Liberalization in Rail Sector Continues Steadily

Inés de Alvear Trenor.

21/05/2008 International Law Office


New Model for Rail Sector

The liberalization of the Spanish rail sector is continuing slowly and steadily after freight transport services were opened to competition through the implementation of EU law. IBM's Rail Liberalization Index 2007 study ranks Spain among those EU member states in which the process is considered to be on schedule, although Spain is not included in the limited group of countries (the United Kingdom, Germany, Sweden and the Netherlands) in which the process is described as having reached an advanced stage. 

The Spanish legislature has utilized a number of legal tools to implement the European Union’s first and second rail packages (as recently reported in "Rail Sector: Services and Infrastructure"). Two pieces of legislation that are particularly appropriate in this regard are Law 39/2003 on the Rail Sector, in force since December 31 2004, and Royal Decree 2387/2004 approving the regulation of the rail sector.

Key Players 

Under the new model, the rail sector now comprises the following entities: 

  • The Rail Department of the Ministry of Development is in charge of rail policy, legislation and future planning, and is responsible for issuing, granting, suspending and revoking licences in the sector.
  • The infrastructure manager, Administrador de Infraestructuras Ferroviarias (ADIF), is a public corporation that has been entrusted with management of the rail infrastructure (including rail traffic, allocation of available infrastructure and the building of additional infrastructure pursuant to government instructions).
  • The Rail Regulation Committee is in charge of supervising and resolving potential conflicts within the sector.
  • Within the services market, there are three different entities:
    • the public entity Renfe-Operadora, which has been specifically charged with providing rail services (both freight and passenger) under Law 39/2003;
    • the railway undertakings, which may freely operate in liberalized markets (currently, the freight services market), as long as they have obtained the relevant licences and fulfil other regulatory requirements; and;
    • other 'candidates' that may be provided with network access (slots), on condition that they qualify as such.

Services Market - Regulatory Requirements 

In implementing the principles set out in the relevant directives, Law 39/2003 opened rail freight services to competition under a licence system. 

The law governs the existence of two different types of licence: (i) the railway undertaking licence; and (ii) the candidate's licence or title, which entitles undertakings other than railway undertakings to exploit rail services. This type of licence also allows candidates that do not hold railway undertaking licences (eg, transport agents, consignors or combined transport operators) to apply for network access, provided that they comply with the rest of the requirements established under Law 39/2003 and Royal Decree 2387/2004. 

Railway undertakings are registered in a special public register held at the Ministry of Development, along with details of any penalties imposed on them and any suspensions or revocations of licences. 

ADIF grants network access rights under the strict principles of Law 39/2003, establishing slots as non-transferable unless they are assigned by a candidate to an undertaking that holds a railway undertaking licence. 

Only entities that hold a railway undertaking licence and a safety certificate may access the general interest rail network (Red Ferroviaria de Interés General). Further, all applicants wishing to obtain a railway undertaking licence must provide their own traction. 

An applicant wishing to obtain a railway undertaking licence must prepare a comprehensive set of documents evidencing compliance with each item in the lengthy list of requirements, and must be prepared to enter into close communications with the Rail Department, which may request a considerable level of detail. 

The applicant must prove that it satisfies the following requirements: 

  • It is incorporated as a Spanish limited liability company that meets specified capital requirements (as Law 39/2003 contains specific requirements for entities that are controlled by non-EU countries (reciprocity), the Rail Department will particularly scrutinize direct and indirect shareholding participation);
  • Its specific purpose is the provision of railway transport services;
  • It meets specific financial resource thresholds depending on the type of licence requested;
  • It has adequate professional capacity to satisfy safety standards; and
  • It has civil liability insurance. This requirement will also be thoroughly analyzed by the Rail Department, not only in terms of quantum, but also regarding the conditions and coverage of the policy. 

Railway undertaking licences granted by other EU member states will be recognized in Spain. Further, applicants may be prevented from obtaining a railway undertaking licence under certain circumstances, such as in case of insolvency, the imposition of penalties or other infringements. 

The Rail Department will verify compliance with the conditions for obtaining the relevant licence at least every five years. 

A complete set of independent rules establishes the requirements to be met by so-called 'candidates' - that is, entities other than railway undertakings seeking access to the rail network. 

Progress of Liberalization

The rail sector in Spain is slowly opening up to private undertakings. So far, Comsa Rail Transport (Comsa Group), Continental Rail (ACS Group), Acciona Rail Services (Acciona Group), Activa Rail (Transfesa Group), Tracción Rail (Azvi Group), Eusko Trenbideak and Arcelor Mittal Siderail have obtained railway undertaking licences. Some of these are waiting to commence activities until ADIF has issued the relevant safety certificate.
 
Renfe-Operadora is also entitled to provide rail services under Law 39/2003 and holds the first operating licence issued. 

Only one company from an EU member state - English Wales and Scottish Railway International LTD - holds a licence registered in the Railway Undertakings Registry. At least one other company is in the process of obtaining a licence. 

In addition, Transfesa, Logística y Transporte Ferroviario (ACS Group), Container Train and Conterail have been granted specific candidate licences which entitle them to apply for infrastructure capacity allocation (slots). 

Further, at least three other companies are believed to be in the process of obtaining railway undertaking licences and two other companies have applied for, but not yet obtained, candidate licences.

Outlook

Private sector participation in the Spanish rail industry is increasing steadily. However, public carrier Renfe-Operadora is still the principal agent and remains the sole entity entitled to provide passenger services. 

As in other countries, intermodality is an obvious competitive advantage of rail transport as opposed to other means of transport and will likely be the cornerstone of future growth of rail services in the Spanish market. This is true for freight market services; however, for passenger services (which will be opened to competition within two years) intermodality combined with the roll-out of new high-speed services across the network, could form the basis for successful future growth.