Is there hope for competition in the rail sector?

Is there hope for competition in the rail sector? - alcom

The blocking of the Siemens-Alstom merger reminded everyone of the ‘pros and cons’ arguments in the debate on the liberalisation and competition in network industries. Despite the EU actions to liberalise rail markets and open them to competition, the issues relevant to incumbents who own both the rail infrastructure and freight operations are still at present.

Several years ago the Commission imposed € 28 million fine on Lietuvos gelezinkeliai (‘Lithuanian Railways’) for abuse of dominant position in the rail freight market. The Commission found that dismantling the existing rail track, which connected Lithuania and Latvia, constituted an abuse of dominant position and based its assessment of abuse on violation of an obligation to grant a third party access to the railway infrastructure established by the EU rails acquis. The case challenging the Commission decision is pending at the General Court. This dispute allows us to look at the broader context of applying competition rules to the rail sector so it will be discussed in more detail in the following blog post.

Spotlight on the rail sector

Besides the investigation against Lithuanian Railways, in 2016 the Commission opened investigations against the Czech railway incumbent České dráhy, a.s., and its decisions have already been challenged by the Czech incumbent at the EU courts. Furthermore, in 2017, there were a number of national cases conducted by national competition authorities in the rail sector where companies were fined for abuse of dominance, e.g. in July 2017 the Dutch Competition Authority concluded that the Dutch Railway NS abused its dominant position in a tender process, in May and June 2017 the Spanish National Commission on Markets and Competition dealt with two major cases fining Nokia Solutions and Networks Spain, and REFN, Deutche Bahn et al for anticompetitive agreements, and REFN for abuse of dominant position which limited international companies from accessing the Spanish market. Thus, antitrust actions at both EU and national level are a clear signal to rail incumbent companies and Member States to mind EU competition law and the existing/forthcoming EU rail acquis. Not to mention the blocking of the Siemens-Alstom merger by DG Competition which brought heated public debates on the allegedly too strict application of competition rules and political urge to have ‘European Champions’ to compete internationally. The European Commission unambiguously showed that EU competition law would not be used for protectionism of companies in network industries neither to at national, nor at European level.

The Fourth Railways Package

One could notice that the Commission uses EU competition law as a measure to foster the aims of liberalisation of the EU’s rail market. That is in line with similar actions of the Commission in the liberalisation of other sectors, e.g. energy and telecommunications. The Commission promotes the EU commitment for an ‘open access competition’ encouraging competitiveness and market opening in the rail markets. Therefore, most of the antitrust cases in the sector, including Lithuanian Railways, should be seen in the context of rail sector liberalisation and the rules coming into force with the Fourth Railway Package.

The application of the essential facilities concept in EU law and the rail sector

EU rail laws establish a right of access to the railway infrastructure.  In general, a third-party access requires the infrastructure owner (a vertically integrated company active in complementary markets) to provide non-discriminatory access for competitors to the (downstream) service markets. Furthermore, the Fourth Railway Package, parts of which entered into force in 2018, provides that an integrated railway company should not have control over the decision making regarding the infrastructure. That could be seen as strengthening the third-party access obligations.

The Lithuanian Railways case is unique compared to similar EU competition law cases as the access to facility (in this case – infrastructure) was not simply denied or discriminatory but the facility at stake was physically removed. The case is an obvious exclusionary behaviour with no gains of efficiencies.  Therefore, it is not surprising that Lithuanian Railways is challenging the Commission Decision at the General Court on the grounds of the essential facility doctrine, claiming that the tracks were not essential to market access for competitors. Thus, we see that Lithuanian Railways is not trying to justify the dismantling. Instead, the question remains whether the tracks were an essential facility and their dismantling created a barrier to entry.

The Commission applies the  essential facilities doctrine consistently but the EU Courts have never referred to the term ‘essential facility’ preferring the EU law terminology defining facilities as ‘indispensable’ or ‘objectively necessary’. Furthermore, the EU Courts apply restrictively the conditions of what and when a facility would constitute as such.

Currently, there are a number of cases touching upon the essential facilities doctrine but very few in the railway sector. European Night Services dealt with assessing whether certain resources were an essential facility. This case firstly established that obligation to supply a facility can be imposed only in Article 102 TFEU cases (whereas that case was an Article 101 TFEU case) as market foreclosure effects are unlikely if the owner of the facility is not a dominant undertaking. Secondly, the judgment implied that it is the Commission’s duty to prove that the facility is essential for competitors with no alternative supplier of the facility. In another case, GVG/FS, the Commission applied the essential facilities test and found that there were no alternatives of the facility at stake, no justification for the restriction of access and that refusal to grant access to the facility eliminated competition. The latter case provided much deeper assessment of the essential facilities doctrine and the application of EU competition law on the rail sector as a sector where liberalisation is still in process.

In such cases, the essential facilities doctrine becomes an instrument from the competition law toolkit for providing access to infrastructure where sector-specific laws fail to establish that or where ‘the access to facilities remains impossible or unreasonably difficult’.  However, the GVG/FS case was settled by companies undertaking the commitments, and the Commission Decision has not been tested by the EU courts.

What’s next?

The rhetoric behind the Siemens-Alstom merger showed that protectionist ambitions in the rail sector are still in the air. Furthermore, Member States remain in favour of public ownership of rail what also implies reluctancy to have competition in the sector. That does not seem very promising even in the light of further liberalisation of rail markets and the Fourth Railway Package. However, we already witnessed competition law opening up other network industries. Thus, in Lithuanian Railways the EU Courts will have an opportunity to revisit the concepts of third-party access obligation and essential facility in the rail sector. That promises hope for more market competition in railways.

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Picture Rita Paukste

Rita Paukste

Former Blog Editor

Senior Associate, Motieka & Audzevicius PLP, Vilnius

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