1. TWINNING PROJECT SI/03/IB/TR/01 Workshop on EU Financing Module European programme preparation & planning Ljubljana, Tuesday 29 November 2005 Risks and opportunities for the rail sector Ian Mackay Head of TEN team, Europe Division, UK Department of Transport

2. Outline of presentation Context Context Priority Project No 2: PBKAL (inc. CTRL) Priority Project No 2: PBKAL (inc. CTRL) Priority Project No 14 WCML Priority Project No 14 WCML Problems and difficulties Problems and difficulties Lessons to be learned Lessons to be learned Summary and conclusions Summary and conclusions

3. EU rail transport rules EU rail transport rules Context A personal perspective: EU experience A personal perspective: EU experience The TENs guidelines The TENs guidelines EU competition and internal market rules EU competition and internal market rules

4. DBFO contract let 1996. Rescue 1998. Further 4 state aid notifications. DBFO contract let 1996. Rescue 1998. Further 4 state aid notifications. PP2 Paris-Brussels-Köln-Amsterdam-London Channel Tunnel Rail Link forms part of UK contribution to the project Flagship PPP project worth €7,5 billion. Flagship PPP project worth €7,5 billion. Scheduled for completion in 2007 Scheduled for completion in 2007 Contractual matrix very complicated Contractual matrix very complicated

5. Most important rail route in UKMost important rail route in UK 2000 trains a day2000 trains a day Mixed traffic routeMixed traffic route Long distance ‘high speed’Long distance ‘high speed’ services services Regional and commuter servicesRegional and commuter services Serves all main citiesServes all main cities Important for freight, tooImportant for freight, too Modernisation project started 1994Modernisation project started 1994 Due for completion 2008Due for completion 2008 Worth €12 billion+Worth €12 billion+ PP14 West Coast Main Line

6. Risk transfer – what to transfer and how to do it? Risk transfer – what to transfer and how to do it? Heroic assumptions and ‘the march to the right’ Heroic assumptions and ‘the march to the right’ Problems and difficulties (1) Building new rail infrastructure Rail PPP a new idea Rail PPP a new idea Public and private – when two (or more) worlds collide Public and private – when two (or more) worlds collide What does the private sector want? What does the private sector want? How does it measure risk? How does it measure risk? Rail inherently unviable? Rail inherently unviable? Exclusive rights, vertical integration and downstream Exclusive rights, vertical integration and downstreamconstraints

7. Upgrading existing rail infrastructure Problems and difficulties (2) Risks to both finance and reputation Risks to both finance and reputation “Can we have our money back?” “Can we have our money back?” Commission moves the goalposts? Commission moves the goalposts? When is an upgrade not an upgrade? When is an upgrade not an upgrade? ERTMS level 3 a pipedream. Level 2 not practicable, either ERTMS level 3 a pipedream. Level 2 not practicable, either Affordability and escalating costs Affordability and escalating costs

8. Problems and difficulties (3) The spirit and the letter The spirit and the letter Understanding EU law and what it means for TENs funding Internal market (procurement) Relatively straightforward Covers all TENs projects in principle Relatively straightforward Covers all TENs projects in principle Competition (antitrust and state aids) Ditto. Applies to all markets ‘with an EU dimension’. But note DG Competition’s market sounding exercise on barriers to competition in rail freight Ditto. Applies to all markets ‘with an EU dimension’. But note DG Competition’s market sounding exercise on barriers to competition in rail freight The sectoral framework (1st & 2nd Railway Packages)

9. Be realisticBe realistic Lessons to be learned Get the project structure right. That flows from the need to Get the project structure right. That flows from the need to Get the regulatory framework right Get the regulatory framework right  In particular, make sure implementation of the railway packages respects EU jurisprudence as a whole, especially as regards independence of essential functions

10. How will TENs funding for the Divača-Koper section help 3 rd party access?How will TENs funding for the Divača-Koper section help 3 rd party access? Summary and conclusions Constructing major PPP projects which comply with EU law can be challenging but is not impossible Constructing major PPP projects which comply with EU law can be challenging but is not impossible EU objectives for rail TENs are best met by facilitating, to the maximum extent possible, competition in the downstream market for the provision of rail transport services EU objectives for rail TENs are best met by facilitating, to the maximum extent possible, competition in the downstream market for the provision of rail transport services But Is PP6 going to do that? Is PP6 going to do that? How will the procurement rules apply? How will the procurement rules apply?

11. Questions?