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In a modern day economy transportation plays a vital role. As an economy develops, people become more and more demanding for good quality transport services and less tolerant of transportation delays. In order to cope with the demand, it is not enough to build new infrastructure. The transportation system must be optimised so as to meet the demands of enlargement and sustainable development, as set out in the conclusions of the Gothenburg European Council. The EU 27 is responsible for 5.000.000 km of paved roads, out of which 61.600 km are motorways, 215.400 km of rail lines, out of which 107.400 km electrified, and 41.000 km of navigable inland waterways.  Total investment on Transport infrastructure on the period 2000-2006 was â‚¬ 859 billion (First Intermediate Report "Evaluation of cohesion policy programme 2000-2006, work package transport", August 2009).
In Europe, railways carry both passenger and freight. They offer critical economic and social links all across Europe. But in recent decades, there has been a decline particularly in freight. Rail's share in the freight land transport market dropped from 32.6 % in 1970 (EU-15) to just 16.7 % in 2006 in the EU-27. The railway sector has also struggled in terms of passenger transport. In 1970 (EU-15), rail's share of passenger land transport was over 10 % but this had fallen to a stable 6.9 % in 2006 in the EU-27, even though there was more rail travel in absolute terms. 
Looking at these trends it is noticeable that the railway was not even doing well in the fast expanding international rail freight sector. Rail freight is particularly advantageous for long distance transportation because the increase of road usage was seen to be problematic in terms of congestion and pollution. It was obvious that the rail freight sector has been unsuccessful in providing a competitive amalgamation of cost and quality.
2. Rail Policy Reform Process
The European Commission reacted to the issue by starting a process of transformation with Directive 91/440 in additional by the '1st Railway Package' (Directives 2001/12, 2001/13 and 2001/14). The package comprises of:
â€¢ Dividing of infrastructure accounting from operations like balance sheets and profit and loss accounts and also separate accounts for passenger and freight;
â€¢ Condition to charge for network access based on marginal cost with allowances for non-biased mark-ups and mark-downs in specified situation;
â€¢ Right to use for international freight services to be extended all over a widespread, defined European rail freight network by 2005 and to all routes by 2008;
â€¢ An important division of powers in the form of an autonomous regulatory body, and the division of path allocation and infrastructure charging from any organisation accountable for the running of rail services.
In January 2002 the Commission commenced the '2nd Railway Package' on the additional construction of the European railways 'towards an integrated European railway area'. 5 detailed proposals were introduced:
â€¢ A new decree on the ruling of safety and investigation of accidents and incidents on the Community's railways;
â€¢ A ruling to establish a new European safety and interoperability agency;
â€¢ A proposal for a Council decision giving power to the Commission to discuss the environment for Community taking over to the COTIF activities for international transport;
â€¢ An alteration to 91/440 so as to open up right of use of the infrastructure for national services sequentially to fully liberalize the rail freight market. An additional set of Directives exemplifying these packages has now been decided and open access in the home freight market was introduced in 2007  .
A 3rd railway package that would embark on the process of liberalizing passenger networks to competition has been proposed. In the beginning this would only be for international services. There are also concerns to a ruling of introducing compulsory competitive tendering for subsidised services or services sheltered from competition. While this was not acknowledged for regional or long distance rail services, some EU countries have started competitive tendering. 
3. Integration of European Railway
It is because of the execution of the new rail policy, railways in Europe have gone through major changes. To a large extent this was set off by initiatives taken at EU level.
A key step to the formation of an integrated European railway area and an indisputable internal EU market for rail is to liberalise national freight and passenger markets to cross-border competition. Better technical harmonisation of rail systems and the improvement of key cross-border rail routes along with better connections between EU and neighbouring markets can also help to break down barriers to a more competitive rail sector,. 
3.1 Enhance Competition
Increased competition will create a proficient and consumer-receptive industry. EU rail legislation has always been for increased competitiveness and market liberalization, with the first important law enacted back in 1991. The law is based on a difference between infrastructure managers who operate the network and the railway companies that utilise it for transporting passengers or goods. Transport operation and infrastructure management must set up their own entities. Important roles such as provision of rail capacity, infrastructure charging and licensing must be removed from the operation of transport services and act in a impartial manner to give new rail operators equal opportunity of access to the market. EU countries must also have regulatory bodies which are prepared to supervise railway markets and to perform as a petition body for rail companies if they think they have been treated unduly.
3.2 Liberalise market Europe-wide
In addition, to promote more competition within European markets, the EU law gives rail operators the capacity to operate services in and between all EU countries, liberalising cross-border competition. Both national and international rail freight transport has been totally liberalised in the EU ever since the beginning of 2007. In other words any licensed EU railway company with the mandatory safety certification can submit an application for ability and offer national and international freight services by rail throughout the EU. The EU has also opened up the market for international rail passenger services from 1 January 2010. Any reputable rail company in the EU which attain the necessary license or certificate will technically be capable of tendering these services, and they have the authorisation to pick up and set down passengers at any railway station along the international route. Fundamentally this will end the monopolies by international train operators like Eurostar and Thalys. Undeniably, Deutsche Bahn - Germany's national rail company, has already received the go-ahead to operate trains from Germany through the Channel Tunnel to London. New competitors such as Air France-KLM, have also announced campaigns to run a faster train service from Paris to London and Amsterdam. Greater competition on the international rail passenger market should drive prices down. The steady liberalisation of the rail market has reduced freight costs by 2% and rail transport tariffs by 3% per year between 2001 and 2004  .
Similarly, customers are likely to profit from better quality and greater variety of train services. More rail passenger services, especially between France and Italy, have already been announced by existing operators.
3.3 TEN-T projects
The TEN-T project is one of the major initiatives led by the European Union to amplify greater integration. The trans-European transport network (TEN-T) plays a critical role in ensuring the freedom of movement of passengers and goods in the European Union. It comprises of all modes of transport and carries about 1/2 of all freight and passenger movements. The fundamental idea of making a multimodal network is to guarantee that the most appropriate transport mode will be selected for each stage of a journey  .
By 2020, TEN-T will consist of 89 500 km of roads and 94 000 km of railways, including around 20 000 km of high-speed rail lines appropriate for speeds of at least 200 km/h. Finishing the network by 2020 involves the enhancing of existing transport infrastructure by increasing the existing road network by 4 800 km and rail by 12 500 km. On top of these, about 3 500 km of roads, 12 300 km of rail lines, and more than 1 740 km of inland waterways will be upgraded to a large extent. Finishing the networks will definitely have a massive impact in cutting journey time for passengers and goods. A 2004 study  for the Commission shows that noteworthy time savings would be gained from the achievement of the 30 priority axes/projects which outline the foundation of TEN-T, through a 14 % reduction in road blockage and improved rail capability. For inter-regional traffic alone, the benefits are estimated to be almost EUR 8 billion per year. Additionally, freight transport in the EU is predicted to rise by more than two thirds between 2000 and 2020, and double in the new Member States.
3.3.1 High-speed railway of Europe
3 new high-speed railway lines will launch links between major cities on the Iberian Peninsula, and connect them with the French high-speed network. New high-speed railway lines will connect Lisbon and Porto to Madrid. From Madrid there are two routes, the Atlantic and Mediterranean routes, which will connect to the French high-speed rail network. The Lisbon-Porto line will connect to a Portuguese/Spanish cross-border link from Aveiro to Salamanca, plus to a direct Lisbon-Madrid line. The Atlantic branch connects Madrid-Vitoria-Irún/Hendaye-Dax-Bordeaux-Tours, combining with the existing Paris-Tours high-speed line. The Mediterranean branch connect Madrid-Zaragoza-Barcelona-Figueras-Perpignan-Montpellier- Nîmes, linking to the existing Paris-Lyon-Marseille/Nîmes high-speed line.  Advantages for rail passengers due to the completion of the lines will drive a significant increase in capability (e.g. 400 % for Madrid-Barcelona) and cutting down of travelling time: Madrid-Barcelona (from 6 hours and 50 minutes to 2 hours and 25 minutes) or Lisbon-Madrid (10 hours and 40 minutes to 2 hours and 45 minutes). Furthermore, the cross-border French-Spanish sections will share passenger and freight lines. Considerable extra trans-Pyrenean freight capacity up to 25 million tonnes per year on each branch will be created in the long term. Better transport links will offer a large boost to economic development across the Iberian Peninsula, especially allowing through traffic from France with no gauge changes.
4. Current Issues
4.1 Companies not able to tally
There are a number of rail companies which have confessed that they cannot give the total number of available train carriages they have and also the carriages exact location. For that reason, from time to time, trains which are planned have to be annulled because there are no carriages. In some instances, no drivers are available are due to the fact that they were not informed in advance.
4.2 Frequent delays for trains
On average, changing the engine on a goods train and checking that the train is in good working condition takes around 30 to 40 minutes. All the work will take up significantly more time if the engine or crew are not prepared on time. According to the President of UIRR Mr Werner Kulper, out of 20 000 full combined international transport trains scrutinized, only 1/2 was punctual. This is a truly shocking figure which explains the frequent delays.
For cross-border trains, the network company will pass over the train to another network company at the border. They have to swap information such as the amount of goods, destinations and also the train composition. There are already existing informational links between the computer systems but these are not fully utilized because it is not dependable, therefore all the information swapping has to be done on paper. As such, this information will either be not on time or erroneous, and so more time will be wasted on checking and confirming this data.
4.4 Aimless Waiting
When a goods train stops to change its engine, it might be held up for a longer period of time while waiting for a train track to become available. There have been so many waiting instances where an engine possibly will have to wait for a train or a train possibly will have to wait for the engine. Most of the time, there will be no information on when they will turn up and this has made the situation bad.
By way of all the different delays, the normal speed of international rail delivery is just
18 km/hour, this is certainly slower than an ice-breaker breaching a shipping route through the Baltic Sea! 
The major challenge of the European rail system is its nature of disintegration, which means the diverse forms of discrepancy in the arrangement of the rail transport procedures that hinders the cross-border process from being fully integrated, as a result in longer transport times, less dependability, and increasing running costs. Overall, disintegration is current in the functional, technical, pricing, administrative, and market systems of the rail operation  .
5.1 Functional Challenge
Conventionally, each nation state has built its own rail traffic management system. At present every European country still retains its own train control and signalling system. This has posed a major obstacle as they are seldom compatible with those of the other countries. Figure 1 and Figure 2 in that order shows the variety of the train control and signalling arrangements across Europe. In view of the fact that there is still a long road to an EU standardisation ERTMS (European Rail Traffic Management System), rail company have to invest on a expensive multi- system engine, or having non-commercial stops at borders for changing into another engine with the train control and signalling system that fit the conditions of the country that the train is entering during the ERTMS transition phase.
5.2 Pricing Challenge
In general the charges for the use of rail infrastructure differ drastically across Europe. For example, the best charges are less than 1 euro/km while the most expensive one could be more than 5 euro/km (IBM, 2007). On top of the access charges, the charging system also differs in range. Most of the charging system takes in all minimum services as predetermined in the European law (EC, 2001). However in some countries the systems do not take in the range of services. Furthermore, the charging systems are different, some countries use a linearly ordered one and some countries use a non-linearly ordered. In addition, there are some countries that give reductions on access charge for a larger volume transported and also for early bookings, whereas in other countries no reductions are given (IBM, 2007).
5.3 National Administration Challenge
In almost all rail markets, the biggest providers have the power to be in command of almost 100% of the passenger and also the freight market. This is applicable to countries like France or Spain. In very atypical cases, the market share of the major supplier is below 80% (e.g. in the United Kingdom)  . Many countries have decided on a standard non-biased 3rd party access, but this is almost impossible to put in place in practice as a result of expensive and complex access conditions. Consequently, the market shares of 3rd party railway companies carry on being trivial. Yes, it is not easy to depict any solid conclusion on the competence to increase competition in railway sector at Community level, as many EU members did not turn them into national legislation until later or it is not completed yet. This rail administration delay that is happening now continues to be a distinguishing feature of rail transport. This makes a huge difference especially with the state of road transport system.
The European Commission believes that there are four underlying problems that have resulted in the dramatic fall in market share mentioned earlier:
â€¢ Rail operators were still largely nationally based, with complicated arrangements requiring inter-company negotiations regarding through traffic between countries;
â€¢ Lack of competitive pressure to reduce costs and improve services;
â€¢ Inadequacy in the capacity and quality of infrastructure, particularly regarding the ability to operate high speed passenger and combined transport freight services on international routes;
â€¢ The general problem of technical harmonisation, which inhibits cross border operation of trains
These problems were to be attacked through the previously mentioned liberalization of the railway system throughout the European Union. One way to reach the goal is the many TEN-T projects being launched. However, the liberalization is a process that is happening very slowly and the TEN-T projects are being executed behind schedule.
The reason for the lingering of these problems is that the legal implementation and foundation for the liberalization has been good, but the practical aspect of implementation is bad. The reason for this is that every EU country is following the same reform, but the measures each one is taking to reform their systems is very different since there is no uniform method of implementation.
A further aspect is of financial nature. Less than half of the total costs of rail transport in Europe are borne directly by passenger and freight customers. Thus, there is an overwhelming need for government subsidy in this area. However, the EU governments have been inclined to favour road over rail and thus have contributed less in financial terms to the development of the railway systems. 
6.1 What more can be done?
Relating to the financial portion  we suggest that an innovative funding system is required to fund the TEN-T projects. The EU has already expressed its aim to increase the current EU funding from 10% to 20% for projects that aims to eliminate rail blockages. The public and private sector must also form financial partnerships.
The most crucial part  is that complete execution must be carried through. EU countries must be constantly pressured to fully execute what the reforms aim for. On top of that, the suggestions and plans of some organization such as IRIS and IMPROVERAIL should be implemented. They should also concentrate on research that can enhance the technical interoperability. In this manner the TENS can progress to be more competent, and more ready for action.
We also suggest step by step reforms in contrast to multiple, simultaneous reforms. This will drive more benefits because of the fact that if the reforms are initiated one by one, the member state can focus on one specific target and pursue tangible steps to achieve it. It will not be as difficult as when multiple targets are pursued simultaneously.
Making the most of various strengths and opportunities and tackling weaknesses and threats will rely on a determined attempt from all stakeholders in the railway sector. This to a large extent will depend on a solid execution of the plans taken at EU level to bolster the sector. Railways will only contribute effectively in European traffic growth if the initiatives that encourage competition, market opening and interoperability are carrying out quickly. In other words, if any member nation is not cooperative, it would block the whole sector from progressing and this would broaden the difference in intermodal competition.
We expect that rail transport will be more efficient in the future due to the new and improved infrastructure developments and initiatives. These will make possible the building of high-speed rail networks and networks giving precedence to freight. Over time, rail would be able to increase its market share for both passengers and especially goods.