Channel Tunnel Rail Freight Fees Criticised as Eurotunnel Continues Ro/Ro Ferry Services

UK – FRANCE – GERMANY – EUROPE – Prior to its eventual inception in 1984 the Channel Tunnel was the subject of controversy literally stretching back centuries, often symbolising the sometimes turbulent relationship between the two countries at its eventual entry and exit points. Now, and seemingly for the next few years at least, a number of disagreements between various stakeholders, including three governments, the EU and Groupe Eurotunnel to name but a few, looks set to mean that cross channel services for rail and road freight, both via the undersea link and on the Ro/Ro ferry services which ply the nearby routes, and rail infrastructure throughout the continent, will be subject to complex legal arguments.

Currently there are two major disputes which affect the day to day business of tunnel operator Eurotunnel, one concerning the operation of the three MyFerryLink Ro/Ro ferries which it bought up after the demise of SeaFrance and with which it has to maintain cross channel services with for the full five year term agreed under French legislation (as fully detailed in our story earlier this month).

The second dispute has been inspired by the EU Commission which has threatened the French and UK governments with action saying that the charges imposed on passengers and freight customers are prohibitively high due to the track access charges which they levy on the tunnel operator. Eurotunnel point out that the charges they have to pay since the original 1980’s agreement mean the two principals have collected around €100 million in profit over the life of that agreement. An application for even higher track access to pay for construction costs was dismissed as the EU pointed out Eurotunnel’s financing costs dipped sharply after a well-publicised write off in 2007.

The EU believes that the single trip reservation charges which costs Eurotunnel customers €4,320 for a Eurostar train plus €16.60 per passenger should be halved as they are inconsistent with the fees allowable for necessary maintenance under European law. A freight train is subject to a minimum charge of €3,645, with higher rates for transit at different times of the day. Both passenger and freight ‘Shuttle’ services are exempt from track charges therefore indirectly favouring road freight to some extent. The Commission points out that only six freight trains per day are actually using the link and the tunnel only operates at 57% of capacity overall.

Some of the most scathing remarks from the EU’s Transport Commissioner Siim Kallas, are reserved for the Tunnel’s rail regulator, the Intergovernmental Commission (IGC) whose job it should be to monitor competition and act on its own initiative to ensure the charging regime is fair and compatible with EU regulations. In this respect the IGC is said to be neither independent nor competent, in short, not fit for purpose, as it appears to be currently nothing more than an instrument of the French and British governments, whilst Eurostar is controlled by SNCF and LCR, companies owned by the two states. Eurotunnel, which saw its share price fall when the EU announcement was made, points out that lower track charges imposed would mean it would be able to offer more competitive rates, exactly what the EU authorities are demanding.

Besides the criticism of a weak regulatory structure the EU also points out that the restrictive usage agreement signed between Eurotunnel and French national rail operator Societe Nationale de Chemins de Fer (SNCF) and Germany's DB Schenker, a subsidiary of Deutsche Bahn, giving the two reserved rights to 50% of tunnel train capacity for the initial sixty five years, is illegal, as only temporary agreements of this type are permissible under EU Law.

The regulations which the EU is citing are mainly covered by the provisions of the First Rail Package which was introduced over a decade ago and which produced EU action on infringements in 2008. Because the Package (now Rail Recast) did not specifically include the Tunnel, the EU in 2011 asked the two governments to negotiate and comply with the requirements. As this produced no reaction the EU has requested a ‘reasoned opinion’ from both governments. Failure to respond swiftly will initiate Court action. One of the principal critics who have been demanding action on overcharging is the Rail Freight Group, and Chairman, Lord Tony Berkeley, was vociferous when interviewed saying:

"We are pleased that the European Commission is taking forward these infringement proceedings against the two governments for their failure to introduce a structure fully compliant with the European legislation, to which they have signed up ten years ago. In addition, the two governments should do all they can to remove other barriers to service growth, in particular new charges imposed by French Government owned operator SNCF or RFF [Réseau Ferré de France which owns and operates the French rail network] for ‘security’ checks and ensure that all operators get fair and equal access to the network in France. The potential for rail freight growth through the Tunnel is huge, but it needs a concerted effort by both governments, regulators and others to make it happen.”

A UK Department of Transport spokesperson said it did not accept that the regulator was not independent, nor that the UK had failed to implement the relevant EU rules, whilst Eurotunnel’s representative, John Keefe, said that Eurotunnel is a unique organisation in that is the only rail entity entirely funded by private resources which exists in Europe. Every other railway is either state controlled or had been hived off, in whole or in part, carrying with it a degree of government subsidy. He also mentioned that RFF now charged a fee for every train which left the tunnel to enter the French national rail system.

To some degree the fares charged by the tunnel are self-regulating insofar that trucks and private vehicles can always choose the ferry option and Eurotunnel says it has even purchased freight companies in a bid to drive increase traffic and drive development. What the group has also done of course is upset both ferry companies and the UK Competition Commission, which recently gave it six months to close the Ro/Ro service it currently operates via its MyFerryLink subsidiary. Eurotunnel has ignored the timetable to shut down this service, choosing instead to lodge a legal appeal which the company is confident will delay any final decision on the future of its Dover to Calais ferry routing until well into next year.

The grounds for appeal are simply that, by disallowing Eurotunnel the right to offer an alternative maritime option to freight and passengers, the UK Commission is reducing choice and potentially raising charges, the very point of any anti-competitive body’s existence. For its part (and the case raised by P&O Ferries and the DFDS/LD Lines conglomerate) the British Commission argues that the inception of another ferry service would mean Eurotunnel was monopolising cross channel traffic to an unacceptable degree having over 50% of available capacity within Groupe Eurotunnel. The Court is expected to hear the arguments from both sides until at least September.

As for the EU this has been a week when rail freight has been firmly in the competition authority’s sights as, on the same day the Channel Tunnel enquiries were launched with the UK and French governments, another European state found itself in the cross hairs. An article we wrote earlier this year detailed how the German group Deutsche Bahn was virtually laundering money by conducting illegal transfers between subsidiary companies in order to bleed cash legitimately invested by the German government into other areas. We also noted the illicit activities of the French authorities and the actions of both governments as detailed can only be interpreted as illegal methods of protecting national trade interests and prohibiting competition.

This cross subsidisation of commercial transport activities is explicitly forbidden and the Commission is concerned that Germany is failing to implement European rules on the separation of accounts between infrastructure managers and railway undertakings, and on the use of track access charges. Siim Kallas, again:

"The Commission welcomes Europe's railways establishing services in other Member States – but it is vital that this is done, and seen to be done, without using money given to the railway by Member States to support infrastructure investments."

Again the action taken so far is limited to ‘reasoned opinion’ and gives the Germans two months to respond before Court action is taken. What concerns operators other than Deutsche Bahn owned companies is also the group’s alleged intransigence when it comes to opening up the German rail network to enable its rivals access to territories within and beyond its national borders.