I cannot really say what might happen if we tried to enforce a decision against Eurotunnel, because it has never happened—it has never had to happen. Lord Haskel: That is interesting.

Q176 Lord Rowe-Beddoe: Can I just ask a supplemental? A little earlier, in your most interesting discussion in response to the Chairman, I think you said that there is officially no state subsidy in reference to Eurotunnel. Would you like to say more about that? Brian Kogan: Yes, I can. A lot of people in looking at the access charges and in saying that they are very high, as they are compared to those for other neighbouring networks, have just made a straightforward comparison. Of course, if you look at Network Rail’s network, HS1 or RFF’s network in France, in one way or another all of those networks have received a subsidy. In the case of HS1 it is probably to do with written-off development costs, but they are subsidies. In the case of Eurotunnel, you may remember it is set out in the Treaty of Canterbury, I believe, that the Tunnel was not allowed to receive any public subsidy and, partly because of that, there were great difficulties in arranging the funding of the construction work. As you probably know, as part of those arrangements, eventually something called the Rail Usage Contract—the RUC—was put in place as a means of providing some kind of income flows to the infrastructure. So, depending on how you regard the income flows under that contract— Lord Rowe-Beddoe: It is a subsidy. The Chairman: Yes. Brian Kogan: It all depends how you define a subsidy. Of course, it is reflected in the charges, unlike the subsidies that are made to other networks. If you were to take Network Rail’s network or RFF’s network and you were to add on to the access charges the element of subsidy they receive, then you might be getting close to comparing like with like. The Chairman: Thank you very much. That is quite revelatory.

196 Office of Rail Regulation—Oral evidence (QQ 163-198)

Q177 Lord Plumb: I think you are answering a lot of interesting questions by your excellent answers, if I may say so. I just want to follow Lord Brooke’s question and probe a little bit further. You spoke of the economic regulators and the fact that you work with them. In these days when we are supposed to be part of Europe, we are in the internal market and this Committee is all about internal market and how we can progress, and remembering, of course, people, goods, services and capital move freely through the frontiers, should you be working as part of them rather than just working with them? Are we not at a stage where that sort of development might bring people together who have a like interest with each other but have a background of a different approach to it, through a directive or through legislation? My question follows that, I think. On the question of whether measures are in place under the EU rail packages, are they sufficient to promote open competition in international rail services? If there are problems, are they as a result of legislation or of implementation? Michael Beswick: I think at a first pass our view is that the main problems are ones of implementation and that the structure that is in place could actually achieve the objectives set out by the European Commission. As Brian said, in the context of the Intergovernmental Commission, we are certainly focusing very much on making the structure work. It is about grinding away at making the structure work and working with the regulatory bodies in other countries. It has been a huge step forward having the independent regulator in France. Clearly they are not involved directly in the Intergovernmental Commission, but I think our approach is very much about trying to make that structure work. Clearly, if ultimately the UK Government or the European Commission feel they want to do something different, then we are happy to work with them. I do not know if you want to add anything to that, Brian. Brian Kogan: Yes. While I agree with some of your comments about the development of the internal market, I would say that the thrust of the Commission’s policy and legislation on railways has been to encourage the establishment of strong regulatory bodies in individual Member States and to require them to work together. That is the approach that they favour in the recent—

Q178 Lord Plumb: Is there room to remove some of the regulation? Brian Kogan: Do you mean in the European legislation? Lord Plumb: Of course. Brian Kogan: No, I would argue not. In fact the recast proposal that is currently being considered, if anything, strengthens the legislation. Part of the problem in some Member States is that the regulatory bodies do not have the powers they need to exercise their role. Michael Beswick: Certainly, our view is that very much the prize to be had is through making sure that what is there already is fully implemented and that what is coming out of the recast is the importance of a strong and independent regulatory body in each Member State and enforcing the co-operation requirement.

Q179 Lord Walpole: Is there any justification for the Channel Tunnel having separate safety standards in place, which are not necessarily in conformity with the ERA’s TSIs, or is a more bespoke approach required because of the peculiarities of the Tunnel? How does the Tunnel, in fact, compare with tunnels under the Alps? Michael Beswick: I think it is probably best if I turn to Mr Bell. 197 Office of Rail Regulation—Oral evidence (QQ 163-198)

Alan Bell: I think if you look throughout Europe there are differences in the infrastructure and there are still different processes for things like authorisation of vehicles. In general, it will take time to move to the more harmonised system. The European framework itself can apply to the Channel Tunnel, and if you look at the TSIs they do envisage the possibility of some differences to reflect some of these national arrangements. But those differences have to be justified, so I think that in relation to the Channel Tunnel the position we are in is that there are some different safety arrangements. Some of those have been removed by the IGC, where the evidence was that they were not needed and where the advice that we have received was that they were not needed, but with some of them so far the IGC has still taken the view that they are needed. At the moment, we have a technical opinion from the ERA that says that some of our rules are not in line with the TSIs, so what we have to do is look at the areas where those specific instances still exist. We have to carry out an analysis and ask: “Is it right? Are they still needed? Do we want to put forward a case, which can then form part of the TSI?” In this case, we are talking about the safety in railway tunnels TSI, because that is the one that is most relevant to Channel Tunnel safety arrangements.

Q180 Lord Walpole: Yes. In the Channel Tunnel, you have had three or four fires, all of which have been in containers. That is their method of taking lorries through. Is that correct? Alan Bell: All the fires were on freight shuttles, yes. Lord Walpole: Yes, and they were all in containers, so the vehicles themselves did not catch fire? Alan Bell: They were not on the vehicles, as far as I am aware. The exact cause is sometimes not clear.

Q181 Lord Walpole: I was wondering whether you had actually caught up with the last one. I understand they are not quite clear how it happened. Alan Bell: Not exactly. Lord Walpole: Have you caught up with that one yet, as to why they do not know and what it was that started the fire? Alan Bell: There is quite a programme of work. The investigation body—separate from the safety authority—that is looking at this is actually the French investigation body. Their work and their reports are still continuing, and the duty holders are providing responses to the various recommendations that they have made. That has led to a programme of work, particularly by Eurotunnel, because of course they are most closely involved in terms of the freight shuttle fires, to try to mitigate those risks. Q182 Lord Walpole: Yes, what is the difference between that and an Alpine tunnel? Alan Bell: There are quite a few design differences as I understand it. I am not an expert in the Alpine tunnels, but if we look at the Lötschberg Tunnel, which I think is probably the longest tunnel that is operational at the moment through the Alps, firstly, it is not as long as the Channel Tunnel. It is only 34 kilometres. One thing they do have is an emergency stopping point, which means that the arrangements for evacuation are going to be, I suspect, rather different. For the Channel Tunnel, the advice—so far, anyway—has always been that the best thing for a passenger train is to run it through the Tunnel to the emergency sidings,

198 Office of Rail Regulation—Oral evidence (QQ 163-198) because that is the easiest way you can deal with evacuation and you can also fight the fire. I suspect that for the Alpine Tunnel they may take a different approach because they have a different area in the middle of their tunnel. But I think in general you would have to look at the different design conditions, and they are not perhaps directly comparable to what we have for the Channel Tunnel. Michael Beswick: I think ORR is very clear that there are prizes to be had through looking hard at whether these specific requirements can be justified, making sure there is a lot of transparency about why they are there and, where appropriate, learning lessons from elsewhere. I am sure there will be lessons to be learnt, as there are more long tunnels in Europe.

Q183 The Chairman: Can I just ask you on the back of that whether there is an international organisation that deals with tunnels? Outside Europe there are very long tunnels now in some places. Is there a sort of international body dealing with tunnels? Michael Beswick: I do not think there is. I am not aware of one. Perhaps the CTSA is aware of one. Alan Bell: I do not think so. I know that the experts do get together from the different countries, but I am not sure about there being a standing body. The Chairman: Yes, as to whether there would be universal safety standards. Michael Beswick: I do know, for instance, that the head of the UK delegation to the Channel Tunnel Safety Authority, who is also a member of the Intergovernmental Commission, was talking with the French and Spanish railways about a tunnel between France and Spain last week, I think. Yes, so we do try to get experience. The Chairman: It is just a matter of interest because, certainly in the air transport world, if there is a problem in one area they all get together. There is immediate consultation with all airline operators. Michael Beswick: I think this may be something where over time the Intergovernmental Commission and the Channel Tunnel Safety Authority could be doing more. Certainly, as regulator in the UK, ORR spends a lot of time looking at what goes on in Europe, North America and the Far East—you think of the long tunnels in Japan—and is beginning to think whether there are lessons to be learnt. Maybe we should do more of that. The Chairman: Or make sure that the NIH does not apply—“Not Invented Here”. Michael Beswick: Absolutely.

Q184 Lord James of Blackheath: We asked Ms Shaw of HS1 whether TEN-T funding should be prioritised and whether it should be focused principally on high-speed or normal speed. She said it really did not matter in that sense because both would benefit at the same time. The real concern was with the bottlenecks that both face on the system. I wonder if you would have any view of what benefit to the elimination of the bottlenecks might be achieved by the expenditure from the TEN-T funding. Michael Beswick: From an ORR perspective, we tend not to get heavily involved in the prioritisation of investment on the railways because ultimately, if it is investments underwritten by Government, it is really for Government to do that. I think our interest is making sure that decisions are made transparently and that we are getting efficient investment, so that tends to be our focus. Broadly speaking, in the UK the model is that 199 Office of Rail Regulation—Oral evidence (QQ 163-198)

Government sets out what it wants from the railways and how much money it has, and it is really for us to then decide what the most efficient way of doing that is. Clearly, there are some specific issues associated with the Channel Tunnel corridor. Brian, do you want to say something about that? Brian Kogan: I think what I would say about that is, as things stand at the moment, we are not aware of any capacity constraints in the Tunnel. My understanding is that there are some capacity constraints in northern France, but that is obviously a matter for the French Government to address if it wants.

Q185 Baroness Valentine: I should first declare that I am Chief Executive of London First. You have touched on some of these things already, but this is a group of questions that are related, I hope. We have received conflicting evidence regarding the efficacy of the current governance arrangements for the Channel Tunnel as stipulated in the Treaty of Canterbury. Some, including the Government, prefer the status quo and others would like a fundamental overhaul. What is your view? What would be the advantages and disadvantages of doing away with the IGC and enabling the ORR and ARAF to regulate the Tunnel directly? Has the current arrangement presented any difficulties with regard to enforcing the directives? Michael Beswick: I suppose the ORR perspective tends to be that the regulatory framework is a matter for the Government and our job is to make that regulatory framework work. That is the approach we have been taking. That is why we have essentially recommended—and the Secretary of State appointed—Brian to the Intergovernmental Commission to make the existing arrangements work, and similarly on the safety side. That has been very much our focus—making those arrangements work. We think by working with our French colleagues we can make a lot of progress in that area. Clearly, if you are going to invent a new regime—and maybe if we were inventing it from scratch we would have a different regime—it has to have a bi-national element in it, because I think unfortunately half of it was regulated under one set of rules and half under another. You have to find a way of having some bi-national element in it. No doubt it could be improved. I suppose the worry that we might have in ORR is that, if you put all your effort into changing the structure rather than making it work, you lose some time and you have to be quite careful on that. But I am able to defer to the person who is in the IGC about how it could work better. Brian Kogan: The main difficulty in the area of economic regulation was to ensure that both sides of the IGC were working in the same direction, and I think it did take a little while after I was appointed to the commission to make that happen. I should say that now we are both aimed in the same direction and have the same ideas about what needs to be done. What I have described to you today could have been explained to you by my French counterpart and he would have said the same thing.

Q186 Baroness Valentine: Would he have given a commitment to by when? Brian Kogan: I cannot answer that question. I think he and I both understand that understanding the basis for Eurotunnel’s charges, which is really what we are talking about, is not a straightforward activity. It is very difficult to know how long it is going to take until we really get into it. What I have tried to do, as a member of staff at ORR who has been appointed to the commission, is to bring the approach that we use for access regulation in Great Britain on the mainline network to Eurotunnel, and the French have been quite happy 200 Office of Rail Regulation—Oral evidence (QQ 163-198) to go along with that same approach. That is a painstaking, evidence-based approach, which does not make decisions about these things without understanding the relevance of those decisions.

Q187 The Chairman: On the back of that, can I ask whether there is a willingness to come to an agreed approach rapidly—well, not rapidly, but as quickly as possible? Brian Kogan: Between the British and French sides? The Chairman: Yes. Brian Kogan: I think the British and French sides are very clear that we need to put the operation on a legal footing. It may already be on a legal footing, but we need to be able to confirm whether it is and, if not, to take action. Yes, there is agreement on that.

Q188 Lord Walpole: You are touching on it, but not quite enough yet. How are the access charges for the Tunnel set and what is your regulation with regard to this? What effect does setting the access charges have on the prospects for competition through the Tunnel? Would you advocate any improvements on the system? You would? Good. Brian Kogan: No, I was nodding to indicate that I understood the question. Yes. The basis for the access charges through the Tunnel is the Rail Usage Contract. However, if you look on the network statement for Eurotunnel you will see some charges quoted there, which are not precisely the same as the charges in the Rail Usage Contract. That is because there is some other allocation of costs to the parties to the Rail Usage Contract, which are included in the overall access charges that are made to other operators. In my view, the whole system is quite opaque about charges at the moment and that is the very opposite of what it should be. Charges should be absolutely transparent for all operators. People should understand what they have to pay if they want to run new services. As to what effect it would have if the charges were lower, was that the question you asked? Lord Walpole: I did not actually ask that but it is one— Brian Kogan: You asked a question about the effect it had on competition. The Chairman: Prospects for competition. Lord Walpole: On competition through the Tunnel, yes. Brian Kogan: In a sense that is a no-brainer. If the charges are reduced it makes it more likely that people will be able to put a business case together for running services through the Tunnel. That is not the only thing we have to worry about. We also have to worry about whether or not the charges are consistent with the legal requirements and, of course, Eurotunnel has to make a living. We cannot simply reduce charges to an uneconomic level for Eurotunnel.

Q189 Lord Walpole: Would you advocate any improvements in the system? Brian Kogan: The system for setting access charges? Lord Walpole: Yes. Brian Kogan: As I said before, the IGC has the power to determine what level the access charges should be at and, if necessary, to enforce that decision.

201 Office of Rail Regulation—Oral evidence (QQ 163-198)

Q190 Lord Walpole: If you do not know what they are at the moment, how can you enforce them in the future? Brian Kogan: As I explained earlier, we are in the process of working through the evidence that is available to us. It is not a quick job to do. We have only really started doing this just over a year ago. If you said, “Well, we should have done it more quickly,” I could not really disagree with that, but it is something that we have had to work through methodically.

Q191 The Chairman: You would not object if in our final report we recommended that something should be done about it more speedily. Brian Kogan: I think it would be entirely understandable if you said that. The Chairman: I think we are probably heading that way anyway. Thank you very much.

Q192 Lord Haskel: I am sorry, I did not quite hear. Did you say that there is a website that you can have a look at and see what the access charges are? The Chairman: No, I do not think he said that. Brian Kogan: I did not say that, but that is true. Lord Haskel: Pardon? Brian Kogan: That is true. I did not say that but it is true, yes. Eurotunnel’s network statement is on its website and that contains details of the charges. Lord Haskel: If we look at this, will we see what the charges are? Brian Kogan: Yes, absolutely.

Q193 Lord Walpole: Are you talking about the charges that I would need to find out if I was going by car on a certain day, or do you mean taking a train that I own through it? Brian Kogan: No, sorry, the network statement is a statement that is made for the benefit of train operators. The Chairman: Yes, access charges. Brian Kogan: Yes. The Chairman: That has come as a revelation to me. I had not picked up on the fact that they were readily available. I thought the whole thing was clothed in mist. Michael Beswick: We will send you the details on that. The Chairman: Oh, brilliant. Lord Brooke of Alverthorpe: And the Rail Usage Contract as well. Brian Kogan: Now, the Rail Usage Contract is a different matter. It is a contract that I understand is subject to confidentiality. The Chairman: Yes. Brian Kogan: We have copies of the contract so we are aware of what is in the contract and changes to it, but I guess you probably ought to ask DfT.

202 Office of Rail Regulation—Oral evidence (QQ 163-198)

The Chairman: We will do just that when we have the witness from DfT, and I think it is the Minister. Thank you very much and well done for spotting that one. Lord James, final question.

Q194 Lord James of Blackheath: Do you think that the Commission’s White Paper on the liberalisation of domestic rail passenger services is going to have any significant implication for the UK rail market? Michael Beswick: I think in many ways the UK rail market is already quite heavily liberalised and the freight market is very competitive indeed. Most other countries have very heavy state involvement in the operation of passenger services, with the private sector operating on the margin. The UK is the other way round. At the moment we have one state operator and a lot of private sector franchises. I think the effect will be probably less in the UK than in many other countries. Clearly, the big impact in the UK potentially is about the climate for international services. I think that is the one that we would really like to see developing. I think there is some quite interesting stuff. We were looking at some of the evidence about things like ticketing arrangements for international services where in the UK, when we put in the liberalised market, we put in arrangements for retaining the network benefits of the railways. By and large a lot of that has been retained. I think being able to buy tickets easily to go across Europe, and things like that, are an integral part of the package and maybe there is more to be done there.

Q195 Lord Brooke of Alverthorpe: It seems to me to be very much one-way traffic. We have Deutsche Bahn looking to come in on the British network on HS1. We are well ahead as usual with liberalisation in this country. Do you ever envisage the situation arising where we may have a train operator—a UK-based one—that might want to go the other way, to turn the tide, so to speak? Michael Beswick: Clearly, you have that to some extent. Arriva, which of course was a UK company, was actually a very big operator in Europe, so big an operator that Deutsche Bahn went and bought it. Clearly, there are other big UK transport operators. People like First Group have operations both on the continent and elsewhere. I think that, as we get longer franchises in the UK, that may bring people in the UK who are perhaps a bit more akin to the overseas model, so we may well see further developments from UK groups, because the longer franchise model is probably more attuned to the sort of model you have in Europe. Lord Brooke of Alverthorpe: It is more like a nationalised operation. Michael Beswick: Not particularly a nationalised operation, but I think it is a— The Chairman: Lord Brooke, resist. Thank you very much. I said that Lord James’s question was the last question, but I do bowl one to the witnesses: is there any question that we should have asked you that we did not ask you and which you think we should have asked you? Michael Beswick: I do not think so. I think we have been around the issues. I think underlying this we recognise that there is a long way to go, in terms of liberalising international services and achieving the Commission objectives. I think the key issue is: do you want to go for radical change to the existing structure or is it about making the existing structure work? I think ORR is very pleased that we have been able to do quite a lot to make the existing structure work. The work that Brian and Alan and others have done is

203 Office of Rail Regulation—Oral evidence (QQ 163-198) very much around that and ORR is committed to putting our resources into making that structure work.

Q196 The Chairman: Yes. Can I just make the observation that in this session, which has been very worthwhile from all our points of view, I hope, the word “customer” has not been mentioned? The consumer out there is the reason why we started this inquiry in the first place. We felt that the single market was not giving the best advantage to the customers—the individual customers and the consumer group as a whole. What do you think would be best for the UK consumers? Michael Beswick: I will start and maybe my colleagues will join me. First of all, I did mention ticketing as one— The Chairman: Yes, that is right, you did. Yes, I suppose that is true. Michael Beswick: Ticketing is very much a customer-centred issue. But I think more generally our view is that, for this sort of service, getting some degree of effective competition is very important. It will be absolutely great if we see effective competition to Eurostar. I am sure when Nicolas Petrovic gave you evidence he realised that his service would be better if he was facing competition. I think that is the sort of thing that we would like to see. In order for competition to work, it has to be an attractive business proposition on the corridor, the Tunnel, and all the other bits that get added to it, so that people like Deutsche Bahn, or whoever, can offer that service. I think we do see competition as being a key thing on the service.

Q197 The Chairman: I am sure you are absolutely right. Of course, there is another component in all this because our Sub-Committee of the European Union Committee has responsibility for the single market, transport and energy, and we are looking all the time at reasons where we can reduce the emissions and get more people travelling by rail. That is also a big consumer focus and a national focus as well. Michael Beswick: Yes, and it is notable how far Eurostar have been able to use the carbon argument as part of their marketing, which is very interesting. The Chairman: Exactly right, yes. You look perplexed, Mr Kogan. Brian Kogan: Not at all. I was just going to add, if I may, that we observe the effect of competition where it exists on the national network, and we know that passengers and freight customers enjoy having the ability to choose between their suppliers of transport. It is very clear—again, it is almost a statement of the obvious—that to the extent that we make it easier for competing services to run internationally, that will favour both the passengers and the freight customers.

Q198 The Chairman: So we should have the regulatory platform in place first. Brian Kogan: I should say that our regulatory powers do not often mention the passenger and the customer. They concentrate on opening the market for train operators and, by doing so, improving the supply of transport. The Chairman: You are absolutely right because we only have to make the next step: you would not have trains going through the Tunnel if there were no passengers in them. Brian Kogan: That is true.

204 Office of Rail Regulation—Oral evidence (QQ 163-198)

Michael Beswick: One thing we are very keen on is that, because we are able to bring in the safety side and the economic regulation side, I think— The Chairman: You cover it all. Michael Beswick: I think we can use that as a means of encouraging liberalisation while still providing the assurance about safety. The Chairman: Yes, of course, that is absolutely fundamental. Thank you all very much indeed. It has been a very good session. Thank you.

205 Passenger Focus—Written evidence

Passenger Focus—Written evidence

Introduction

1. Passenger Focus is a statutory body set up to protect the interests of Britain's rail passengers and, outside London, England’s bus, coach and tram passengers. In addition, under the ‘Rail Passenger Rights and Obligations Regulations 2010’, Passenger Focus is designated as a body to which complaints may be made under Article 30(2) of the European Regulation (1371/2007) on rail passenger rights and obligations.

2. Passenger Focus welcomes the opportunity to respond to the Inquiry into the European rail market. Our response concentrates on the issue of passenger rights.

The development of a unified approach to passengers’ rights across all passenger modes

3. Passenger Focus has welcomed European legislation to safeguard passengers’ rights and improve the quality and effectiveness of services. The separate Regulations for the different modes now provide a basic framework for rail, bus and coach and water-borne passengers, as well as passengers using fixed-wing aircraft.

4. The general purpose of the legislation is to safeguard passengers’ rights, the passenger having been identified as the weaker party to the transport contract. It is consistent with the sort of provisions for protecting British domestic rail passengers’ rights that have developed over a number of years. Further, it transposes into European law the existing system of protection for international passengers - the provisions of the Convention Concerning International Carriage by Rail (COTIF) of 9th May 1980, as modified by the Vilnius Protocol of 3rd June 1999, to which the United Kingdom is a signatory. One of the purposes of the European Union’s rail passengers’ rights legislation was to protect not only international passengers but domestic passengers too (see Recital (6) of Regulation (EC) No 1371/2007). In most respects, however, passengers using domestic rail services in the United Kingdom have not received these protections. The UK Government has exercised its power to grant domestic train operators an exemption from the provisions of the regulation, initially for a period of five years. The decision to do so was made on financial grounds in 2010. Passenger Focus, together with the Office of Rail Regulation and other users’ bodies, expressed serious reservations about the reliability of the rail industry financial estimates that the Government used to inform its decision.

5. The European Commission has since announced in its Transport White Paper of March 2011 that it is to assemble common principles applicable to passengers’ rights in all transport modes (Charter of basic rights) and further clarify existing rights. It plans, at a later stage, to consider the adoption of a single EU framework Regulation covering passenger rights for all modes.

6. We welcome this for a number of reasons. First, it makes sense to think of many journeys – particularly those involving international travel – as likely to involve more than one mode of transport. If the aim is to ‘improve the quality and effectiveness’ of passenger services we need to see travel from a passenger’s perspective rather than that of an

206 Passenger Focus—Written evidence operator – as a seamless, end-to-end journey which is not necessarily modally specific. Not least, a late train or bus to an airport can result in a lost flight and significant disruption to a journey: it doesn’t make sense to determine the level of assistance to be provided to an inconvenienced passenger by the mode being used for the leg of the journey when things first went wrong. Secondly a single Regulation can help level the playing field in which operators of different modes may compete more fairly. Thirdly, the application of common principles applicable to all modes may begin to address the undesirability of the present hierarchy of needs which is implicit in the present regulations: air passengers are entitled to higher levels of compensation and assistance than rail passengers who, in turn, are likely to be protected more generously than longer-distance coach or bus or maritime passengers. Yet it is those long-distance coach or bus passengers who are more likely to represent the more vulnerable members of society.

7. There are also good consumer-policy reasons for moving towards the application of common principles in protecting the interests of passengers using all modes of public or collective transport: a simple and coherent system of rights is more likely to be understood better both by those entitled to its protections and by those at the sharp end in dealing with distraught passengers. It is also easier to communicate common rights to passengers in a consistent manner.

8. While it is important that any system for providing assistance, redress or compensation should be easily understood and accessible to anyone eligible, it also makes sense to ensure that its application is properly monitored. The rail passengers’ rights Regulation makes provision for the publication on the internet by the European Railway Agency, the designated regulatory authority, of annual reports detailing railway undertakings’ quality performance, including their handling of complaints, refunds and compensation for non-compliance with service quality standards. No such provision yet exists in European legislation for recording the performance of other types of operator in a similar way. Yet its provision could well be of benefit to discerning consumers whilst potentially strengthening those responsible for regulatory enforcement and with raising service quality standards more generally. It would facilitate quality benchmarking throughout the EU transport sector.

Are passengers satisfied with international rail services in the EU?

9. We are not aware of any research that would help us answer this question definitively. However, a sense of the relative position of the EU’s railway undertakings in terms of nineteen different measures of passenger satisfaction can be obtained from the results of research just published by the European Commission (Flash Eurobarometer No 326). During March 2011 Gallup surveyed representative samples of rail passengers in each of 25 of the 27 member states. (Malta and Cyprus have no railways). The purpose was to examine EU rail passengers’ satisfaction with various comparable features of the rail services including passengers’ use of trains for different types of journey, the trains themselves, railway stations and the network in each country. The research was commissioned following several years of encouragement from the European Passengers’ Federation, the body linking over 30 passengers’ organisations in 18 European states. EPF, in which Passenger Focus is a leading participant, had been impressed by Britain’s National Passenger Survey and was keen to see comparable data from throughout the EU gathered for use as a policy tool. For the first time we have invaluable public data covering nineteen separate satisfaction measures in the 25 member states.

207 Passenger Focus—Written evidence

10. In Britain itself Passenger Focus conducts the National Passenger Survey. This analyses passenger satisfaction across a range of station-and train-based criteria and captures views from over 50,000 passengers each year (split into two waves per year). This covers domestic operators only – Eurostar having declined to take part. Because of this we only have evidence which is largely anecdotal on which to rely in judging passenger satisfaction with the company that is currently the sole provider of international rail passenger services from Britain.

11. On the positive side it should be acknowledged that Eurostar is now reporting a share of more than 80% of both the London-Paris and London-Brussels markets. The company reported year-on-year growth in passengers of 7.5% in the first quarter of 2011. On the negative side, the European Passengers’ Federation reports that its annual tri-national meeting with Eurostar management is frequently concerned with complaints about poor connections between Eurostar and other high-speed services at continental hub stations such as Lille and Brussels, with evidence of maintenance quality, manifested by recurring problems with on-train toilet availability and cleanliness, the absence of through fares for sale on the company’s French and Belgian websites to British destinations, non-compatibility of Eurostar’s (SNCF-based) journey planner with that operated by Deutsche Bahn, lack of staff knowledge about potential onward routes and connections at times of disruption on the continent and, more generally, a history of poor contingency planning for dealing with disruptions. This latter point has been publicised extensively over the last eighteen months. The collapse of the service during a period of snow in the run-up to Christmas 2009 was well publicised and resulted in a programme of modifications to the Eurostar fleet and its management arrangements. Even so, television cameras were out again in late 2010 to record the crowding at St Pancras and snow-bound queues round the block.

Do passengers’ rights need to be strengthened?

12. We have already noted our welcome for the European Commission’s plan to assemble common principles applicable to passengers’ rights in all transport modes (Charter of basic rights) and further clarify existing rights. It plans, at a later stage, to consider the adoption of a single EU framework Regulation covering passengers’ rights for all modes. As is demonstrated by the recent European Commission review of, and consultation on, the related air passengers’ rights legislation there is a demonstrable case for reviewing ambiguities and inconsistencies in the wording of the existing acquis. There is reason to believe that the steps currently being taken by the relevant National Enforcement Bodies to exchange experience with one another, to develop common enforcement standards and knowledge of best practice, will further enable effective delivery of passenger rights. Nevertheless, railway undertakings – particularly those involved in the provision of international services – still have much more to do in delivering practical assistance when things go wrong with services. British rail passengers benefit from the provisions that ensure the maintenance of network benefits associated with the domestic rail network, in particular impartial retailing and the sale of tickets that are inter-available between any two points on the domestic network, irrespective of operator. A similar provision would almost certainly benefit the prospects for international travellers as the effects of market opening are felt through the EU rail network.

24 June 2011

208 P&O Ferries—Written evidence

P&O Ferries—Written evidence

Thank you for giving us the opportunity to comment on the topic under review. Given the focus is largely rail orientated, we felt that as a ferry company a general comment from us would be more helpful than a detailed response to each of the questions being asked.

P&O Ferries is naturally concerned with the growing dominance of the Channel tunnel rail link in the short sea market. As of 2010 the Tunnel transported 58% of passenger traffic travelling from Kent to the Continent and 34% of freight traffic. Any single sided policy that aids rail transportation through the tunnel can only help increase this dominance further and in so doing weakening the position of the competing ferry services.

We are of the firm view that a policy that further develops the single tunnel rail link to the continent exposes the UK to inherent supply risks. The UK economy remains dominated by its ability to trade. Indeed, the UK is the 5th largest trading economy in the world. An increasing reliance on a single fixed link to key European markets has obvious risk ramifications. It is our strong contention that such a reliance is detrimental to the development of a vibrant UK economy. In its relatively short life the tunnel has suffered two serious fires which disrupted modal flows for weeks and indeed months at a time. The presence of a strong ferry industry in the short sea has proven to mitigate the potentially severe economic impact of these events on the UK. Additionally industrial action and weather events, such as the snow in 2010 also disrupted the rail mode considerably, while the ferry service was less impeded allowing vital flows of peoples and goods to continue.

Nurturing a credible alternative to rail through the Tunnel has to be a key consideration in the UK’s transport strategy. Developing policies that disadvantage the Ferry sector will clearly increase the dependence on the Tunnel. This imposes risks and costs on our economy which increasingly needs to refocus on the movement of goods and people in the wake of the 2008 financial crisis.

To conclude, the Ferry sector offers a vibrant and dynamic alternative mode to the Tunnel. The Ferry sector plays an important role in “moderating” prices that are charged to passenger and freight customers. The presence of a Ferry sector also mitigates the risks of developing an over reliance on the Tunnel to service the UK‘s vital economic interests. Given this any policies which disadvantage the ferry sector will be detrimental to the macro economic interests of the UK economy.

8 June 2011

209 Rail Freight Group—Written evidence

Rail Freight Group—Written evidence

1. Rail Freight Group is pleased to submit evidence to the House of Lords European Union Committee Inquiry into the European Rail Freight Market and the role of the Channel Tunnel.

2. We understand that the principle focus of this Inquiry is the international passenger market. Nonetheless many of the issues facing international freight are similar to those facing international passenger, and the potential solutions may also be common. Our evidence therefore focuses on those areas, rather than on specific issues for the freight sector.

3. We would be happy to provide any further clarification to the Committee.

Legal and Contractual Framework

4. The legal and contractual framework governing the Channel Tunnel was set out in the Treaty of Canterbury (1986), and in associated other documents and contracts. These include the so called ‘usage contract’ between Eurotunnel and the Governments in respect of through passenger and freight services. The UK’s obligations for freight under the usage contract were subsequently discharged through a ‘back to back’ contract with EWS (now DBS) at privatisation. We are unclear whether a similar arrangement was put in place for Eurostar. Whilst the Treaty of Canterbury is in the public domain, the Usage Contract and back to back agreements are not. The obligation to pay a minimum usage charge for freight may have been renegotiated in 2005/6 when liabilities on EWS were set to increase. Again, details are not in the public domain.

5. The Treaty of Canterbury also established the Inter Governmental Commission (IGC) and the Channel Tunnel Safety Authority (CTSA) to supervise and regulate the operation and safety of the tunnel.

6. The Usage contract, and in particular the back to back contract(s), set out the financial liabilities on the two Governments to ensure that Eurotunnel receives a pre determined minimum level of track access charge. So, if the track access payments from commercial services is below the minimum level, the Governments pay the balance. We have been unable to determine the level of such liabilities / payments in respect of Eurostar; for freight services the UK Government paid £8.2m in 2010-11 and we presume that the French Government paid similar. It is unclear how that charge has been calculated and whether it relates to a fixed element of access charges, a variable element or some combination. It is also unclear how the payment would vary with traffic levels.

7. We have requested information on the Government liabilities under these contracts through a Freedom of Information request. This was submitted to DfT in December 2010, and, to date, we have not received a response.

8. UK Government retains, through LCR, a 40% stake in Eurostar and would therefore be in receipt of 40% of any dividend payment from the company.

210 Rail Freight Group—Written evidence

9. These arrangements may have been necessary in 1986 to secure financing for the project. (A similar arrangement is in place on HS1 in respect of the domestic services.) However, some 25 years on, the impact of these arrangements may well be contributing to a lack of progress in liberalisation. For example; a. Depending on the details of the back to back arrangements it is probable that Eurotunnel’s income is not significantly increased if additional through freight services run. This may be similar for passenger services. b. If freight access charges fell (as many believe they should), it is likely that Eurotunnel’s income would be unchanged, as the cost to Governments would increase to compensate (for a fixed level of traffic, although in reality lower costs should stimulate growth); c. An increase in services competing with Eurostar might reduce the prospect of dividend payments to Government. d. An increase in shuttle services would return additional income to Eurotunnel, and has no liabilities for Government.

10. This framework is therefore not providing a strong incentive on any party to stimulate through freight growth, or to encourage international passenger growth other than on Eurostar. Ironically however, a pro growth strategy should ultimately reduce Government liabilities, as a free and competitive market should be expected to stimulate demand for freight and passenger services, and hence income to Eurotunnel, not to reduce it.

European Directives

11. The Treaty of Canterbury (etc) predates the various European Directives for the liberalisation of the rail network, in particular Directives 2001/14 in the First Railway Package. However, the operation of through freight and passenger services is now covered by the Directives, although the Shuttle services are exempt. This means that Eurotunnel must comply with the requirements of the Directives (such as separate accounting). Directive 2001/14 also establishes the need for independent regulation. This role is supposed to be provided for the Tunnel by the IGC, however as it is an arm of both Governments, with financial links to train operators, its independence is questionable. Certainly the IGC appears to have taken little, or no action to ensure compliance.

12. Also, under the Interoperability Directives, Eurotunnel must comply with the relevant Technical Standards for Interoperability (TSIs) for any new or changed infrastructure. However, as the recent debacle regarding new passenger rolling stock demonstrates, CTSA and Eurotunnel are some way from compliance. The report by the European Rail Agency (ERA) is quite clear on the process for rule changes under the relevant TSIs, yet the subsequent IGC consultation on freight locomotives takes no account of it. It is unclear if Eurotunnel or IGC have accepted the ERA position – indeed if they accept that the Tunnel is required to comply with the Directive.

13. There are also suspicions that the current safety rules in the Channel Tunnel, which are generally more stringent that the requirements of the relevant TSIs may be acting as a 211 Rail Freight Group—Written evidence barrier to competition. The relative levels of risk associated with through traffic, versus the lorry shuttles appears not to have been factored into the rules.

14. However, as the Committee will be aware, the European Commission have recently written to UK and French Governments regarding non compliance with the Directives. The Commission’s letter covers a number of angles, including a lack of independence of the IGC, and could ultimately lead to infraction proceedings against the UK and French Governments.

Potential Solution

15. Ultimately we would consider that the Treaty of Canterbury and the associated contracts are no longer fit for purpose. However, we recognise the difficulty of attempting to renegotiate these multilaterally. We would therefore support a staged approach seeking to reduce the negative impacts and perverse incentives arising from the current position. This would include; a. Handing responsibility for economic regulation, and access regulation, to the ORR and French regulator acting jointly and independent of the IGC; b. The economic regulator to review charges on a periodic basis and enforce compliance with EU directives c. Handing responsibility for safety regulation to ORR and French safety authority acting jointly and in compliance with EU Directives; d. Eurotunnel to work with ERA as a matter of urgency to establish rules compliance with the relevant TSIs e. Ensuring transparency of financial flows between UK Government, Eurostar / LCR and Eurotunnel to avoid hidden distortions.

Specific Questions

1. How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

RFG has no comment on this question.

2. How has the liberalisation of the international passenger rail market has been developing since January 2010?

RFG has no comment on this question.

3. Should the European Rail Agency should have a stronger role in this regulating rail safety? What relationship should be adopted between the ERA and national rail authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

212 Rail Freight Group—Written evidence

ERA’s role in setting standards is already well established. For international services however the present problem is one of non- compliance by IGC/Eurotunnel, as described above. This must be corrected first. Generally, we consider that a closer working relationship between ERA and national safety authorities would be beneficial.

4. How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN-T projects?

TEN-T funding should only be made available where the Member States, Infrastructure Managers and Railway Undertakings are compliant with the relevant Directives.

5. Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

As a principle, regulations should be met in full wherever they apply. However, prioritising enforcement by potential impact is likely to be most productive, and this is likely to lead to a prioritisation of TEN-T routes. However other important corridors may also be relevant.

6. What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport, and others such as cross-Channel ferries?

RFG has no comment on this question.

7. Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

RFG has no comment on this question.

8. In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited?

Please see response above.

9. The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

Please see response above. The Channel Tunnel is perceived to be a significant barrier to international rail freight growth.

10. What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

RFG has no comment on this question.

May 2011 213 Rail Freight Group—Supplementary written evidence

Rail Freight Group—Supplementary written evidence

1. Since writing our first Response, we have received further information as a result of a Freedom of Information Request. This is the letter from the European Railway Agency to the IGC dated 30 May 2011. A copy is attached [see Annex below].

2. This letter again challenges the safety rules applied to the Tunnel. It comments that ‘there seems to be a lack of clarity of what the existing rules for the ‘Channel Tunnel actually are, in which documents they are contained, what is their legal basis and where they are published.’ and concludes ‘we believe that it is essential for you to ensure that the rules, processes and procedures covering vehicle design and authorisation for the Channel Tunnel comply with European law.’

3. We believe that this strong stance is justified in view of the failure of the IGC to respond to a previous letter in a similar vein, and the fact that it proceeded with a consultation on rail freight through the Tunnel as if the relevant European rules on safety, interoperability and cross-acceptance did not exist. We therefore believe that this consultation process should be stopped, pending a total review and compliance with the ERA and EU requirements.

4. The European Technical Standards for Interoperability are designed to reduce costs by making it mandatory to use equipment that complies with one standard applied across Europe. Cross acceptance of equipment means that a safety certificate issued in one member state is binding on all others, save for any specific national technical rules. The failure of the IGC to embrace this is at the heart of the current issues with liberalisation of services through the tunnel. The IGC seeks to continue to impose a completely separate set of standards, without any evidence, be they risk assessment or cost benefit analyses, that it is necessary. Hence the ERA’s letter.

5. It is now time for the UK Government to get into detailed dialogue with the French Government on Cross-Acceptance and inter-operability generally, taking a ‘can-do approach’ and in the process dragging the IGC with them. As we recommended in our first response, this could best be achieved by removing the responsibility of the IGC for rail safety issues and instead requiring the relevant rail safety authorities to work together to develop common solutions that have a firm legal basis.

July 2011

214 Rail Freight Group—Supplementary written evidence

ANNEX

Letter from the European Railway Agency to Mr Roy Griffins, Chairman of the IGC, Office of Rail Regulation, 30 May 2011.

Dear Mr Griffins

“Subject: your letter dated 30 March 2011 – Ref: 10/11/78:

Thank you for your letter of 30th March asking for consultation comments on the safety rules specific to freight trains transiting the Channel Tunnel. As you are fully aware we may be later asked by the Commission to provide a Technical Opinion on rules such as these so it would be inappropriate for us to comment on the rules themselves at this stage. It is however I think worth me offering some clarifications.

Firstly there appears to be a fundamental misunderstanding in your understanding of the legal framework. In your letter you say that “This consultation only concerns the tunnel- specific safety rules at government level, which affect the design requirements for rolling stock. It does not deal with the requirements for technical compatibility between rolling stock and infrastructure, which remain to be examined directly between each railway company and the Infrastructure Operator”. In fact the Interoperability Directive and the recent commission recommendation 2011/217 (formerly known as DV29 and attached for information [not quoted]) make it clear that, where not covered by a TSI, a Member State must put in place rules for technical compatibility between vehicles and the network. Furthermore, other than where the NSA can demonstrate a substantial safety risk in a particular authorisation, rules for Technical Compatibility are the only rules that may be applied at additional authorisation (such that for freight vehicles already authorized in UK or France applying for authorisation for the channel tunnel).

Furthermore rules for vehicle authorisation such as the rules in consultation “rules that affect the design requirements for rolling stock” do not qualify as national safety rules. Under EU law they qualify as National Technical Rules.

As we have said before, and has been confirmed by the exchange of letters between the Commission and the Member States (the last letter from the UK is attached as an example [not quoted]), there is an obligation on the Member States to submit to us proposals for tunnel specific rules to us for inclusion in the TSI as specific cases and/or the Reference Document as Category C rules. These specific cases must be duly justified by risk and impact assessments with the methodology put in place by the Agency. Whilst consultation can be a useful exercise, it is difficult to see, without any accompanying risk or impact assessment justifying the rules, how those consulted can form a view on the necessity for these rules to be applied in addition to the requirements currently in the TSIs and secondly how the result might be used to justify specific cases for the Channel Tunnel to go in the TSIs.

215 Rail Freight Group—Supplementary written evidence

Finally, as we mentioned in our Technical Opinion on the passenger rules, there seems to be a lack of clarity of what the existing rules for the Channel Tunnel actually are, in which documents they are contained, what is their legal basis and where they are published. Once again we note that the rules that you are consulting on are not the rules that you have notified.

Marcel Verslype Executive Director European Rail Agency

216 Seat 61 (The Man in Seat Sixty-One)—Written evidence

Seat 61 (The Man in Seat Sixty-One)—Written evidence

1. About The Man in Seat Sixty-One

1.1 I am Mark Smith, founder of the website, The Man in Seat 61 ( www.seat61.com ). Seat61.com explains in simple terms how to travel from the UK to any country in Europe and beyond, with recommended train times, sample fares, journey information, and how best to buy tickets online and by phone.

1.2 Started purely as a hobby in 2001, it was born out of frustration at the yawning gap between how easy, practical and affordable train travel to Europe can be, and how difficult (and sometimes downright impossible) it can be to find out about and book. The site does not sell tickets directly, it simply recommends and explains the best ways to buy tickets for a given journey using the relevant operator(s) phone lines and internet sites, helping potential passengers overcome the various hurdles in booking what is often a multi-leg multi-operator trip.

1.3 Seat61 now receives around 1 million visitors each month, approximately 40% from the UK and it is my full-time occupation. I deal on a daily basis with the problems, frustrations and issues people face in finding out about, and booking, European train travel.

2. Personal background

2.1 I am a career railwayman, starting work as a British Rail Management Trainee in 1987, becoming Station Manager London Charing Cross in the early 1990s and later the Customer Relations Manager for two privatised train companies. I subsequently progressed to the Office of Rail Regulation, and finally the Department for Transport's Rail Directorate (DfT). Until 2007 I was the DfT's expert on UK rail fares and ticketing, heading a small specialist team.

Question 1: "How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?" Question 2: "How has the liberalisation of the international passenger rail market has been developing since January 2010?"

3. Experience of open access on the Munich--Verona-Milan/Venice route

3.1 The European rail network is still dominated by state-owned national train operators. However, one major international route is now operated on a competitive 'open access' basis, and it provides a number of salutary lessons. The House should be aware of the situation on the Munich-Innsbruck-Verona international route. As I understand it, the story is as follows:

3.2 Trenitalia (Italian Railways) were not interested in running the two daily daytime EuroCity trains from Venice to Vienna. They pulled out completely in 2009, and OBB 217 Seat 61 (The Man in Seat Sixty-One)—Written evidence

(Austrian Railways) now runs a motorway bus between Venice and the Austrian frontier in connection with their trains to/from Vienna, parallel with a perfectly serviceable railway. Trenitalia were similarly disinterested in running the several daily EuroCity trains on the Verona-Innsbruck-Munich route, but in this case DB (German Railways) and OBB stepped in to run this service in their own right under the EU's new open access rules, making it Europe's first such service on a major international route. Operated in partnership with regional Italian operator LeNord, it's now a high-quality service, vastly improved over the tired Italian cars previously used, with proper restaurant cars too. 3.3 In the UK, train operator's passenger licences contain 'network benefit' conditions requiring all operators to subscribe to the National Rail Enquiry Scheme (NRES), and all ticket offices to sell tickets impartially for all trains using the station in question, regardless of operator. The EU's rail regulation is minimal, and there are no equivalent 'network benefits' requirements imposed on Continental train operators. As a result, tickets for these DB/OBB trains cannot now be bought at Verona station ticket office, or for that matter at any ticket office in Italy. They have to be bought at the DB or OBB websites, or on the train itself. A journey from to Munich (which requires a change of train in Verona) now needs to be booked in two different places, as DB can't sell the full range of Florence to Verona Trenitalia tickets and Trenitalia won't sell any Verona-Munich DB/OBB tickets as they regard this as a 'competing' train service. Similarly, what most Italians still regard as Italy's national train website, www.trenitalia.com, makes no mention of these trains, they simply don't exist. I believe that this situation is a forerunner of the fragmentation which the EU's concentration on promoting competition (as opposed to promoting co-operation) will cause without appropriate 'network benefit' safeguards as we have in the UK. European train travel is likely to become more difficult to book in the medium term, not easier. 3.4 Allegedly, Trenitalia booked the best train paths on this route with its (closely organisationally related) infrastructure provider, even though it had no intention of using them, forcing the DB/OBB trains to take sub-optimal train paths with slower journey times. Even in summer 2011, DB/OBB's through train from Munich to Milan still has to use a secondary station (Milan Porto Garibaldi), because space mysteriously can't be found to get the train into Milan's Centrale station. 3.5 It gets worse. The House must understand that the Munich-Verona trains are not 'open access' in the UK sense, where open access trains are overlaid on, and in addition to, the franchised regular train service on a given route. In this case, these DB/OBB open access trains are the only trains on this route (apart from a sleeper train). They are a continuation of the existing service that used to be run jointly by Trenitalia, OBB and DB. If they disappear, there will be no daytime trains at all linking Italy with Austria and Germany. 3.6 Trenitalia lodged an 'objection' with the Italian rail regulator under the EU open access legislation, on the grounds that these DB/OBB trains are unfairly abstracting revenue from Trenitalia's local trains by calling at stations within Italy such as Trento & Bolzano. This is in spite of the fact that these trains are a continuation of the international express train service that has always existed on this route and always called at those stations. And according to OBB and DB, if their international trains are not allowed to call at these stations, it undermines the economics of the whole service and it will collapse, ending all daytime train service between Italy and Germany (or perhaps, as with the Vienna-Venice service, forcing passengers to change to a rail replacement bus at the Austrian/Italian border, for political reasons rather than engineering work). 3.7 Unbelievably, the regulator found in Trenitalia's favour and trains were due to stop calling in March 2011, quite possibly leading to discontinuation of the whole service. The 218 Seat 61 (The Man in Seat Sixty-One)—Written evidence ruling threatens to make a joke of the EU's rail policy, and there have been suggestions that the infrastructure regulator is not properly independent from Trenitalia. I believe that the EU has now got involved, the implementation of this ruling has been suspended, and trains are still running, but it's not clear what will now happen.

Question 6: "What measures are most necessary to ensure passengers switch from road and air to rail?"

4. It is essential to improve European rail booking and information systems

4.1 Train travel is different from air travel, in that an airline often flies direct between a given origin and destination, whilst the equivalent train journey often requires a change of train. For example, a train journey from London to Bonn requires three trains run by at least two and possibly three operators (Eurostar, Thalys, and DB).

4.2 The EU appears to be concentrating on competition, but it can be argued that co- operation between train operators is equally if not more important than competition. Co- operation is necessary if the benefits of a Europe-wide rail network are to be retained, and to prevent it degenerating from a coherent network into a motley collection of separate train services.

4.3 Far more attention needs to be paid to booking systems, information systems, pricing and customer care. It is often necessary to use different websites to book different parts of the same journey, sometimes because systems cannot cope with more complex multi-leg journeys, sometimes because different websites can only book certain trains and not others, and often because the complete range of full-price and discounted fares for a given operator can only be found at that operator's own website. Two simple case studies are given in the Appendix to this document.

4.4 The EU has mandated common protocols for the exchange of timetable and fares information between train operators, being implemented through the TAP-TSI project. Whilst this will not change things in itself, it will at least facilitate future improvements to booking and information systems. It is a step in the right direction.

5. Infrastructure work affecting the ability to book trains

5.1 It is clearly critical that once people have been persuaded to travel by train, they can actually buy tickets.

5.2 The House may remember that in 2004-5, Railtrack was regularly failing to input timetable data into rail industry systems the required 12 weeks in advance ("T-12"). This meant that train operators couldn't populate their reservation systems, and passengers therefore couldn't buy cheap 'Advance' tickets as these are controlled by the reservation system. The Office of the Rail Regulator (ORR) issued a notice based on the timetabling condition in Railtrack's Network Licence, threatening fines for non-compliance. Railtrack pulled its socks up, and the result is that booking for British trains now opens on time. 219 Seat 61 (The Man in Seat Sixty-One)—Written evidence

5.3 A similar situation is now arising in continental Europe, particularly in France, but no action is being taken by the EU. In fact, I'm not clear if the EU has included the necessary provisions in the various infrastructure network licences. I suspect it hasn't.

5.4 Popular trains such as the Paris-Madrid and Paris- '' sleeper trains, and the overnight train from Paris to Biarritz, Lourdes and the Spanish frontier, the Paris-Italy 'Artesia' sleeper trains and even some daytime between Paris and South West France, are not being opened for sale the usual 90 days ahead because RFF (the French infrastructure operator) is not planning its engineering work in time. A whole series of dates have recently been 'blocked for sale' in June, July and August 2011, while RFF sorts out its engineering work and it is established whether the train will run normally, run re-timed and/or diverted, or be cancelled completely. On various dates these trains have been cancelled completely, on others they have been released into the reservation system only 15 to 60 days before departure.

5.5 The effect on passengers' ability to book train travel is devastating. When someone tries to book an affected train within the normal 90 day booking horizon, the train simply doesn't show up in the search results. It would clearly be sensible for the train to appear with a explanatory note saying "please wait, this train isn't currently bookable, but will be released for sale shortly", but it seems that SNCF (French Railways) hasn't the brains to do this. The train simply vanishes as if it doesn't exist, and potential passengers give up and fly. A steady stream of people email me through my website asking me what's happened to their train, I tell them to wait and it may be released for sale in due course, but of course no-one can guarantee that the train will actually run and won't be cancelled. Meanwhile, the price of alternative flights (and for that matter, connecting Eurostar trains to Paris) increases, and even those people who actively want to travel by train can't risk waiting any longer, and give up and fly.

5.6 In March, I met the lady from SNCF who runs Elipsos in Paris. She is as frustrated as her passengers at her trains being cancelled or unavailable in the booking systems until only a few weeks before departure, but it appears that train operators are powerless to make the infrastructure provider do its job properly. Perhaps this is because the relationship at board level is too cosy, perhaps it's because the infrastructure provider is simply too powerful and unresponsive. It would certainly seems as if separating infrastructure from train operation has put the engineers in charge of the railway. Once upon a time, the engineers worked for the train company, the train operators told the engineers when they could dig up the track, and running trains was the priority. Now, the engineers 'own' the track and they tell the train operators when they can run their trains. The tail is wagging the dog.

6. Timetable changes affecting the ability to book trains

6.1 It is not just engineering work that makes it impossible for passengers to book trains when they need to. Whenever there's a twice-yearly timetable change, the railways seem incapable of maintaining the normal 90 day booking horizon. Every year, trains for any date after the timetable change don't open for sale until only 7 to 60 days before departure.

220 Seat 61 (The Man in Seat Sixty-One)—Written evidence

6.2 In Directive 2002/844/EC, the EU has mandated that all European railways change their timetables simultaneously, which is fair enough. However, with what can only be described as crass stupidity, they have specified that the changes will take place on the second Sunday in December, right before the busy Christmas period, and the second Sunday in June, right before the busy July and August high summer period.

6.2 As a result, train bookings for all dates after 12 December 2010, including the Christmas period, didn't open until: • 16 October for French trains; • 1 November for most German trains; • Late November for certain sleeper trains, such as Paris-Berlin • Early December for at least one train, the Amsterdam- sleeper, as the Danes were allegedly late agreeing a path. I expect on 12 Dec it left almost empty!

6.3 Train operators have adopted airline-style variable pricing, so passengers do not know if a journey will cost 35 euros or 135 euros until booking actually opens. With the price of alternative short-haul flights increasing day by day and becoming full on key Christmas travel dates, even those people who specifically wanted to use the trains couldn't risk waiting and were forced to fly. Passengers need to book their Christmas travel further ahead than normal, not less.

6.4 I firmly believe that the Europe-wide timetable change date should be moved to a quiet travel period in mid to late January, where it won't do as much damage, until or unless the problem of finalising timetables across a timetable change 90 days ahead has been sorted. This simple change could solve a major headache for travellers, increase rail passenger numbers significantly and make train operators millions of euros in additional revenue.

Question 7: "Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?"

7. Conditions of Carriage (COTIF/CIV) - connectional protection

7.1 A typical European train journey often involves several trains, not just one. So if rail travel is to be encouraged, it's important that operators work together to look after their passengers from origin to destination. This is especially important when things go wrong, for example when delays mean a missed connection.

7.2 One 'network benefit' which the EU has mandated (about the only one) is that all train operators must comply with the international conditions of carriage, the Convention Internationale pour le transport des Voyageurs (CIV), part of the COTIF agreement, which is the rail equivalent of the international agreements for air and sea transport. Amongst other things, the CIV provide protection for passengers making connections. If a train is late and a passenger misses a connection, the passenger is entitled to be carried forward on the next available train, even if the passenger has a non-changeable ticket, and irrespective of which operator runs which train. I believe that this protection is more essential now than ever, given (a) the predominance of inflexible non-changeable cheap tickets, and (b) the decline in longer-distance through trains, making changes of train a more regular occurrence.

221 Seat 61 (The Man in Seat Sixty-One)—Written evidence

7.3 Fortunately, many train operators seem to be honouring this CIV clause in practice - for example, Eurostar regularly re-books passengers with cheap non-flexible tickets on a later departure from Paris to London because the overnight train from Italy has arrived late in Paris. However, when pushed into a corner, asked to provide hotel accommodation or incur another cost under this CIV provision, operators have been known to argue one of two versions of a 'grey area' that enables them to claim that this CIV clause doesn't in fact apply.

7.4 In its strongest form, the argument goes that the CIV only applies to a 'through ticket', and not to where separate tickets are held for each train (even though CIV applies to each ticket individually). I believe this is disingenuous, as 'though tickets' are now virtually a thing of the past, and it is the operators, not passengers, who have chosen to ticket a journey from London to Interlaken as three bits of card, not one. I would argue that the CIV themselves don't actually state this as a requirement (they were written when through tickets were the norm not the exception) and that the person bought the tickets with the intention of making a through journey. The method of ticketing the journey is not the passenger's concern. I'd also argue that as there are no longer any through tickets (with a few exceptions), this clause would in practice never apply, as a change of train almost always now means a change of ticket, and can it be right to interpret the CIV in a way which means this vital clause will never actually ever apply?

7.5 A weaker form of the same argument is that whilst having a single through ticket is not in itself necessary for the CIV to apply, the journey needs to be a single contract, in other words all the tickets need to be issued by the same agency at the same time as part of one transaction. I would again argue that the CIV themselves don't actually state this as a requirement, and it is the train operators who have often made buying all tickets for a multi leg journey at the same time from the same internet site impossible. It is often necessary to use different websites to book different parts of the journey. However, the person still bought the tickets with the intention of making a through journey, and CIV still applies to each ticket.

7.6 I believe this is an area the EU need to consider and revise, especially given the likelihood that staff of new independent operators may be unaware of the CIV requirement and deny any responsibility to help a passenger due to another operator's delay.

Appendix: The problems booking European trains.

A1. It's actually easier to explain how you don't book European trains... You don't:

• Go to www.trainoperatorsworkingtogether.com, the (sadly fictional) website which will book all European trains, all routes, all operators; • Enter any origin & destination you like, e.g. ‘Oxford’ to ‘Malaga’ or ‘London’ to ‘Prague’; 222 Seat 61 (The Man in Seat Sixty-One)—Written evidence

• Relax with a G&T as the system works out all your trains for you, incorporating sensible connectional times, & offering the full choice of seating or sleeping accommodation for each leg, clearly explaining what each is like, confident in the knowledge that the system will always source the cheapest fare for each train direct from the operator; • Pay painlessly with your whether it’s a UK Visa card, US Visa card, Australian MasterCard or Singaporean Amex card, so your bank’s nationality isn’t an issue. • Receive the ticket electronically as an e-ticket or self-print ticket, or collect it at any station, or by post to anywhere in the world, so your starting point & country of residence aren’t an issue.

A2. Case study: London-Malaga

• A relatively straightforward journey: Eurostar to Paris, Elipsos ‘trainhotel’ sleeper train to Madrid, high-speed AVE to Malaga. • There isn’t a single website capable of booking London to Malaga in one go. The journey must be broken into at least 2 stages. • www.raileurope.co.uk is easy to use and will book London-Madrid in one go, but cannot mix classes, so can’t book 2nd class Eurostar with 2-bed sleeper, or 1st class Eurostar with 4-bed sleeper, unless you split the journey. • For Madrid-Malaga, French-based websites such as Rail Europe can only sell the full- price international tariff advised by RENFE to SNCF. So every seat on every train is £56. Whereas RENFE’s own website sells the full Spanish domestic fare range, from just £29… • So for the best prices and a complete choice of accommodation for each leg, a London-Malaga journey means making 3 separate bookings on 2 different websites. • As www.raileurope.co.uk will only send tickets to UK addresses & only accepts UK credit cards, non-UK residents need to use yet another combination of websites.

A3. Case study: London to Cologne.

• This is a simple two-leg journey, taking as little as 4 hours 18 minutes. It ought to be an attractive and airline-competitive journey. London to Brussels by Eurostar takes 1h55, then Brussels to Cologne on one of 4 daily German ICE trains or half a dozen daily 'Thalys' high-speed trains taking 1h47. Billions have been spent to build the high-speed lines that enable such a fast and competitive journey, so let’s see how the flawed booking processes act as a barrier to people actually using it, undermining the value of that investment.

• www.bahn.de sells tickets from 49 euros from London to Germany, a fantastic deal. • www.bahn.de gets full marks for accepting credit cards from any country & issuing self-print tickets, so the traveller’s starting point & country of residence aren’t an issue.

223 Seat 61 (The Man in Seat Sixty-One)—Written evidence

• However, it can only book the two daily Eurostar+ICE options, it can't book Eurostar+Thalys. • Even with Eurostar+ICE, it reverts to ‘no fare shown’ when its small Eurostar allocation runs out, because it can’t access the full Eurostar inventory to sell flexible or higher-priced tickets. • A significant ‘quirk’: The journey planner won’t find the 18:25 ICE from Brussels on days when 14:34 Eurostar from London doesn’t run and you need to leave London on the earlier 12:57 instead, unless you put ‘Brussels’ in the ‘via’ box &‘02:00’ in ‘stopover’ box. Passengers need a training course to find the cheap tickets in these circumstances! … So if you find a ticket that suits you, great. If not, on to Plan B: • www.eurostar.com can book London-Cologne through journeys. • But it can only book Eurostar+Thalys. It cannot book Eurostar+ICE. • However, even when booking Eurostar+Thalys, the system may quote significantly higher fares than necessary due to a serious flaw in the way the French booking system works, as it cannot mix & match fare types on each leg. • So if a £69 return 'inflexible' ticket is available for London-Brussels and a similar £28 'inflexible' ticket is available for Brussels-Cologne, the system adds those together and shows a reasonable London-Cologne price of £97. • But if the £28 inflexible fare for Brussels-Cologne is sold out, forcing the system to select a £40 semi-flexible fare for this leg, the system cannot now add this to the £69 inflexible fare for London-Brussels, as it cannot mix and match fare types. It is forced to add the £40 Brussels-Cologne semi-flexible fare to a similar semi-flexible fare for the Eurostar leg, which (given the way Eurostar's fares structure works) is a whopping £290, even though a £69 inflexible fare is available. So in this case the system returns a silly-money £330 return fare to Cologne.

So if you find a reasonable fare at eurostar.com, great. If not, on to Plan C: • www.raileurope.co.uk will book both ICE & Thalys. Hurrah! • Though it can’t sell the 49 euro fare to Germany, and is affected by the same French system flaw as Eurostar. • But at least with raileurope.co.uk you can split the journey into two tickets, London-Brussels & Brussels-Cologne. Splitting the journey is often the only sensible option. • As www.raileurope.co.uk only works for UK residents with UK credit cards, it is not a solution for other nationalities. • As a last resort, or if you’re from outside the UK, you can book London-Brussels at www.eurostar.com and then Brussels-Cologne at either www.thalys.com (for Thalys trains only) or www.bahn.de (ICE trains only). • But should train operators really expect first-time travellers to co-ordinate two separate bookings like this for one journey? 224 Seat 61 (The Man in Seat Sixty-One)—Written evidence

• Now, what if you want out by Thalys, back by ICE? Aaargh!!!

June 2011

225 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252)

Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252)

Evidence Session No. 5. Heard in Public.

THURSDAY 14 JULY 2011

Members present

Baroness O’Cathain (Chairman) Lord Clinton-Davis Lord Haskel Lord James of Blackheath Lord Rowe-Beddoe Lord Walpole ______

Examination of Witness

Witness: Mark Smith [The Man in Seat 61]

Q234 The Chairman: Mr Smith, thank you very much for coming in and giving us evidence and being prepared to give us your time. I have heard so much about your website but I have not gone on it yet; I have read all your stuff. I think it was you, Lord Haskel, who said we had to have The Man in Seat 61 and I said, “What on earth is The Man in Seat 61?” But I think it is amazing, it is an amazing story, and I am certainly going to go on the website. Thank you very much. I am sure, from a consumer point of view, we are going to get great value from this session. For the record, could you begin by stating your name and official title and saying whether you would like to make an opening statement? Mark Smith: My name is Mark Smith. I am not sure what my official title is. I have been called quite a few things in my years, particularly when I was the station manager at Charing Cross. That is another story. I am The Man in Seat 61; I run the website seat61.com.

Q235 The Chairman: Thank you very much. The session is on the record, it is being webcast live and will be subsequently accessible via the parliamentary website, and you will receive a transcript of the session to check and correct. This will be put on the public record, both in printed form and on the parliamentary website. I am going to ask you the first question. Do you think that the future is promising for the development of international passenger rail services throughout the EU? Mark Smith: I think there are four key points: two opportunities and two risks. The first opportunity is that the time is right to switch people from short haul air to rail. In the time I have been running Seat 61, I have seen a massive increase in interest in train travel as an alternative, and I have seen the typical Seat 61 user change from someone who is specifically interested in train travel as an experience or who is afraid of flying to mainstream travellers that say two things. If they tell me why they are choosing the train, they tell me they are fed

226 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252) up to the back teeth with the experience of flying—the stress, the airport checks, the delays and the extra charges—and they want to cut their carbon footprint. I suspect it is 80:20— 80% stress of flying versus 20% carbon footprint. It probably varies, but they mention those two things. The challenge for the railways is to take advantage of that spirit and ethos. The second opportunity is the growing network of high-speed trains in Europe. They have a very good reputation with passengers, deservedly so I think, for reliability, for cheap fares— if you book in advance, it is €35 from Paris to Amsterdam—for speed and for comfort. As for the two risks, the first risk is the danger of fragmentation. These high-speed rail trains are great if you live in the city where it starts and you want to go to the city where that particular train ends but if the system disintegrates and ceases to be a real network, with co- ordinated ticketing, information, co-ordinated timetables between trains, it will cease to be a network and the whole thing will start to be nothing more than the sum of its parts. To my way of thinking, a rail network ought to be greater than the sum of its parts. That is a real danger. We will end up with disparate individual services, all individually ticketed, individually run, with no co-operation between them. The second risk is that train companies excessively concentrate on their shiny new high- speed trains. I am seeing that particularly with Trenitalia in Italy; I am also seeing it with SNCF. If a service is not a shiny, high-speed, profitable train and is not a subsidised urban transport where it is looked after and franchised by the local region or city, it falls down between the cracks in the pavement. What we are looking at, for example, worst case, is the two daytime trains between Venice and Vienna, which you probably think would be a popular route and you would be right. Trenitalia had no interest in running those. They were not particularly profitable. They were more concerned with concentrating on their shiny new Naples-Rome-Milan high-speed train. The result is that Trenitalia pulled out, because they are under no obligation to run trains and there is no subsidy for international trains. They pulled out and Austrian Railways now run a bus from the bus stop outside Venice Station to Villach where it connects with the onward domestic Austrian train to Vienna, and the bus runs on a motorway parallel with a perfectly serviceable railway with no flipping trains on it. There is a real danger that this sort of thing will happen at the margin. Of course, this breaks up the connectivity and you will end up with a lovely train going at high speed from Milan to Rome and a lovely train going in Austria between Salzburg and Villach and absolutely nothing linking them all up. So I think that is the second of the two major risks that we face.

Q236 Lord Haskel: Thank you for your paper, which really puts the case for the consumer, and you do look after the consumer. As you point out, it is the question of enforcement that is important. The rules are there. Should the ERA have a stronger enforcement role, and should it even be able to direct the national regulators so that they do the sort of things that you have asked for in your paper? Mark Smith: This sort of merges with question 3. We almost saw the last remaining daytime train between Italy and Austria destroyed by a regulatory ruling by the Italian infrastructure operator, which upheld a complaint by Trenitalia that these new open access German and Austrian trains coming across the border from Munich and Innsbruck to Verona were obstructing local revenue between two stops within Italy, in spite of the fact that these trains were the only trains on the route and were a continuation of the train service that had always existed and always stopped there. If you take that as an undesirable and possibly, in my opinion, irrational outcome, you either conclude that the regulator must have correctly interpreted the rules but the rules must be flawed, or you conclude that the

227 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252) regulator did not correctly interpret the rules or interpreted them in Trenitalia’s favour and was, therefore, possibly more partial to its incumbent national operator, with which it is closely allied, than it should be. That suggests that there is a role with the need for co- operation between operators from a central European authority, rather than just leaving it to local, national regulators.

Q237 Lord Haskel: So do you think that the local, national regulators tend to favour their local operator and decide in their favour? Mark Smith: It is beginning to look like that. There is another ruling by the Italian regulator, changing its mind on the acceptance procedure for the new NTV train sets that are going to compete with Trenitalia on its core Milan-Rome-Naples route, which has resulted in NTV— this new private company—incurring lots of extra costs and having to put back its start date. There might be reasons for that, but it certainly seems as if the regulator is making it difficult for open access operators to compete with Trenitalia. Lord Haskel: So you think that the ERA has a very important role to play and they can carry this through. Mark Smith: I think it would help if somebody promoting international train travel from the customer’s viewpoint took an overview, yes.

Q238 Lord James of Blackheath: In your reference to the Vienna-Venice comparison of road and rail you missed out one point I would like to ask you whether you consider very significant, and that is that there is the most brilliant series of motorway service stations in the Italian part of that process, which would completely convince me to travel by road as opposed to rail any time. Do you think that there should be a greater effort made in terms of the restaurant facilities on the trains? You cannot compete with those services stations, which are simply brilliant. Mark Smith: One of the improvements that the Germans and Austrians brought about when they took over the Munich-Innsbruck-Verona route, which was previously operated by co-operation between all three railways but using Italian rolling stock, is they introduced much higher-quality rolling stock and a full restaurant car service. While I have not experienced the service stations, I have certainly experienced the German and Austrian restaurant car service, which I think is very good. Lord James of Blackheath: The Italian service stations are better than a first-class restaurant. The Chairman: Have you actually experienced the catering service he is talking about? Lord James of Blackheath: Yes, I have. The Chairman: On the train? Lord James of Blackheath: No comparison. The Chairman: Oh, I see. That is fine.

Q239 Lord Rowe-Beddoe: Thank you for your most interesting written evidence and the explanation of conditions of carriage—namely COTIF and CIV—which is the first time I had actually heard about either of these; it was most interesting reading about this convention. How do you think that the situation could be improved? You have suggested 228 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252) one or two things about the problems that are encountered but do you think, more generally, that the existing standards of international passenger rail rights are adequate? Mark Smith: No. I have to say that in the CIV my prime interest and concern is over the connectional protection. I am not that interested in what money I get if I am killed in a train crash, because I will probably be past caring at that point, but connectional protection is more important than ever because, first, you need to change trains more than you used to 20 years ago. You cannot get on a train in Brussels and go to Vienna any more; you need to change at Cologne and so on. Secondly, railways are adopting airline style ticketing, so an international through ticket that was open is now replaced by a series of non-refundable, non-changeable, train-specific tickets, which means the consequences of missing a connection are bigger than they ever have been. In addition, we are seeing trains operated by different companies that, even though they are currently part of a national operator, in the future will be different companies. The tendency for staff, as we all know from privatisation here, is to say, “That other train was not our company, its delay is not my problem. You need to buy another ticket because your ticket isn’t valid on the next train.” So it is more important than ever that we make sure that the CIV connectional protection does indeed apply to all international through journeys, and I am using that phrase advisedly—people making international through journeys. The CIV were written at a time when national rail operators were the norm and through tickets that were open were the norm. I used to sit in Transalpino in my university days writing out a ticket to Istanbul from London in biro on blank ticket stock—a thing of the past. They have not been changed for the new world where train tickets are train-specific, where there are different operators, where tickets are not open, where even if you go to one agency and ask for a ticket from Paris to Cologne you will be given two separate tickets for each part and, because of the way you can only access the cheapest tickets by going to specific websites, you often need to book different tickets at different places from different people to get the cheapest through journey. The CIV do apply to each ticket you buy, even if you buy separate tickets from each place. In practice, Eurostar staff do indeed rebook you on a later train back from Paris to London if your sleeper from Italy arrives late, which it normally does. But when train operators are pushed into a corner and you have missed the last train and you ask for a hotel, which you are entitled to under CIV, then they start arguing the grey area, “Oh, CIV only apply to through tickets,” or a lesser version, “It only applies if you bought all your tickets in one place.” I would argue that it is no longer possible to do that. The railways have changed the way they ticket you. You are still buying them for an international through journey and you still need that protection. It is actually in the enlightened best interests of the train companies collectively, because otherwise you will kill journeys like this, when people have bad experiences. But there is this grey area, because the CIV themselves are silent on the issue of whether it applies only if you have one ticket, or if you have two tickets only if you buy them in the same place, or if they always apply even if you buy different tickets in different places. It does not say whether it does or does not. It was written at a time when nobody had thought that through, when it was not the norm, and because there is this grey area I think they are not fit for purpose and need to be rewritten, explicitly addressing a world in which we have different operators, different tickets and different websites. The Chairman: That is most interesting. You have explained it brilliantly and it is something that we will certainly draw attention to, no question.

229 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252)

Q240 Lord Rowe-Beddoe: There is a small supplementary. I want to bring you, if I may, back from international to domestic. Who co-ordinates—I am just asking this as a matter of interest—between two different rail companies, the timetabling for connection? Mark Smith: The train companies draw up the specification for their train service and Network Rail then implements that timetable, adjusting it as necessary to fit all the trains in. So Virgin Trains probably worries more about getting people from London to Manchester than about ensuring connections to Morecambe, but then the train company who runs the train service to Morecambe will look at the mainline timetable and get its request for trains from Morecambe to Lancaster that are suitable for connecting. Obviously they have other things like resource allocation that impact on it. Lord Rowe-Beddoe: Yes, but it is Network Rail, therefore, which gives— Mark Smith: Network Rail implements the request of the train operator. The train operator says, “We would like a train around 10 o’clock from Morecombe to Lancaster,” knowing that that will get a reasonably good connection into Virgin Trains south. Network Rail say whether they can manage that or not. Lord Rowe-Beddoe: Thank you very much.

Q241 Lord James of Blackheath: Mr Smith, given the problems you describe about what the relevance of the ticket is and what it entitles you to, do you share my concern that the tickets do not have a standardised layout so that you can easily demonstrate what your ticket is entitled to from one frontier to another? Mark Smith: Funnily enough, most international tickets in Europe do have a fairly standard layout. The tickets you get, if you get a proper ticket office ticket, look very similar.

Q242 Lord James of Blackheath: Have you tried the differences between Austria and Germany? They have such differences between them. Mark Smith: The difficulty comes when you start adding in print-at-home tickets, but I have seldom, if ever, had feedback—I am dealing with 20, 30 emails a day from travellers having problems. I have never had a problem with people reading the ticket. Usually it has been problems with people trying to understand how to use the booking systems. Once they get their ticket, knowing they have booked that particular train, it is normally fairly self- explanatory to see that the ticket is from here to here, that it is such and such a seat in such and such a coach. There used to be a standard layout for international European tickets and most of the tickets you will get from a ticket machine or ticket office in Germany, Austria, France, Switzerland and Italy look fairly similar and have a distinct layout. Whether that will change in future—because there is no requirement—and whether they will diverge gradually from the de facto previous arrangement is another question.

Q243 The Chairman: Airline tickets used to be all standardised and now they are not at all. You have these e-tickets and you have to look and see what flight you are going on, and you are looking through all sorts of stuff. They do not have the same pattern. So I think it is caveat emptor, really. Mark Smith: I have not had many problems with people reading the tickets, but there are problems working out the different ways that internet bookings work and, indeed, the different way trains are ticketed—you have trains that do not have reservations, you buy a

230 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252) ticket, it is open and you hop on any train, versus the airline style adopted by France, Italy, Spain where every ticket incorporates a reservation on a specific train. The Chairman: Exactly, yes. Thank you.

Q244 Lord Walpole: We have received a lot of evidence about regulation and management of the Channel Tunnel. Do you have any comparable knowledge about how the various Alpine rail tunnels are regulated and managed? Mark Smith: I do not know how they are operated, from an operational viewpoint. What I do know is that from a passenger’s viewpoint they make no difference to the journey whatsoever. Your sleeper train from Paris to Venice goes through the Simplon Tunnel at 2 am but there is no security necessary at Paris. There are no special requirements that you cannot carry gas canisters on the Paris-Venice train but can carry it on the Paris-Nice train. It is just like any other tunnel. Two things crop up from time to time in the emails as regards the Channel Tunnel and Eurostar. The first is a big problem for a minority of people, that minority being mountaineers. You cannot carry ice axes on Eurostar. In fact, it also catches out people who bought a rather nice set of Sabatier kitchen knives in Paris and then get arrested at the station. There is a requirement on Eurostar that you cannot carry knives longer than three inches, and ice axes. I put this to Nick Mercer, the Commercial Director of Eurostar, and he said it was not down to them, it was down to the Department for Transport, which means it was not DfT Rail because I would probably have been the bloke imposing it. I do not know where it is in DfT, but it would seem to me as if DfT have imposed a template airline-style requirement on a train from London to Paris, forgetting that you cannot hijack a Eurostar with an ice axe and get it driven to Beirut. They have imposed what seems to be a totally unnecessary requirement that is a huge hindrance to the mountaineering fraternity. In fact, the Mountaineering Club of Great Britain have lodged a complaint or something, or have made noises about this. So if you could possibly do anything about that—

Q245 The Chairman: I think we can because we have the Minister, Theresa Villiers, coming as a witness, and we will delight in making that point to her, as a note of levity but also because of the seriousness of the situation. Mark Smith: It is a big problem for people. The Chairman: It is. Thank you very much. Mark Smith: The other thing that cannot be taken on Eurostar—and this is down to Eurostar—is dogs. I have had to add a pet section to the website. You can take your dog on a British train; you can take it on a French train; you can take it on a German train. The Chairman: Airlines. Mark Smith: You cannot take it on Eurostar unless it is a guide dog, so the easiest way to get your dog to the Continent is to dress up as a blind person and pretend to be blind. If your dog is a Yorkshire terrier, it had better be a very good actor.

Q246 Lord Clinton-Davis: If, as we assume, there will be an increase in the way that the Channel Tunnel is used by rail, what effect do you think that will have on the cross-Channel services by boat?

231 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252)

Mark Smith: Very little. I send a lot of rail passengers to the Netherlands on the excellent Harwich-Hook service, because that is integrated. The train arrives at the Port of Harwich; the train leaves from Hook of Holland just outside the ferry terminal. You can buy through tickets; it is overnight; it is very convenient. But on the short sea crossings from Dover to Dunkirk and Calais, I see virtually no interest. The station at Dover is now miles from the pedestrian-hostile Dover eastern docks. The ferries themselves think they are in a different market from Eurostar. SeaFrance stopped taking foot passengers about a year ago. Norfolkline do not take foot passengers and never have. SpeedFerries, may they rest in peace, did not take foot passengers either. In fact, the only ferry company on the Dover short sea crossing that will now deign to carry you, if you do not happen to have 1 tonne of motor vehicle about your person, is P&O. They charge £30 each way, £60 return, which of course compares with from £39 one way and £69 return for the entire Eurostar journey, with long walks, of course, at Dover and Calais between station and ferry. I just do not think that they are now competing in that market.

Q247 The Chairman: That is very interesting. Thank you. So they have just given up, in other words. Mark Smith: I think they have given up on rail-sea traffic via the short sea because Eurostar is so much faster and there is the convenience factor, whereas on the Harwich-Hook route, where you still have the integration and you have the through tickets, and the overnight London-Amsterdam that saves you an expensive hotel cost in either London or Amsterdam, that does compete with Eurostar quite well because it works in a different way. The Chairman: That is very interesting. Thank you. Lord Haskel: In fact your ticket will take you to anywhere in Holland. Mark Smith: That is right, and you can buy an onward ticket to Germany and it becomes quite a cost-effective way of getting beyond as well.

Q248 Lord Rowe-Beddoe: You were talking about checks and sort of odd regulations that have been brought in, but do you think on-train security and immigration checks would be more convenient for travellers? Mark Smith: Yes, and for two reasons. The first obvious reason is: why spend billions building a high-speed line to shave 20 minutes off the journey time when you then add 30 minutes on to the journey time with a check-in before you get on the train, and of course queues and so forth? That is the obvious one. You would improve connections and journey times, in effect, by doing that. But the second one that is slightly more obscure is that, if a train company wants to run through services from somewhere north of London or to somewhere beyond Brussels and Paris, it has all the costs and inconvenience of trying to provide secure stabling for the train and passport control and security checks at every station at which the train stops. It is not the only thing that affects the economics of a Birmingham or Manchester to Paris service, or of a London to Amsterdam or London to Cologne service, but it is a key thing. The Germans start running through services from London to Cologne in 2013, but I do not think they have yet worked out how they are going to address this. Somehow they will need to board trains in Cologne heading for London with a check-in and security arrangement for passengers heading to London, but will passengers who currently hop on a train at Cologne, with no checks, to go to Brussels want to go through the same checks because the train 232 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252) they are on happens to be one going to London rather than Paris, and will they stop their trains at Aachen/Aix-la-Chapelle? It is an important place and people want to go there, but is the number of people getting on or off any given train worth having staff and security facilities there? The likelihood might be that it is uneconomic, so a train does not stop and people cannot get on or off there because of the need for checks. So it really does hinder the development of services through the Channel Tunnel from stations anywhere north of London and anywhere beyond Paris and Brussels.

Q249 Lord Rowe-Beddoe: Thank you. That is most interesting. You mentioned earlier about the airport checks and the reason that rail has become much more favourable, as far as customers are concerned. To go back to the question, that would mean, therefore, that we would have on each train the appropriate border control officers, whatever they may be, who would continually be providing this service as the train stops, as people get off and people get on. Is that what you see? Mark Smith: The border checks are not what take the time so much at St Pancras and Paris; it is the security checks. The problem of providing the security checks is actually bigger because doing that on a train is problematical—getting the sheer throughput to reduce the check-in times at stations. So I am not sure how you would do that on trains, but if there was a way of saying, “Well, we can do this on the train,” then that would have huge benefits.

Q250 Lord Walpole: How can pan-European rail booking and information systems be improved, and why have no commercial providers developed such a service? Should development of such a service also be linked with more integrated Europe-wide timetabling? I know that is asking far too much but— Mark Smith: Let us tackle why no commercial providers have provided the service so far. I think there are two reasons. First of all, the commercial world of travel is heavily preoccupied with flights, flights, car hire and more flights—oh, and hotels. They see train travel, particularly longer-distance train travel across Europe, as something of a niche and a black art, and they have not thought it worth getting involved. I suspect that is beginning to change with the growth of high-speed operators and passengers pushing for it. We are even seeing holiday companies and cruise companies starting to offer rail options now to get to Europe, when they did not before. The second reason is that it is quite difficult to get permission to connect to all the different national rail operator systems. I know of one travel agency who spent a year and a half simply trying to get a Spanish railways reservation terminal in his office, and that is without having his own special website plugging straight in, which of course is slightly more risky for the Spanish and they want to take longer about it. If it takes a year and a half just to get one of their normal bog standard staff terminals into an office in London, how long does it take to get permission from their IT department to plug into the system? That is a major issue. It may get easier if the EU completes this TAP TSI process so that all the data from all the different train companies is at least presented in the same format. That makes development easier but you still have to connect to all of these. So I think there is a major issue there. In this country we have the National Rail Enquiries Scheme, and there is a requirement on all the train operators to participate in that scheme, which of course means that there is at least a single source of information on train times and fares. It does not do the tickets itself, but it farms out ticket sales at the end of the enquiry to a variety of private sector, competing retailers.

233 Seat 61 (The Man in Seat 61)—Oral evidence (QQ 234-252)

Putting that sort of requirement on train operators does seem a bit more command and control from the European point of view, who like this “the market will provide” approach, but if you follow the “competition is good” argument to a logical conclusion, disinformation, lack of information, lack of transparency in the market are actually anti-competitive. If you want real, good, open competition, you need to make sure that the information to the consumer for all the available options, the competing options, is there transparently in front of them. So doing this would not only make things much easier from a practical point of view for the public, it would enable the train companies to have a shop window and compete openly and transparently. I think there might be some merit in having a National Rail Enquiries-type approach or requirement in a European context. The Chairman: Interesting.

Q251 Lord Clinton-Davis: The Commission’s White Paper on transport envisages that there will be considerable liberalisation in our domestic rail services. How do you think that this will work out in practice as far as the domestic rail services are concerned? Mark Smith: The Italians are ahead of the game here because they made a decision to liberalise the domestic market early. What I suspect will happen is that you will get people queueing up to run the most lucrative city-to-city routes, and very little interest in some of the other services. Indeed, in Italy, the first candidate is the prime Milan-Florence-Rome- Naples route, where there are going to be two operators and no doubt more coming along, and there is less interest in some of the other routes. I used an international example, Venice to Vienna, but I daresay there are domestic routes within Italy that will not get that much interest. I think if countries are going to have a rail network, rather than a collection of city-to-city separated, fragmented routes, there needs to be some sort of provision for the other services, possibly on the British franchise model. Of course, at the moment on the British franchise model the lucrative routes present a premium that offsets the subsidy on the other routes. I realise that cross-subsidy may be a dirty word in certain quarters, but at least it works and for one price you get a national rail network. I think there could be some interesting thinking required on that front if true, complete, open competition applies domestically. Q252 The Chairman: Thank you very much. Thank you for your evidence and for dealing with the questions in such a great way. There is one question I would like to ask you: in view of what we are trying to do with this report on the Channel Tunnel, is there anything that we have omitted? There are probably lots of things, but is there a glaring omission and something that you think we should have asked you that we did not? If so, could you tell us what it is and perhaps supply the answer? Mark Smith: I do not think you have. I think the biggest thing from my perspective, dealing with the consumer, is the CIV protection and the co-ordination of connections, timetables, fares and booking. I think those are absolutely paramount. The Chairman: That is where we were beginning to get to. In fact, the motivation for doing this study in the first place was looking from a consumer perspective, so we will be constantly aware of that. If something strikes you, do you think you could get in touch with the Clerk? Any evidence, or figures or statistics or whatever, would be most welcome. Mark Smith: Certainly. The Chairman: We started from scratch. We are beginning to know something about railways, but it has been most interesting. Thank you very much indeed.

234 DB Schenker Rail (UK) Limited—Written evidence

DB Schenker Rail (UK) Limited—Written evidence

1. DB Schenker Rail UK is pleased to submit evidence to the House of Lords European Union Committee Inquiry into the European Rail Market and the role of the Channel Tunnel.

2. We understand that the principle focus of this Inquiry is the international passenger market. Nonetheless many of the issues facing international freight are similar to those facing international passenger. Our evidence therefore focuses on those areas, rather than simply on specific issues for the freight sector.

3. We would be happy to provide any further clarification to the Committee.

DB Schenker Rail UK

4. DB Schenker Rail UK is the largest rail freight operator in Great Britain. DB Schenker Rail UK moves around 80 million tonnes / 10bn tonne kilometres of freight a year and employs 3500 staff in Great Britain. Besides transporting coal for electricity generation, steel and petroleum, we move stone, deep-sea containers and operate international freight services through the Channel Tunnel in connection with our sister companies in France and Spain as well as the wider European Network of Deutsche Bahn.

DB Schenker Rail UK is wholly owned by Deutsche Bahn AG, the second largest logistics provider in the world.

5. Rail freight in Britain has been one of the success stories of privatisation and has grown by over 60% in the last fourteen years, increasing its surface market share from 8% to 11.5%. At the same time the industry has become more efficient with DB Schenker Rail UK having reduced key asset numbers and costs by over 30% in the past five years. Although rail freight volumes reduced during the recession, they are now recovering and the industry continues to invest in the firm expectation that absolute growth, as well as increased market share, is achievable.

6. DB Schenker Rail UK has been highly successful in driving modal shift and volume growth – but Channel Tunnel freight has been one exception to this success story.

Rail freight industry forecasts, endorsed by the Department for Transport and Network Rail, suggest a doubling of rail freight activity by 2030. The rail industry’s own “Planning Ahead” document anticipates an increase in rail freight’s market share from 11.5% to 20%. Growth in international rail freight is planned to form a key element of this future growth.

Legal and Contractual Framework

235 DB Schenker Rail (UK) Limited—Written evidence

7. The legal and contractual framework governing the Channel Tunnel was set out in the Treaty of Canterbury (1986), and in other associated documents and contracts. These include the so called ‘usage contract’ between Eurotunnel and the Governments in respect of through passenger and freight services. The UK’s obligations for freight under the usage contract were subsequently discharged through a ‘back to back’ contract with British Rail. BR’s obligations passed to EWS (now DB Schenker Rail UK) at the time of the privatisation of in 1997.

These contracts have been varied over time by agreement between the parties, but it is true to say that arrangements that may have been necessary in 1986 to secure financing for the project are not now fit for the purpose of growing freight volumes in 2011.

In other words, if we were to design a financial regime to cover the movement and growth of rail freight through the Channel Tunnel today, it is almost inconceivable that we would design what currently exists.

The volumes of rail freight through the Channel Tunnel have declined since the Asylum Seekers crisis of 2001 and, despite strenuous efforts by DB Schenker Rail UK, its predecessors, SNCF Fret and other parties, have not yet been reversed.

8. Central to this is the perception that Eurotunnel’s charges for through rail freight are too high, both in proportion to charges for Le Shuttle and also in comparison to competitive modes for unaccompanied short sea freight. The result of this has been that the cost of the Channel Tunnel has been too high for operators to offer end customers a competitive end-end price and traffic has been lost from rail.

This is a widely held view by freight operators, freight forwarders and shippers/end customers.

DB Schenker Rail UK strongly suggests that the charging regime for through Channel Tunnel rail freight services should be aligned to market prices for unaccompanied freight movements on short sea routes. Given the wider benefits of operating European-gauge freight trains on High Speed One, the pricing structure of Eurotunnel needs to reflect what the market can bear to allow any freight to be won to that new route.

9. The Treaty of Canterbury also established the Inter Governmental Commission (IGC) and the Channel Tunnel Safety Authority (CTSA) to supervise and regulate the operation and safety of the tunnel.

The operational regime for through freight trains is very strict. DB Schenker Rail UK understands – and supports – the need for necessary rigour in safety and operational arrangements but believes that the regime is too slow to consider and encompass change. This places through rail freight at a further disadvantage compared to competitive modes.

10. This framework is therefore not providing a strong incentive on any party to stimulate through freight growth in a dynamic freight market. Equally it does not appear to encourage international passenger growth other than on Eurostar. 236 DB Schenker Rail (UK) Limited—Written evidence

A pro-growth strategy should ultimately reduce Government liabilities, as a free and competitive market should be expected to stimulate demand for freight and passenger services, and hence income to Eurotunnel, not to reduce it.

European Directives

11. The Treaty of Canterbury (etc) predates the various European Directives for the liberalisation of the rail network, in particular Directives 2001/14, part of the First Railway Package. However, the operation of through freight and passenger services is now covered by the Directives, although the Shuttle services are exempt. This means that Eurotunnel must comply with the requirements of the Directives (such as separate accounting). Directive 2001/14 also establishes the need for independent regulation.

This role is supposed to be provided for the Tunnel by the IGC, however as it is an arm of both Governments, its independence is debateable.

12. Under the Interoperability Directives, Eurotunnel must comply with the relevant Technical Standards for Interoperability (TSIs) for any new or changed infrastructure. However, as recently seen regarding new passenger rolling stock, CTSA and Eurotunnel seem to be some way from full compliance.

13. There are also suspicions that the current safety rules in the Channel Tunnel, which are generally more stringent that the requirements of the relevant TSIs, may also be acting against through rail freight. The relative levels of risk associated with through traffic, versus the lorry shuttles appears not to have been factored into the rules.

14. However, as the Committee will be aware, the European Commission have recently written to UK and French Governments regarding non compliance with the Directives including a lack of independence of the IGC, and could ultimately lead to infraction proceedings against the UK and French Governments.

Specific Questions

1. How can more competition in international rail passenger services in the EU be achieved, and what barriers still exist?

DB Schenker Rail UK has no comment on this question.

2. How has the liberalisation of the international passenger rail market has been developing since January 2010?

DB Schenker Rail UK has no comment on this question.

3. Should the European Rail Agency should have a stronger role in this regulating rail safety? What relationship should be adopted between the ERA and national rail 237 DB Schenker Rail (UK) Limited—Written evidence authorities such as the ORR? How should the safety certification for the Channel Tunnel be undertaken within this context?

ERA’s role in setting standards is already well established. For international services however the present problem seems to one of non- compliance as described above. This may be a transitional issue but ought to be addressed first.

4. How can EU infrastructure funding (TEN-T) be most effectively used in the development of high-speed rail? What conditionality should be attached to funding for TEN-T projects?

With respect to rail freight, TEN-T funding should be made available where the Member States, Infrastructure Managers and Railway Undertakings have identified a clear commercial or strategic requirement either on a recognised freight corridor or where there is clear connectivity to the European rail freight network.

In so far as the UK is concerned, this means connecting the Strategic Freight Network (see http://www.dft.gov.uk/pgr/rail/strategyfinance/strategy/freightnetwork ) to the Channel Tunnel either via HS1 or the classic Network Rail Network.

Conditionality will depend on circumstance, but infrastructure investments themselves are of potentially only limited value if the market circumstances are not such as to make users want to use them. Creating the correct conditions and incentives to make full use of TEN-T funded infrastructure is vital.

5. Should existing regulations be applied more vigorously on the TEN-T core network? Are special procedures necessary to make this happen?

As a principle, regulations should be met wherever they apply. However – and recognising that circumstances change over time – prioritising enforcement by potential impact is likely to be most productive, and this is likely to lead to a prioritisation of TEN-T routes.

6. What measures are most necessary to ensure passengers switch from road and air to rail? What impact would greater use of rail have on these modes of transport, and others such as cross-Channel ferries?

DB Schenker Rail UK has no comment on this question.

7. Are passengers satisfied with international rail services in the EU? Do passengers’ rights need to be strengthened?

DB Schenker Rail UK has no comment on this question.

8. In the light of developments with the EU regulatory framework and liberalisation of the market since the 1990s, are structures governing the management of the Channel Tunnel fit for purpose? Does the Treaty of Canterbury need to be revisited? 238 DB Schenker Rail (UK) Limited—Written evidence

Please see response above.

9. The 2011 Transport White Paper puts emphasis on the multimodality of freight and passenger journeys across Europe. How can this best be achieved? Does the Channel Tunnel represent a bottleneck to this approach? If so, what can be done to solve the problem?

Please see response above.

The Channel Tunnel is perceived to be a significant barrier to international rail freight growth.

10. What are the security implications of greater volumes of passenger services running through the Channel Tunnel?

DB Schenker Rail UK has no comment on this question.

June 2011

239 Professor Roger Vickerman, Professor of European Economics, University of Kent and Dean, University of Kent, Brussels—Written evidence

Professor Roger Vickerman, Professor of European Economics, University of Kent and Dean, University of Kent, Brussels—Written evidence

1. Summary

1.1. Development of high-speed rail as part of the Trans-European Transport networks has focussed on infrastructure and theoretical accessibility changes rather than the level of service. 1.2. Railway services remain largely balkanised and the integrated joint ventures set up to market international services have not introduced genuine competition in the rail market. 1.3. Competition has not been encouraged sufficiently, whilst convenient through booking and ticketing arrangements have not been developed. 1.4. The early emphasis on longer distance core city to core city services by HSR may have changed with an increasing emphasis on shorter distance (commuting) services of up to 200km. 1.5. The Channel Tunnel presents particular problems due to its privately owned status and security concerns. 1.6. Areas close to international borders may fail to gain sufficient benefit from international HSR services and this may inhibit the development of more flexible labour markets.

2. Introduction

2.1. I have a long-term academic and professional interest in the development of the role of rail (especially high-speed rail) in the Trans-European Transport Networks, and particularly in the potential contribution which the Channel Tunnel has made to enabling the UK to participate in this greater integration 16 . 2.2. Much of the focus of the research has been on the impact which this development can have on the economic development of both the EU as a whole and on the position of individual regions within it. Transport and the economy are closely inter- related 17 .

16 See, inter alia, I M Holliday, G Marcou and R W Vickerman, The Channel Tunnel: Public Policy, Regional Development and European Integration, Belhaven Press, London, 1991; R W Vickerman, ‘High speed rail in Europe - experience and issues for future development’, Annals of Regional Science, 31, 21-38, 1997; C. Norman and R W Vickerman, ‘Local and regional implications of trans-European transport networks: the Channel Tunnel Rail Link’, Environment and Planning A, 31, 705-718, 1999; R W Vickerman ‘Trans-European Networks: Policy and Appraisal’, Scienze Regionali -Italian Journal of Regional Science, 5(2), 71-87, 2006; R W Vickerman, ‘Multi-level policy making in transport: the problems for border regions’, International Journal of Public Policy, 3, 228-245, 2008 17 See SACTRA, Transport and the Economy, The Stationery Office, 1999; and House of Commons Transport Committee, Transport and the economy, Third Report of Session 2010-11, March 2011 (includes written and oral evidence by Roger Vickerman) 240 Professor Roger Vickerman, Professor of European Economics, University of Kent and Dean, University of Kent, Brussels—Written evidence 2.3. Unfortunately most of the focus from the policy perspective on the role of transport in regional development has been on the contribution of new infrastructure to this process and not on the conditions under which that infrastructure is exploited. 2.4. Most high-speed rail development in the EU has been within the context of individual member states for largely domestic reasons. The single exception to date, where new HSR infrastructure provides links across internal borders, is that of the North- European HSR network (Paris-Brussels-Cologne-Amsterdam-London) of which the Channel Tunnel forms an integral part. The exploitation of the key links in this network has been left largely in the hands of the incumbent national operators through the formation of joint venture companies such as Eurostar and Thalys, although both of these are predominantly controlled by the French national operator SNCF. The only link where any effective competition has occurred is that between Brussels and Cologne where Deutsche Bahn’s ICE trains provide an alternative to the Thalys service 18 . Despite the requirement for the separation of infrastructure and service, and hence in theory for open-access, and for inter- operability of trains under the provisions of EU legislation, various difficulties have been encountered in the provision of fully competing services. Similar problems currently face the commissioning of the new Dutch high-speed line. 2.5. Despite the common ownership elements in different joint ventures and the existence of the RailTeam alliance of operators coordination of connecting services and limitations on single-site booking of such services remains extremely poor.

3. Competing national interests

3.1. Channel Tunnel Services remain particularly vulnerable to the on-going balkanisation of European rail networks. The first London-Brussels service of the day, which stops at all intermediate stations, uses the infrastructure of five different operators, HS1, Network Rail (for the stop in Ashford International), Eurotunnel, RFF, and Infrabel. This service can carry passengers within France between Calais-Fréthun and Lille and serves as part of an integrated service with SNCF trains between Lille Europe and Brussels Midi. Eurostar is not allowed to carry passengers internally within the UK . SNCF has an interest in using capacity on Eurostar between Lille and Brussels to avoid having to incur the cost of additional TGV services, since Lille is an important interchange point for direct TGV services to the south and west of France there is spare capacity on that leg. Returning commuters from Brussels have to go through the additional security required for Eurostar including an additional ticket check on leaving the train at Lille. On the other hand Belgian interests, given the relatively small share of revenue attracted from the Brussels-Lille section, are more interested in non-stop services to London since these give the headline best times. 3.2. The overwhelming majority of passengers using Eurostar (and Thalys) are end to end passengers between the major cities. Thalys services run non-stop between Paris and Brussels , most Paris Eurostar services run non-stop between Paris and the Channel Tunnel. This calls into question the rationale for intermediate stations and

18 Similar competition between DB and SNCF also exists between Paris and Frankfurt. 241 Professor Roger Vickerman, Professor of European Economics, University of Kent and Dean, University of Kent, Brussels—Written evidence their supposed role in promoting local development 19 . In the UK there are potentially three intermediate stops between London and the Channel Tunnel (Stratford, Ebbsfleet and Ashford) although only the latter two of these are currently in use. The need to share services between these two stations reduces the effectiveness of both (only one service actually calls at both) and also imposes significant time penalties on through passengers. Given the relatively low level of interest of inbound passengers to the UK in using these stations there is a reluctance in the non-UK interests in Eurostar in increasing stops. Since Eurostar is unable to re-use vacant capacity between London and the intermediate stations, and in fact incurs additional costs, the fares charged to Ebbsfleet and Ashford passengers are the same as those to/from London. It is unlikely that Deutsche Bahn will be interested in serving intermediate markets on a competitive basis. 3.3. The one market which has not been effectively exploited is the inter-regional market between Kent and Nord-Pas de Calais. Given the level of Channel Tunnel access charges the fare between Ashford and Calais-Fréthun is prohibitively high and the level of service thus virtually non-existent. Clearly Eurotunnel has a conflict of interest here in that it can exploit much more easily the inter-regional market than the inter-city market by encouraging passengers to use its own shuttle service and switch potential rail users to car. Various proposals have been made to create a dedicated rail service for intermediate stations (e.g. Transmanche Metro). This could be cheaper and more flexible than Eurostar by using simpler trainsets for a smaller number of passengers, once the technical matters concerning Channel Tunnel access are resolved. Since it is likely that Eurostar will continue to regard Lille as an important market onward links to Brussels and Paris could be provided via connections in Lille. The original business model for HSR based on competing with air travel over distances of 400-600km has been shown to be subject to change with simpler trains being used for commuting journey of up to 200km in both Spain and now in the UK with exploitation of HS1 for Kent regional services20 . However, Channel Tunnel access charges could remain a major block on this.

4. Channel Tunnel usage charges

4.1. There is relatively little it is possible to analyse in detail on this issue as the terms of access charges have remained commercially confidential. This is an anachronism as the original railway usage agreement was drawn up at a time when the railways of all the countries involved were state-owned national systems and the requirement was simply to guarantee capacity for through passenger and freight services against Eurotunnel’s own shuttle services at a time when the forecasts for both were excessively optimistic. The more competitive environment in the international travel market (particularly the growth of low-cost airlines) and the provisions of the third

19 Ashford International was provided in part as compensation to Kent 20 See M. Garmendia, V. Romero, J. M.de Ureña, J. M. Coronado and R.W.Vickerman, ‘High-Speed Rail opportunities around regions: the cases of Madrid and London’, paper to World Conference on Transport Research, Lisbon, 2010, forthcoming in Journal of Infrastructure Systems, 2011 242 Professor Roger Vickerman, Professor of European Economics, University of Kent and Dean, University of Kent, Brussels—Written evidence railway package have changed the underlying conditions. Usage charges for all infrastructure should be transparent. 4.2. The Channel Tunnel is a critical link in the European rail network because, although there are alternatives modes of travel (air and sea) for most journeys made through the tunnel, it is the only through rail service. For most other international routes in Europe there are slower (and hence usually cheaper) rail alternatives, e.g. Brussels- Amsterdam. The London-Paris market is one of the largest international markets in the EU which the provision of the rail mode has grown significantly since 1994 and for which rail now captures an estimated four-fifths of the market. However, the Channel Tunnel represents a potential blockage in the future development. As a privately owned link in the network it is largely free to set its own unregulated access charges. But the situation is complicated by the oversight which is enshrined in the Treaty of Canterbury of the Intergovernmental Commission and the Safety Authority. This provides not just an additional layer of bureaucracy but one which could be argued to be redundant given the changes in European legislation affecting the railways since the Act became law.

5. The development of cross-border rail services

5.1. Cross-border rail services in the EU remain woefully underdeveloped. Although the creation of unified management of certain headline services such as Eurostar and Thalys has helped to reduce the problems of incompatible traction and the need to change crews on traditional international trains, especially where new infrastructure allows for technical interoperability. It is difficult to determine rail’s share of international travel markets in the EU, not least because of the difficulty of defining those markets. In the northern European network it is likely that rail performs better because of the relatively shorter distances which benefit rail over air and the high levels of road congestion which benefit rail over road. Eurostat statistics suggest that Eurostar has an approximate 14% share of the total UK/France+Belgium market by all modes 21 . 5.2. The switch from classic rail to HSR for such links disadvantages shorter distance cross-border trip making and has in some respects pushed smaller centres of population off the rail map. The problem of intermediate stations has already been noted. The balance here is between the time penalty to the through traveller against the accessibility of locations on the infrastructure network but inadequately served by the rail service on it. Where feeder services can be provided this issue can be overcome, but those services should lead the passenger towards their destination, and this may mean over the border, and not backwards to a national railhead. 5.3. The lack of integrated ticketing is a major issue. This is in part due to problems in revenue sharing. Although Eurostar does offer fixed price add-ons for ‘any Belgian station’ and ‘any Dutch station’ these do not apply to premium services such as Thalys over the same route. Eurostar has integrated ticketing from a large number

21 Based on bilateral, two-way flows by air, sea and tunnel (rail plus shuttle). Sea and tunnel traffic is based on point to point carryings and may have origins or final destinations outside Belgium and France. Air traffic is based on country to country movements. 243 Professor Roger Vickerman, Professor of European Economics, University of Kent and Dean, University of Kent, Brussels—Written evidence of stations on the UK national network, though it is no longer possible to book through tickets on the South-eastern network which has the best connectivity with Eurostar though all three of its UK stations and from which travel is likely to be greater 22 . Each company’s web-site only provides fares for those connections which have been pre-programmed 23 . The growth of cross-border commuting on a daily or weekly basis, which is an essential part of the flexibility of European labour markets, requires that equivalent transport services can be provided to those available to national commuters.

June 2011

22 This suggests that through ticketing is seen as a marketing device where competition from airlines may be stronger (north and west of London) rather than a convenience for the most captive market. For a time South-eastern allowed free travel for Eurostar ticket holders connecting to and from the Eurostar service. 23 It is easy to find anomalies on the companies’ web-sites, particularly the more limited range of fares available from intermediate stations, which may deter the average potential customer. 244 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Professor Roger Vickerman—Oral evidence (QQ 1-41)

Evidence Session No. 1. Heard in Public.

MONDAY 27 JUNE 2011

Members present

Baroness O’Cathain (Chairman) Lord Brooke of Alverthorpe Lord Clinton-Davis Lord Fearn Lord Haskel Lord Plumb Baroness Valentine Lord Walpole ______

Examination of Witness

Witness: Professor Roger Vickerman AcSS, [School of Economics, Keynes College, Canterbury, and Dean, University of Kent at Brussels].

Q1 The Chairman: Good afternoon, Professor Vickerman, and welcome. Thank you very much for coming and thank you for your evidence, which was very useful. For me it was most informative, as I am sure it was for all of us. You have had a list of the questions. Members, please remember that you declare any relevant interest the first time you speak. The session is on the record. It is being webcast live and will be subsequently accessible via the parliamentary website. You will receive a transcript of the session to check and correct, Professor Vickerman. This will be put on the public record in printed form and on the parliamentary website. We no longer produce the witness statements in our reports. For the record, would you please state your name and your official title? Professor Roger Vickerman: My name is Roger Vickerman. I am Professor of European Economics at the University of Kent.

Q2 The Chairman: Thank you. Is there anything you would like to add to your written statement as an introduction to this session? Professor Roger Vickerman: I do not think there is much I would like to add, and I think your questions cover quite a lot of the points. All I would like to say is that I think this is a very important inquiry, but quite a difficult one because—this is the classic economist answer, as I am going to say on the one hand but on the other hand—I think this balance between competition and regulation runs right the way through and comes up in so many different areas. I think it is going to be quite difficult for me to be able to give you very clear guidance on precisely what the answer is. 245 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Q3 Lord Fearn: Good afternoon. In your written evidence you mention the “Balkanisation” of rail services. What do you mean by this? Professor Roger Vickerman: I mean that they are all provided by little companies in their little countries without any real regard to what is happening outside, so that international rail services—both passenger and freight—have been much more difficult to develop. That is one of the reasons why road has gained such an enormous advantage, particularly for freight but also for passenger services, so I am talking about this idea that the national rail companies look to their national markets and have not thought very much about developing across borders. That applies as well to the infrastructure. It also applies to the way that the employees and the trade unions—which of course are quite important, particularly in publicly provided railway services—view the encroachment of other companies or other countries’ railway companies on to them, so you get this splitting up that perhaps now unfortunately tends to be referred to with the word that comes from that part of Europe, “Balkanisation”. “Fragmentation” may be a better word.

Q4 Lord Fearn: How many of them would you say there were, roughly? Professor Roger Vickerman: There are at least 25 different European national railway companies—two Member States do not have railways, Malta and Cyprus. Apart from that, there has been the increasing development of the separate provision of railway companies. The only thing that has broken across that has been the development of one or two of these transnational organisations—Eurostar is one good example of that and Thalys is another. In some cases they have found difficulties and the company that operates transalpine services has currently run into all sorts of difficulties and has itself started to fragment.

Q5 The Chairman: Thank you very much. Can I just ask you to elaborate, Professor, on this point about the two factions? Is there not a third? There is competition and regulation, but does anybody ever take the consumer into account? Professor Roger Vickerman: On some occasions the consumer would want to sit on the competition side, if it gave better service and lower fares. The Chairman: Exactly. Professor Roger Vickerman: At other times they might want to sit on the regulation side, if it enabled them to do the through-booking and made sure that there was clarity in the fares they were getting. Those are very similar issues to the ones that we faced in this balance in what has happened in national railways within the UK as well, so I think the consumer sits on both sides with that.

Q6 Lord Brooke of Alverthorpe: That is very helpful. Thank you very much indeed. Is there any source from which we can get an overview of what the European railway structure looks like, with the number of companies in each country and so on? Also, as you mentioned, the trade unions appear to have quite an influence on the course of events. Is there any insight that we can get into the nature of their relationship as well? Professor Roger Vickerman: I think that the best single source—I cannot pretend that I can remember offhand whether you can just make two clicks of the mouse and find it—is the

246 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Community of European Railways, which does what it says. I think that there is an equivalent body for railway trade unions.

Q7 Lord Plumb: Thank you, Professor. We are wondering if any specific problems have become evident since the third railway package came into force. Are these problems due to implementation or the legislation itself? That, I think, follows very much the answer you have given to the first question on fragmentation, because in many instances, where there are regulations, such measures are implemented in different ways in different countries—I think that this is what you were saying on the first question. If that is so, how can that situation be improved? Professor Roger Vickerman: The first thing to say is that it is probably, unfortunately, a little early to be able to give a definitive answer on that. The package came into force officially only at the beginning of last year, so the problems would start emerging through time. I have looked through the other evidence you have received and I notice that those who come from the railway industry, or the railway operators, refer on a number of occasions to the difficulties of getting rolling stock accepted from one country to another. It requires somebody to want to provide a service and then to find that they have problems in getting their rolling stock accepted, and so forth, despite the provisions for interoperability that lie within it. Again, I have to say that I fear that there are advantages and disadvantages. I guess probably the last thing one would want is for everything to have to go through a single European agency, because many of the issues are properly dealt with at the national level—classic subsidiarity. In a sense, it is only those bits of networks that run over national boundaries where you start getting into a difficulty. Now, can you take those out and deal with those separately? I think it is difficult to see that, not least because the development of the regulatory structures in the different Member States—this has been referred to in quite a bit of the evidence—is very different. The Office of Rail Regulation in the UK has by its nature had much more experience of doing the regulation that is required for these matters. Some of the others have effectively been dragging their feet, in terms of providing that or finding ways round the regulation. Maybe making sure that the national regulatory structures are properly in place is the best role for the European agency, allowing them to deal with the matters that are proper on their own territory.

Q8 Lord Plumb: You say the best way is to provide a single entity. Can you see national Governments agreeing to such an entity? Professor Roger Vickerman: No. There are supposed to be national agencies right through from the first railway package. There has been a considerable degree of slowness in the development of those and, indeed, there are proposals to change some of the legislation to allow for that. What one needs is this classic balance between national agencies doing what is best in their own area and ensuring that there is some body that sits over that to ensure that, where there are conflicts between those different national agencies, they can be resolved in an effective and timely way. That is what I would see the role of the ERA being.

Q9 The Chairman: Do you think that if you did have this supranational body the people who demand subsidiarity would say, “Well, run away”? Professor Roger Vickerman: There needs to be a clear view. It is the classic position in European legislation, where one wants to identify those areas where European legislation is 247 Professor Roger Vickerman—Oral evidence (QQ 1-41) going to be the most effective and where European action is going to be the most effective. It seems to be a generic problem and not just a railway problem. The Chairman: I think you are right. In fact, we are trespassing on Lord Clinton-Davis’s question on the ERA.

Q10 Lord Clinton-Davis: A long time ago I was in the European Commission with responsibility for, among other things, transport. I did not have your wise guidance at that time. The question I want to put to you is this. I am rather bemused about the role of the ERA. Perhaps you could put me right about that. I am not happy about the idea that it should only be responsible for harmonising standards. What about the enforcement of those standards? Should it have any influence over what the national regulators have to say? In particular, I would like to know how you forecast the relationship developing between the ERA and the Independent Regulators Group. Professor Roger Vickerman: I think that you have identified the classic problem there. I am not a lawyer and in many cases these things get down to the way that the regulations are drafted. From my possibly oversimplistic point of view, as an economist wanting to see the most efficient working of markets and regulated markets, I would say that the ERA has two particular responsibilities: one is, first of all, to identify areas in which the national regulatory bodies are not fulfilling the requirements of the legislation; the second is to act as an intermediary between those national regulatory bodies when there is a potential conflict between what one national body says and what another national body says. I think that ultimately it needs to have some powers so that that it can enforce, first of all, the implementation of the legislation. Indeed, the majority of EU countries are in breach of several of the provisions of the legislation of the various railway packages. They just have not implemented them. The UK is perhaps further down the road and is almost on the side of the angels in this. Almost nobody is being terribly angelic about the implementation of these things, but some are being exactly the opposite and are really not implementing at all. As you are well aware, when national bodies drag their feet, the Commission is extraordinarily slow to act and a lot of prevarication goes on. During that time we are not integrating the market as we should. I am afraid that that is not the most satisfactory answer I can give you to really nail the point, but I think that it is an important area and one that does need identifying. I think it goes back into the nature of European law as well.

Q11 Lord Clinton-Davis: Are there not significant differences between the railway systems of pretty well every country in Europe? Professor Roger Vickerman: There are differences, and a lot of the technical standards, which the ERA and its various bodies are looking at, are designed to try to reduce those. That is particularly the case when it comes to new infrastructure and particularly to new infrastructure that is funded, at least in part, by European funding. Making sure that there is technical interoperability is one of the key issues, but then you run into a major problem. If a manufacturer is manufacturing rolling stock, for which the primary market is going to be a national rail company—be it SNCF, Deutsche Bahn or whatever—they will focus first and foremost on meeting the national needs of those operators. The ability of those trains to operate on other bits of infrastructure will probably be a secondary consideration, because they become much more expensive when they have to meet the different sorts of requirements. The best example of that is the one international link—or perhaps two international links now—where there is a degree of competition. The main one is between Brussels and Cologne, where Thalys competes with Deutsche Bahn’s ICE. There were long 248 Professor Roger Vickerman—Oral evidence (QQ 1-41) difficulties in terms of making sure that the ICE could operate on the Belgian infrastructure, which makes one wonder to some extent whether the Belgian infrastructure, given that the Belgians have an interest in Thalys but not in Deutsche Bahn, was just tweaked in a way that was perfect. Of course, one could not possibly say that but that was what appeared to be happening. SNCF blames German trains—when German trains break down on French infrastructure it is the fault of the German trains. I think there is a difficulty with that, recognising that those international services are a relatively small part of the total market, when you see the number of new trains that Deutsche Bahn is buying to re-equip its intercity fleet.

Q12 The Chairman: Number one, what do you think the best outcome of all this would be? Number two, do you think we have any chance of getting it? On the basis that the future is rail more than air in a lot of ways, particularly in the mainland of Europe, is this not about somebody taking these people by the scruff of the neck and telling them, “Just get on with it”? Professor Roger Vickerman: I suppose the best answer to that is simply, “Yes, that would be very nice”. Another thing, of which I think there is a hint in a later question, is about TEN-T funding. The Chairman: Yes, I was going to ask you that one. Professor Roger Vickerman: I think there is an issue about the extent to which TEN-T funding is seen essentially as being about infrastructure and not necessarily about ensuring that the services provided on that infrastructure are the most appropriate. That is perhaps unfortunate. Everybody gets fixated—it is in the headlights—on the wonderful new bits of infrastructure, but it is the level of service on that infrastructure that is particularly important. The Chairman: Exactly right. The customer comes last in the pecking order—the ordinary consumer.

Q13 Lord Brooke of Alverthorpe: Is there any justification for the Channel Tunnel having separate safety standards from the TSIs set by the ERA? I noted in other evidence that we have had, and which you have looked at, that the ORR provides a secretariat to the Channel Tunnel Safety Authority and the Intergovernmental Commission, so they know quite a bit about it and have their finger in the pie already. Reading the Government’s evidence, they seem to be reasonably happy with the governance as it presently stands. Professor Roger Vickerman: Given that they are one part of the IGC, I suppose that they would say that. The justification for having separate safety standards is on the basis that you would have to demonstrate that the Channel Tunnel was so significantly different from any other type of railway infrastructure that it needed them. That was undoubtedly true at the time that the IGC and the safety authority were set up, because it was the longest underwater tunnel, certainly in Europe. There was concern about safety, both in terms of technical safety but also, of course, in terms of security threats. That is in a sense no longer the case; with the increasingly long alpine tunnels, exactly the same issues arise. Being several hundred metres underneath the top of a mountain and being several hundred metres under the bed of the sea does not make a huge difference. They are both long tunnels and, because they are long tunnels, they are vulnerable to anything happening within them.

249 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Q14 Lord Brooke of Alverthorpe: Where does the governance on their safety emanate from? Professor Roger Vickerman: That is being met with the normal requirements in most cases that are under the technical standards set by the ERA. My thought on this would be that the ERA’s TSIs should be the pre-eminent ones, not least in terms of ensuring interoperability of issues, in a sense to make sure that rolling stock that is approved can go anywhere, and that includes going through the Channel Tunnel. In some sense, it is for the IGC to demonstrate that there is a need for an additional level of security requirements beyond those that are provided. I would agree with a number of the bits of evidence—I think I am jumping ahead slightly again, but I think it is relevant here—which suggest that the Treaty of Canterbury may well be ready for some revisiting. It is 25 years old. I know it is; I went to the 25th anniversary celebration of it a few months ago. It was path-breaking at the time but events have moved on since that period, especially in terms of the development of international rail services. There is an argument in favour of looking carefully at it again and at the way that all the concomitant bodies go. The danger is that you have two sets of national vested interests that may sometimes come into conflict with one another. They may come into conflict with one another because of the level of lobbying that they receive from one side or another that sees that its interests are being threatened. The danger is that we finish up with a situation in which you have this one 50-kilometre link, in a huge international rail network, which has a completely separate set of governance procedures on it. That adds to the complications. It is not only that we have separate railway companies and separate countries; we then have one completely separate organisation that controls a link between two countries on one of the major traffic arteries in Europe. Lord Brooke of Alverthorpe: That is very helpful indeed, thank you. Do you think you could do us a short supplementary paper just setting out the reasons why you think it should be reviewed after 25 years?

Q15 The Chairman: What is the situation with the Swiss Government in all this, because a lot of these alpine issues must be on their geographical spread? Professor Roger Vickerman: Yes. My understanding is that the Swiss are probably the best adopters of European transport policy. The Chairman: And they are not members of the European Union. Professor Roger Vickerman: Without being a member of the European Union. Of course, one of the reasons why they have had to do that is that they hold this pivotal place within the European transport system. They have, of course, been particularly concerned about reducing the amount of road traffic because of the environmental damage that it does through the Alps, so they have been very concerned about and very supportive of this. I did an analysis a few years ago looking at the implementation of transport policy generally in Europe across the Member States and generally I found that the two sets of countries that were quite good at implementing it were the new Member States—they needed a large amount of the funding that came from it, so they had to show attempts at compliance—and the Swiss. Virtually nobody else really made any mention. We looked at the national transport policies of all of the Member States and in none of them could you find much reference to the EU—for example, to the 2001 White Paper, which was the one governing things at the time. That is interesting, I think.

250 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Q16 The Chairman: It is interesting, indeed. Now we come to the TEN-T. What should be the strategy behind the TEN-T funding? Should it be used to develop medium-distance high-speed rail or should it be used more for shorter distances? Should it focus on the development of high-speed or normal-speed rail, and do these aims conflict at all? Professor Roger Vickerman: It is the answer that my students always hate: it all depends. With this there are two things I would like to say. One is that it has always frustrated me that there are so many trans-European transport networks and not enough thought has been given to a transport network as a whole. Which is the most appropriate mode for the problem that needs to be resolved? When it comes to rail, it is very clear that there are some cases where development of interurban high-speed rail is the appropriate emphasis, but there are other cases where there should be emphasis on lower-speed rail. If I may refer to it, I had a meeting with some people from about two weeks ago and they are developing the start of an embryonic network. They asked me what the appropriate speed of their network should be—should they develop it for 250 or 350 kilometres an hour? This was basically then about saying, “Well, I do not think the majority of people think about the speed that they are going. What they think about is the time that is going to be taken and the appropriateness of that, relative to what they want to do.” If you can get journey times down, say, to less than two hours for a journey, then that makes it very easy for people to make a day return journey. Probably, by bringing it down a little bit more, the saving is not very great unless by doing that you increase reliability, so the debate is on whether it is worth saving so many minutes to get from London to Birmingham, to take a topical example. I have the benefit now of using HS1 coming from Canterbury up to London. Now the main thing about that is the reliability, with the exception of today—it was the very first time I have not arrived absolutely dead on time, whereas you virtually never did by coming on the conventional service. Why? Because you have a dedicated track that is taking you at the appropriate time. Then you need to think about the spacing of your cities in terms of that, so what is appropriate for one country is not necessarily appropriate for another country. One of the things that I alluded to in my evidence, simply because I have been doing some work on it with some colleagues in Spain, is the curious fact of what unexpectedly happened there. People thought that they were going to develop Andalucía and integrate Barcelona with Madrid—I think that that is an unlikely outcome—and what they did not expect to find was the creation of a completely new market of commuting into Madrid, from distances of 200 kilometres away, taking one hour. That has had long-term repercussions on all sorts of things, because they basically created a link that was not previously there. That is the other thing: in cases where you create something that was not previously there, you can develop markets that you probably did not know existed. That is why you need to ask, “What is this link doing?”

Q17 The Chairman: I could not agree with you more. We seem to be looking through the wrong end of the telescope and dealing with the hardware and not the software. Where does the customer come in in all this? Surely there are enough demographic studies and enough social studies of every town, village and hamlet in the whole of the European Union, but these people who organise trains do not seem to even think about it. I am being extreme about that. Professor Roger Vickerman: I think that is slightly unfair. The Chairman: Yes, I think it is, but I am exaggerating to make a point.

251 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Professor Roger Vickerman: One of the things that we know we have not been very good at, those of us who try to analyse transport, is predicting the effect of a new link or the effect of something that is very different from what went on before. The only evidence we have is history, and if you do something that is completely different from history you start creating possibilities that were not there before. This goes all the way back. Why did we under-predict the traffic on the M25? Because we did not know how people would respond to there being links that were not there previously. Exactly the same thing is true on many other links. On the other hand, we have over-predicted many rail links because, for example, we have assumed that people would continue to travel internationally based on the same response as they have in national travel. That is why we over-predicted Channel Tunnel traffic way back in the 1980s.

Q18 The Chairman: It seems that people do not learn at all from looking at other sectors of the economy. It is like air transport or anything you care to mention, such as the motor industry; suddenly something is developed and then, of course, there is a huge growth in population. They seem to be awfully backward, if you do not mind me saying so. Professor Roger Vickerman: Certainly in the 1980s we did not predict the growth of Ryanair and its like. The Chairman: No, absolutely not. Professor Roger Vickerman: For good or ill. The Chairman: We will expunge that from the record.

Q19 Lord Haskel: On TEN-T, the evidence we get from the Government says that the TEN-T programme is currently under review. Professor Roger Vickerman: Yes, that is correct. Lord Haskel: Is it that we are reviewing it here or is it being reviewed throughout Europe? Professor Roger Vickerman: No, it is being reviewed at the European level. Lord Haskel: At the European level. Professor Roger Vickerman: At the European level it is being reviewed, not least because of the need to think about the appropriate envelope for funding in the next funding period. Lord Haskel: Is this an opportunity for us to say something about the things that we have been raising? The Chairman: I think we have catapulted the professor into this because he has not seen the Government evidence. Professor Roger Vickerman: That is correct. Lord Haskel: I am sorry. The Chairman: It is quite recent. We have just received it. Sorry, you were going to say something. This is another paper, is it? Yes. Professor Roger Vickerman: If I may just continue with that. A lot of commissioned research has been done into reviewing the TEN-T programme so far, in order to identify the extent to which you can apply common evaluation methods, and so on. The question for the Commission has always been what the European value added is in a particular project to justify there being European money in that project. I think you need to remember that, 252 Professor Roger Vickerman—Oral evidence (QQ 1-41) although the TEN-T programme is a huge amount of money—€500 billion or something like that—the amount of direct European funding that goes into it is very small indeed and most of it has gone into enabling studies, and so on, whereas the majority of funding is coming from the relevant Member States themselves.

Q20 Lord Haskel: In their own infrastructure? Professor Roger Vickerman: Yes. Given that, almost by definition, that infrastructure lies on the national territory of a Member State.

Q21 Lord Brooke of Alverthorpe: Back to Kent. In paragraph 3.3 of your evidence, you spent quite a bit of time addressing the issue of the shorter exchanges. I would like to know how you think the interregional market between Kent and Nord-Pas de Calais could be developed and whether you could say something more, beyond what you have already said, about the barriers that are preventing this. Professor Roger Vickerman: There are two related barriers. One is simply the number of return services that make it possible to make daily journeys. There is only one return service, for example, between Ashford and Lille, which is the service between Ashford and Brussels that I use all the time. That was concomitant on the opening of Ebbsfleet. So the level of service is an issue. You can understand why there are relatively few services because, for Eurostar, 85% or something like that of the market is end-to-end market. It is London-Paris, London-Brussels, and there is a big penalty for stopping. There is a big time penalty and, therefore, a big cost penalty, plus all of the security things that have to be provided at those stations, which have to be paid for by the operator, so there is a significant penalty that is available there. Of course, the second and related issue is price. The shorter the journey that you make, the access charge to the Channel Tunnel becomes a much larger proportion of the potential fare. I think that Ashford to Calais return, if it were possible to do it—it used to be—was one of the most expensive railway journeys in the world that you could make, kilometre for kilometre, because you were almost entirely paying an access charge through the tunnel, which is the same access charge as if you were going from St Pancras to Brussels or even further. Those are the two issues that are involved there. Then the issue is whether, if you do not want to stop these trains and impose a time penalty on passengers who really want to get from end to end as quickly as possible, it is more sensible to provide some form of feeder service that can do all the intermediate stops. That would be beneficial, both to the intermediate stops in France, particularly Calais-Fréthun, and to Ashford. You can see the extent to which the growth of regional traffic on HS1 has really appreciated the benefits of the Ashford-London section. Similar development of the regional high-speed network within France, within Nord-Pas de Calais, paid for by the Conseil Régional Nord-Pas de Calais as part of its contract with SNCF, has also developed a huge amount of traffic between Calais and Lille, essentially leading not to the economic development of Calais but to more people moving and living on the coast and commuting to Lille. There is clearly a strong link in terms of the way in which people respond to the provision of services. What we have not seen is much development of cross-border traffic. Cross-border traffic between Kent and Nord-Pas de Calais on a regular basis is virtually zero, whereas tens of thousands of people cross the border between Nord-Pas de Calais and Belgium every day for work purposes, in both directions. I think that is very clearly an indication that there is a 253 Professor Roger Vickerman—Oral evidence (QQ 1-41) potential market that can be tapped to the mutual benefit of the regions both sides. That is why the regions both sides are working together, along with Dutch regions, in order to be able to lobby and say, “Do not forget border regions, the bits that fall in between the major metropolitan areas”, and to ensure that appropriate services are provided. Noord-Brabant, which is the most southerly region of the Netherlands, around places like Breda, have lobbied successfully for the creation of, in effect, a regional high-speed service using the Dutch high-speed line, because it was effectively going to be bypassed by trains going through between Brussels, Rotterdam and Amsterdam. It is possible to do that. They do not have the problem of tunnel access and the safety issues that are involved in that. I am not a technical expert on this, but I am assured that those who provide trains say that it is perfectly feasible for existing trains, which could meet the requirements of the now slightly revised requirements for Channel Tunnel safety, to run through.

Q22 Lord Brooke of Alverthorpe: These would not be high speed, these would be— Professor Roger Vickerman: They would be semi-high speed, in the same way that the Javelin service on HS1 operates at a slightly lower maximum speed than does Eurostar and keeps in the slots by having higher acceleration—regular stops and much better acceleration. The problem with Eurostar is that it takes a long time to stop and to get going again, whereas the Javelin is up to top speed very quickly when it starts up from its stop. It is getting that appropriate balance in there. There is the idea of having a service that could operate from St Pancras via Ebbsfleet, Ashford and Calais and interchange at Lille, where there will be interchange possibilities. There is also the idea of a service that could serve one of the London airports. Attempts to think about the development of that have been around for a very long time—people have been thinking about what you can do more imaginatively to create a bigger market that would fill a lot of the capacity that is still available in the tunnel for through rail services.

Q23 Lord Brooke of Alverthorpe: Would the tunnel authorities not want to encourage that? Professor Roger Vickerman: Yes, they would, except to the extent that they face an interesting question in terms of their own management of the capacity in the tunnel of saying, “Where would that traffic come from? Maybe that traffic is not being catered for by through rail, so maybe it is using the shuttle services and people are going by car”. If I go from Canterbury to Calais, I would take the car and not the train because it would be that much more convenient. There is clearly an interesting commercial aspect and, given that Eurotunnel, of course, is a commercial operator whose charges are not regulated, it can do that.

Q24 Lord Brooke of Alverthorpe: Is it a conflict of interest? Professor Roger Vickerman: That is an interesting question. From its position as an infrastructure operator and a service operator, has the separation that is required been effectively done there? Is the Intergovernmental Commission providing sufficient oversight as to whether it is complying with that or, indeed, does Eurotunnel think that, as a private enterprise, it does not need to comply fully with the provisions of the European legislation?

254 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Q25 Baroness Valentine: I should just make a declaration before I ask the question. I am chief executive of London First and we have in our membership a whole range of companies interested in transport, including Siemens, Eurostar, Westfield, Canary Wharf, City Airport, et cetera. I just wanted to press you on Stratford International. I am very conscious of an even-handed debate, with one side that says, “Get from London to Paris as quickly as possible,” and the other that says, “It’s mad to have an international station at Stratford, with the wonderful connections, without stopping there”. There is obviously a live discussion about the business case for stopping there. Given what you have just been saying, is there anything to add on Stratford International? Professor Roger Vickerman: The problem is that, if you start putting Stratford International into the mix, you are starting to divide the services between three separate intermediate stations and none of them will get an effective service as a result. Stratford International may be better served by the Javelin service via Ebbsfleet International, although it would be nice if an element of through ticketing was available, and so on, rather than having to book separately, even if there was a small add-on charge. Having seen what happened to Ashford when Ebbsfleet opened, I would be very nervous of wanting to suggest that Eurostar should stop at Stratford as well, although my Javelin was held there for a Eurostar to come through because it was running late this morning. It is a very difficult one. One of the arguments for Stratford was that it would serve a regeneration function—not something that I have ever thought was particularly likely at that sort of location. I can see why local interests would want to have it. It is a difficult one, unless we get a doubling of Eurostar traffic, in which case we have more trains and more options in terms of the way that they stop. For the same reason, there are interesting issues in the debate over HS2 about where it should stop. One of the arguments, which you might want to use in the case of Stratford, is about using it as a means of reducing pressure on St Pancras for incoming passengers, because they can go on to a different bit of the local network, the DLR, the Underground network and, indeed, ultimately Crossrail, rather than everything having to be focused at St Pancras. You might want to think about that once you get much larger numbers of passengers.

Q26 Lord Haskel: In your paper, you say that the lack of integrated ticketing is a major issue and you have just referred to it again. There is a convention for the international carriage of passengers, the CIV. Should this contract be applied to journeys where the tickets for various stages of the journey have been bought separately? If so, how could you enforce this? Should this principle be extended to journeys using a variety of transport modes? Professor Roger Vickerman: I think the answer is that it would be nice if it could be, but it probably could not be enforced, so maybe it is a non-starter, in the same way that budget airlines will deliberately sell you a point-to-point ticket and will not sell you tickets that lead on. You have various residual rights, which the Commission is trying to strengthen, and I think it is right that there should be a level playing field for that between airlines, railway operators, bus operators and whatever, in terms of their responsibility for getting you from A to B and their responsibility in case of particular delays. Once you are doing separate contracts, you are in that same murky area of liability as you are if you buy your flight separately from your hotel, in terms of holidays. It is very difficult then ex post to go back and effect those. The difficulty is that there is a notion that there is an element of through ticketing, but that notion is that, yes, you can buy a through ticket from most places to most places—not

255 Professor Roger Vickerman—Oral evidence (QQ 1-41) everywhere to everywhere, but most places to most places—as long as you go when the operator wants you to go. They will be allied to a particular train. Perhaps I may give you an example of this. You try and book a ticket from Ashford, which is where I would go, to Lyon, which is a place I go to quite often because it has a very good transport research institute. If you go on the Eurostar website, it will tell you that there is a very good connection at 14.34, I think it is, from St Pancras with a change in Lille, which is what you want to do—an easy change in Lille to a through train for Lyon. But that trains does not stop between St Pancras and Lille and so you have more difficulties in using it. The Chairman: Slightly. Professor Roger Vickerman: But I know that the 06.58 from Ashford stops at Lille in the morning at 9.05 and there is a 10.06 train, but Eurostar will not sell me a ticket for it. The Chairman: And they will not publish it.

Q27 Lord Haskel: Why will they not sell you a ticket for it? Professor Roger Vickerman: Because it is not programmed into their computer; simply, that is what it comes to. There are more complex examples. I see that you have had some very nice examples of this from The Man in Seat Sixty-One; he gives you a lot of nice examples because he is much better at cracking the code than I am. One of the problems with this is getting the best fare arrangement, because there are limited numbers of best fares that are cross-sold between the networks. Eurostar tells you very proudly that it is a member of Railteam, which includes Thalys and Deutsche Bahn and so on, but actually Railteam does not operate as effectively as the Star Alliance or the Oneworld Alliance would in airlines, in terms of being able to allow you to cross-sell. I always book my bits separately. I will be doing a journey later this week that involves buying bits separately from the appropriate websites, because I can get the best deals on the trains I want to go on. I know about that but—it is back to the Chairman’s point—where does the customer come into this? It is not easy for the customer to come into this because it is very difficult to find things. We have a very well developed market for airline tickets now, where you can start identifying the best ticket and you can swap between websites. It is much more difficult to do that with rail tickets. The Chairman: But you can do it with almost anything, Professor. Professor Roger Vickerman: Yes. The Chairman: If you are looking for a hotel in Louisville, Kentucky, which I am at the moment, I was amazed at the website for a small city. The website has everything and it gives you all the prices, and each person, each tour operator, has a different price for these hotels, so you have choice, but with the railways you never have a choice.

Q28 Lord Haskel: What can we do about it? Professor Roger Vickerman: It is the evidence of Balkanisation again. The problem is this. Suppose that Deutsche Bahn does develop its service through to London in 2013. Suppose it meets all the requirements, develops the service and has a non-stop service from London to Brussels; I expect that Deutsche Bahn will operate only a non-stop service from London to Brussels, linking in then to a train that goes on to Cologne and Frankfurt. You are then captive to—

256 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Q29 Lord Haskel: On the same train? Professor Roger Vickerman: Yes, on the same train. That is the intention. There are various security issues to be resolved at the Brussels meeting, particularly for the inward journey. But then you will get a ticket that will not be necessarily interchangeable with Eurostar. Suppose you want to go to Frankfurt and then you have a meeting in Brussels on the way back and the most convenient train back from Brussels is a Eurostar train. Will your Deutsche Bahn ticket be valid on that train? It is the same sort of issue that we get here: is your ticket to Birmingham going to be valid on Virgin? Only if it meets certain criteria. The Chairman: Yes, but at least there is a chance that it might. Professor Roger Vickerman: There is a chance that it might, yes. The Chairman: You see, there is no chance at all on the railways. Professor Roger Vickerman: There will be if it is a full-fare ticket. The Chairman: Yes, of course, but nobody wants to travel at the full fare.

Q30 Lord Haskel: There is this convention. What can we do to enforce the convention? Professor Roger Vickerman: I think what is required is a huge amount of lobbying of the national Governments in order to do this. This is not a new revelation; everybody has known this for a very long time. Professor Roger Vickerman: I am afraid that the vested interests, which exist within a number of these areas, have provided a degree of block on that. That is one of the reasons why I very much welcome your inquiry, because I hope that this will be an added piece of pressure that is brought to bear. The Chairman: This is why we started in the first place—local consumer complaints. Professor Roger Vickerman: Indeed. The UK Government, which has the most experience with deregulated railways, franchising and on-track competition, should be very strongly in favour of trying to get this rolled out further across Europe. The Chairman: Lord Walpole. Lord Walpole: I am sorry I am late. I spent rather too long in Stratford.

Q31 Lord Walpole: I came down from Norwich. My noble friend Lady Valentine has asked about Stratford and why can we not change it, but it is interesting to note that over half the people in my carriage got out at Stratford and the carriage seemed almost empty when we arrived at Liverpool Street. So people do get out at Stratford for some reason. I have no idea what for, but they do. But they cannot get on to a Eurostar, so someone else will have to do it. I reckon that, on the line that goes from there to Norwich, there are one and a half million people who would like to go somewhere in Europe. To say that they do not use the line, and that sort of thing, is nonsense. They do, and they do not want to change and go to Ashford or change and go to Ebbsfleet, or indeed come into Liverpool Street and go round the Circle to the right station. I am asking you a sensible question, though: why did the train run extremely late today because of inclement weather? When that was announced over the loudspeakers, everyone roared with laughter. It was 13 minutes late into Liverpool Street because of the inclement weather. Is it really that we cannot run trains when it is as warm as this? 257 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Professor Roger Vickerman: Yes, well, my train was also late this morning and it was because it had to have its computer rebooted at Ashford, presumably because of inclement weather.

Q32 Lord Walpole: Maybe that is the problem. Sorry. Let me ask you a more sensible question. Is the Treaty of Canterbury fit for purpose in the light of the subsequent EU legislation? What are the particular incongruities between the two regimes? Is IGC necessary and, if not, what should replace it? Professor Roger Vickerman: I think the Treaty of Canterbury probably is no longer fit for the purpose that it was set up for, because it was so much in advance of a lot of the developments that have happened since. I would tend to think that it is something that should be reviewed, at least. Also I think the role of the IGC, as enshrined in that, reflects the circumstances of the time. The Treaty of Canterbury was signed in 1986. It was before the final passage of the Channel Tunnel Act. It was before the final agreement of the concession agreement. It provided a framework, which in some senses has changed as a result of all of the changes that happened through the development of the Channel Tunnel later, and I think 25 years is an appropriate time to think about reviewing it, not least in the light of the existence now of the third railway package. That provides a general framework that enables one to think about the way this might fit into a much more general framework, recognising that services that go through the Channel Tunnel cross other internal borders of the EU as well. They cross into Belgium. We hope that eventually they will cross into the Netherlands and into Germany, and I think that means that there does need to be a degree of consistency in the way that it happens. Nevertheless, you probably require some form of organisation that looks after the specific requirements of the Channel Tunnel, because it is slightly different in some ways. The juxtaposed controls at either end of the tunnel, whether they are in and St Pancras or whether they are at Folkestone and Calais, require the operation of French police on British soil and UKBA officers on French and Belgian soil, and so on. So there does need to be something that covers that slightly different arrangement, not least as long as we are not in the Schengen, if Schengen exists anymore. So I think there probably is a requirement but I think it needs to be nested within the structure of the new arrangements rather than entirely separate from them.

Q33 Lord Walpole: Looking ahead, I have two children who live in Edinburgh. When will they be able to get on a train that will take them into Europe? What year? Professor Roger Vickerman: I would not suggest to them that they should start thinking about booking it yet. Lord Walpole: Are you talking about 10 years or— Professor Roger Vickerman: No, I am talking about much longer than that. Lord Walpole: Are you really? Professor Roger Vickerman: I think this is one of the changing issues that come into this. I think there are limits to the number of passengers who are likely to want to travel at any one time from Edinburgh to Paris, to Brussels or whatever. In so far as we maintain, on security grounds, the requirement that passengers cannot both board and leave a Eurostar, or whatever train it is, within the UK, then that is not going to happen. Of course, what you see happening on the other side is that, on the train that goes from London to Brussels, a lot 258 Professor Roger Vickerman—Oral evidence (QQ 1-41) of people get out at Lille and a lot of people get on at Lille and travel onwards, and people get on even at Calais and travel to Lille. So as people get on and off the train is maintained at a reasonable load capacity. Unless we allow passengers to do that within the UK, you will not be able to do that. If we did allow passengers to do that within the UK then, fine, your train could carry passengers from Edinburgh to Peterborough as well as from Edinburgh to Brussels or Edinburgh to Marseille, or whatever, and people would continually be getting on and off it. I think it is more that than the operational side of it, but certainly some years ago I did some work for the Department for Transport on regional Eurostar—there was originally going to be this—and we could not make the business case add up. Even to Birmingham it was almost impossible to make the business case add up in terms of the number of return services that you could offer in a day that would make it an attractive alternative to the number of flights that are available. Lord Walpole: That is very helpful.

Q34 The Chairman: It is very helpful, and it is very interesting too. Can I just ask a quickie on that one: what year was that study? Professor Roger Vickerman: It was about 10 years ago.

Q35 The Chairman: What about the huge increase in rail travel and the fact that people want to travel by rail but are being frustrated for the reasons that Lord Walpole has just given? Professor Roger Vickerman: If you look at the studies for HS2, the original proposal did not provide a link from HS2 to HS1, because it was very difficult to make the business case stack up for it. They were forced to go back and look at the business case again. I think there are still some problems with the business case for providing a very limited connectivity between HS2 and HS1. The nature of rail travel is that the majority of people make very defined journeys. In the UK it is to London or from London to Paris and Brussels. That is where the market is. Once you get beyond that and into the regions, it becomes much easier to use air. So unless we rebalance the relative costs of rail and air—and there is a whole argument there that they are not appropriately balanced at the moment—you are still going to find that airlines will be able to provide point-to-point, region-to-region services more effectively, in particular for distances from Edinburgh and so on. The Chairman: To Nice. Professor Roger Vickerman: Yes. It is a long way.

Q36 The Chairman: Yes, but part of the reason why people travel to Paris by Eurostar is marketing; there is a huge amount of advertising and people are aware of the possibility. Consumers are not encouraged to think beyond going to the local airport and having a difficult time, sometimes for many hours between planes being delayed, security and car parking problems. It is so much easier to travel by rail. Professor Roger Vickerman: The other interesting point, which goes back to the one about how you book things, is that people will go on to a website and think about the price of the ticket from the airport to the airport and not necessarily the full cost of the journey from home to where they are going, whereas rail can effectively do that. I forget how many

259 Professor Roger Vickerman—Oral evidence (QQ 1-41) stations it is, but Eurostar tells you how many stations you can book a through ticket to from the UK and you go on that. The interesting thing is that there are none in the south- east that do that. You probably can from Norwich and you probably can from Edinburgh, and you can buy a package deal, which is presumably an arrangement between the appropriate franchised rail company and Eurostar, in the same way that you have the “any station in Belgium” add-on or the “any station in the Netherlands” add-on. The Chairman: Thank you very much.

Q37 Lord Plumb: You mentioned HS2 and, although we are a bit off-subject in one sense, I think it is the most interesting point that could be asked. Is there really a business case for HS2? If you had been with me yesterday morning you would have seen a steady queue in my little town of people going in to sign a petition against HS2—a steady stream, which I am told went on all day long, and you cannot fight against that sort of pressure. That is only 10 miles from Birmingham where, of course, a lot of people are beginning to say there is a great future. Professor Roger Vickerman: It is my turn to declare an interest, because I am on the Analytical Challenge Panel of HS2, therefore I have had some input into at least the methodology that they have used. I think the key answer to this is in two parts. One is that it is about a network and it is about improving the network. The second one is that London to Birmingham is probably not a distance in terms of time-saving—although there are significant time savings that can be valued. What matters is the fact that it enables you then to get further north, and that is where the bigger benefits come. The rate of return on the data that I have seen is certainly that it is much higher the longer the network. That is interesting in terms of the effect of the French evidence, which is that they got some of their biggest returns not from the point to point on the newly built high-speed line, but by allowing trains to wander off that line and provide that through service that we talked about earlier. That brings us back to the international service. Changing in Gare du Midi in Brussels is not the most pleasurable experience in the world. If you had the opportunity for a through train you would use it. Changing in Paris, you have to change stations. Changing in Lille is easier, but Lille Europe is again an interesting minimalist design from that point of view, and if the wind is blowing it is not the pleasantest place to wait for an hour for the connecting train. Through services are useful in terms of that. For example, that is why on Thursday of this week I will be taking a through train from Brussels to Lyon, because it is a through train. That train, on your emptying and filling basis, will half empty at Charles de Gaulle airport and be refilled at Charles de Gaulle airport. That is the other point that is important in this: high-speed rail was seen as a competitor to air when it first came, as it is for London-Paris travel, but it is also a very important complementary carrier when it serves airports. Professor Roger Vickerman: That is important, even on cross-border travel. You can buy a cheaper ticket with Air France from Brussels than you possibly can with Brussels Airlines to go somewhere, because Air France will sell you a rail ticket that enables you to take the train from Brussels to Charles de Gaulle airport as part of your air ticket. That is an air ticket that is seamless but it has a rail ticket. Deutsche Bahn and have been doing this for years. The Chairman: Thank you very much. Now we really have to move on. Lord Haskel.

260 Professor Roger Vickerman—Oral evidence (QQ 1-41)

Q38 Lord Haskel: In your paper, you say that Channel Tunnel usage charges are commercially confidential, but we are constantly told that access charges to the Channel Tunnel are too high. Is there any contradiction there? If the charges are known, how do they compare with access charges to other major lines and tunnels? How are they relevant to other charges? Professor Roger Vickerman: The various railway usage agreements have elements of commercial confidentiality in them, so I have never been able to get access to them. If anybody can get access to anything, it will be the burrowing of the Rail Freight Group, and one particular person. The Chairman: Lord Berkeley. Professor Roger Vickerman: Yes. That would be able to find evidence, and there do seem to be problems in identifying it. My understanding from piecing together the bits of evidence of those presumably who are trying to run services—Deutsche Bahn, for example—and therefore putting together what the usage charges for the Channel Tunnel and what the usage charges for HS1 would be, and the various comparative studies that have been done of usage charges across Europe, is that usage charges this side of the Channel and under the Channel are higher. In a sense you can infer that they are, without knowing precisely what they are, by the price of the tickets. It seems to have been more particularly the case with freight than with passengers. Of course with freight, again there is a huge potential conflict of interest for Eurotunnel, because they have been carrying more freight traffic than they expected on their shuttle trucks, and that is clearly competing, potentially, with whomever. It is not only Eurotunnel’s fault; it is also to do with that fragmentation of the rail market, which has been even less well coped with by freight than by passenger traffic. There are some problems with that, but it certainly seems to me that there is a difficulty with this unregulated bit of infrastructure, which does have this potential conflict of interest. My understanding is that various interests have been putting down amendments to the current revision of legislation for the first railway package in the European Parliament, which are seeking to exempt Eurotunnel from oversight by the regulatory authorities. I think that that would be detrimental and a close watch needs to be kept on it. The Chairman: Thank you for tipping us off.

Q39 Baroness Valentine: I have a question on through booking. Certainly in the last few years I have tried to book a train ticket—and succeeded eventually in booking a train ticket—from London to Bruges, Romania and Seville, but I was amazed at how the information did not seem to be available on the web. I eventually found The Man in Seat Sixty-One website, which appeared to have the answers. Certainly I know I booked at least one of them through that. My question is, simply, as a consumer, is there something preventing a market solution to this? Clearly it needs to be better. If The Man in Seat Sixty- One took a commission on the way through, is he prevented from doing that? How should through ticketing be generally developed? Professor Roger Vickerman: One would hope that with the advent of a group like Railteam, which all these high-speed operators in northern Europe are supposed to be members of, they would be able to provide a system for through ticketing, rather than relying on these very dedicated people who can beaver their way through it. But all they can do is beaver through the labyrinth that is provided. They are not getting anywhere very much in terms of ensuring that the best deals are being obtained. They may or may not be able to get you the best deal that can be got, but that does not necessarily mean that it is the best deal that you

261 Professor Roger Vickerman—Oral evidence (QQ 1-41) would want. There are all sorts of other funnies with this, and I think The Man in Seat Sixty- One identified this—it was either there or somewhere else that I read it recently—that some websites will only allow you to book with a credit card that is issued in that country, so that you cannot necessarily say, “Okay, I have found a good website and I can book through that”. Rail Europe, which is an arm of SNCF, does enable you but it starts with, “Where are you?” I sometimes try and lie about where I am in order to do that. Lord Walpole: Do you know which way to lie? Professor Roger Vickerman: No, because it never seems to give me the best answer. It does it in part by charging me in one currency or another. The other problem is that, for example, if you want to book on Deutsche Bahn, the majority of people in Germany have that they buy. It is like some form of railcard that gives you a reduced price, if you can get one. It is not worth buying one. Whenever I go to buy a ticket at a German railway station I am usually asked, “Do you have a BahnCard?” Then they say, “Why not?” and I say, “Well, I do not live in Germany and therefore I do not need one”. Then they ask impertinent questions about your age as well, in order to get the appropriate ticket, so even on the spot you sometimes find difficulties. I think the only way of doing it is by continuing to raise this issue, and raise this issue very strongly at the European level. That it is not just about building new lines. It is about ensuring that you have an integrated service on those lines. If you really want people to switch from air to rail or from road to rail, they need to know reliably that they can buy a ticket that will guarantee them a seat on the train that they want, and to know what the flexibility parameters are if they miss the train, and so on. That is so different in so many different cases.

Q40 Baroness Valentine: Can I just come back on this? I do not understand the commercial problem. Ticketmaster gives you West End theatres and takes a commission on the way through. What is preventing that intermediary role from happening commercially? Professor Roger Vickerman: I think it is because the market is not big enough, and then it becomes a circular problem of course. If you look at the amount of international travel, with the exception of Eurostar and Thalys, it is relatively small. Take an international train anywhere in Europe, in the same way as driving on a motorway anywhere in Europe, and you will find that, at the last station or the last exit before the border, a very high proportion of the traffic leaves and then, at the next exit, it arrives, and a relatively small number of people travel across those borders. As I say, the exceptions are Eurostar and Thalys.

Q41 The Chairman: I ask the final question, which is: is there anything, Professor Vickerman, that you think we should have asked but did not? Professor Roger Vickerman: No, I congratulate you on the set of questions. It is usually the other way around, where I set the questions and people have to be congratulated on answering them. All I would say on this is that I reiterate what I said at the beginning, which is that I think that this is an important inquiry, which—wearing my purely local, Kentish hat—we would hope helps to increase the pressure on the centre in Brussels to recognise that levels of service are important and that international rail services and inter-regional rail services, which are also international, are important.

262 Professor Roger Vickerman—Oral evidence (QQ 1-41)

The Chairman: That is very kind of you. On that note, I hope that you have easy travel. If there is anything that you think about that would add to our deliberations, we would be most grateful to hear from you. Professor Roger Vickerman: Okay. The Chairman: In the meantime, we will send you the transcript. Professor Roger Vickerman: Yes. The Chairman: Thank you very much indeed, it has been great.

263