Market regulation for rail passenger transport
Overview
Background & policy context:
Market regulation refers to the way in which competition in a market is organised. It includes aspects such as how the rights and obligations of different providers to offer products or services are regulated and what rights these providers’ customers have. Market regulation plays a role in all markets and is a determining factor in whether customers receive value for money. In the case of rail market regulation, this is far from straightforward, since competition does not happen automatically. This means that there is a role for the government to play in shaping and organising rail market regulation.
The main Dutch rail network concession (Hoofdrailnetconcessie) for 2025-2033 was privately awarded to NS (Nederlandse Spoorwegen, Dutch Railways) at the end of 2023. This meant that other railway companies did not have an opportunity to tender for the main rail network concession. As a further consequence of this, competition is virtually impossible for this large part of the railway network and, from an economic perspective, the NS concession is almost indistinguishable from a monopoly until 2033 because, according to the main rail network concession, NS has the exclusive right to operate public passenger transport on the connections identified in the Main Rail Network Decree (Besluit hoofdrailnet). However, the directives and regulations stemming from the European Commission’s Fourth Railway Package effectively liberalised the domestic rail market for passenger transport services and transport companies are free to run open-access railway services at their own cost and risk without any government concession. The Railway Package also sets out specific requirements for the awarding of concessions for domestic rail transport services. However, offering open-access transport on the main rail network is in practice only possible if the service does not offer a direct alternative to the NS concession services.
According to the State Secretary of the Ministry of Infrastructure and Water Management in a letter to Parliament from 2020, the main reason why this concession was again privately awarded to NS is the scope and duration of the contract, because tendering is deemed complicated and risky. It was also noted that competitive tendering requires a great deal of time in order to be able to continue to guarantee the public interest of a functioning railway network.
This does not detract from the fact that the concession was awarded just before stricter EU regulations on private awards took effect. The European Commission (EC) supervises the competition rules and takes the view that the Netherlands broke the rules by making a decision prematurely, without a study of the market. The European Union’s Fourth Railway Package states that competitive tendering is the norm with effect from 2020. Private awards remain possible, but under stricter conditions. In this, vertical separation (separating infrastructure management from operation), as in the current situation with ProRail and NS in the Netherlands, is not mandatory. The right to open access also took effect in 2021, allowing railway companies to submit applications to offer rail passenger services for domestic passenger transport on the Dutch main rail network. Although the number of such applications is increasing, the actual number of open-access services for domestic passenger transport on the Dutch main rail network remains limited.
Objectives:
Against this background, what form might market regulation on Dutch rail take after 2033 and what policy choices this will require? These policy choices will already need to be made in the years ahead, in view of the time needed to draw up the required instruments and implement the choices. The research question is: “What are the effects of different alternative types of market regulation on the operation of the market for rail passenger transport on the Dutch railway network?”
This study aims to identify what we know about the effects of different alternative types of market regulation on the operation of the market for rail passenger transport. As such, the study will enable access to knowledge that will form the basis for the research to be carried out as part of the Future Rail Market Regulation programme established by the Ministry of Infrastructure and Water Management. This study does not quantify the effects of any specific variants of market regulation.
Although the Dutch case is investigated, this literature review also provides relevant insights for other European countries.
Methodology:
Literature review: We used specific terms to search in academic databases, such as Scopus and Google Scholar. Using these studies, we then applied ‘backward snowballing’, in other words, exploring the studies cited in them. This included studies from both quantitative and qualitative perspectives. Review studies proved particularly useful because of the overview they provide, but we also looked at numerous original studies. We also included relevant grey literature. If any of the studies address the same specific case, we looked at the most recent of them, except where older studies also provided (new) insights. We restricted our focus mainly to experiences in European countries, although some empirical studies also cover experiences from outside of Europe, especially Japan. This resulted in a large number of potentially relevant studies. We made a selection of these based on the abstract or summary. In the process, the studies were checked to identify whether any statements were made about the above-mentioned effects on the operation of the railway system. Market forces in the rail market are a relatively new phenomenon, and were implemented earnestly for the first time just 30 years ago. The first studies about their effects began to emerge around 2000.
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