CHAIR OF NETWORK INDUSTRY MANAGEMENT 2nd Annual NGI Day on Coherence between Institutions and Technologies in Infrastructures Marc Laperrouza, Senior Research

CHAIR OF NETWORK INDUSTRY MANAGEMENT

2nd Annual NGI Dayon

Coherence between Institutions and Technologies in Infrastructures

2nd Annual NGI Dayon

Coherence between Institutions and Technologies in Infrastructures

Marc Laperrouza, Senior Research AssociateManagement of Network Industries (MIR),

College of Management, EPFL

EPFL, LausanneJune 12, 2009


ProgramProgram


3

StructureStructure

1. Theoretical background

2. Case study on ERTMS

3. What do we need to move the program forward?


4

1. Theoretical background1. Theoretical background

Source: Finger et al. (2005)


5

Institutions and Economic PerformanceInstitutions and Economic Performance

Government

Informal Institutions(Norms of Society)

Formal Institutions(Laws of Society)

Property Rights

Technology

Transaction Costs

Transformation Costs

Costs of Internal Production

Costs of Exchange

Economic Performance

Contracts

Source: Alston (2007)


6

Causality…Causality…

• If many parties with different objectives have to be aligned, it might be the least costly investment (in time and money) to solve incoherence by modernization of the system”. MJ

• “The modernization of the signaling system causes incoherence as many parties with different objectives have to be aligned”. ML

• “Is it the institutional framework or the technological constraint that shapes regulation in the water sector?”. AP


7

Definitions…Definitions…

• Co-evolution vs. coherence?– Ce: Change of a biological object triggered by the change of a

related object systems depend upon each other and advance step by step through a kind of evolutionary process

– Ch: Something stronger than mere consistency institutions of the system are aligned with the critical technical functions of the system

• Institutions vs. technologies?– I: actors and games, formal and informal, institutional arrangements

(contracts, alliances), formal institutional environment of socio-technical, systems (laws and regulations) and institutional environment (values, norms, traditions, and customs) rules of the game

– T: Relationship that society has with its tools and crafts and to what extent society can control its environment


8

2. Case study on ERTMS2. Case study on ERTMS

• Development + deployment of a pan-European signaling technology – European Rail Traffic Management System (ERTMS)

• Hypothesis: despite similar external pressures (e.g. EU-mandated liberalization of railway market + ERA as system authority) national policy responses and outcomes differ owing to contrasting domestic institutions

Demonstrate how the salient characteristics of one or more institutions affect specific political dynamics, in turn producing

distinctive outcomes


9

MethodologyMethodology

• Theoretical framework: historical institutionalism– Institutions argued to be most influential factor of domestic policies

– Estimate the impact of variations in institutional forms and configurations on a particular outcome or set of outcomes ERTMS deployment

– Employ careful cross-period analyses (periodization strategies) within and across country units

• 2 steps approach– Building a case study “from the ground” around ERTMS

– Comparative analysis (3 countries) of ERTMS deployment

Testing historical institutionalist approach in railway sector


10

Data collection & analysisData collection & analysis

• Secondary literature search– ERA reports– Stakeholder publications (CER, EIM, UNIFE, RUs, TOs, etc.)

• “High-level” interviews– Main stakeholders (ERA, associations, operators)


11

Type of conclusion or expected resultsType of conclusion or expected results

• In-depth case study of ERTMS development and deployment in the framework of EU Single Rail Market

• Comparative study of 3 institutional settings and their influence on ERTMS deployment in selected European railway markets (Switzerland, Germany and France)

Extending HI by integrating the technology dimension


12

• The paper examines railway standardization processes within an interoperable environment

• Case study on the development and deployment of ERTMS from interviews

• Paper illustrate the difficulties to coordinate a standardization process in a newly deregulated environment

• Question whether the current governance of rail standards is suited to the EU’s objectives of a competitive railway market

The successful transition from a regulated to a liberalized environment causes and necessitates institutional transformations that go well

beyond the creation of a regulator or a system authority

Problem statementProblem statement


13

• Resurgence of interest in understanding how the interplay of regulation and institutions applies to network industries performance

• Centered on measuring aspects of economic performance (Spychalski and Swan, 2004; Jupe and Crompton, 2006)

• Technical effectiveness of particular railway technologies is largely covered in the technical literature but the issue of system-wide performance (i.e. the economic-societal-technical nexus) of the railway system is seldom discussed

Analyze the relationship between technologies and institutions Finger, Groenewegen et al. (2005)

Co-evolution between institutions and technology

LiteratureLiterature


14

• Directive 91/440 to make railway industry more economic and efficient unbundle, compete and regulate

• Efforts dependent on interoperability Directive 96/48/EC (HSL) and Directive 2001/16/EC (CR)

• EU railway interoperability is based on a triple-layer structure:

– 2 interoperability directives

– Technical specifications for interoperability (TSI)

– EU specifications, e.g. CENELEC or ETSI norms

Single European Railway Market and ERTMS 1/2



15

Studies and specifications

1989-1997

Final specifications

1998-2004

Roll-out2004-2008 (till

2020)

Technical levelClass P to Class

1 SRS

SRS 2.2.2 and 2.3.0

Work on 3.0.0Institutional level

Directive 96/48/EC

Directive 2001/16/EC

Directive 2004/50/EC

Main stakeholders

EEIG, ERRI, EUROSIG

UNISIG, Railways,

CENELEC, AEIF

ERA, Railways

Emphasis Engineering Politics Financial

Various stakeholders (IMs, TOs, equipment suppliers but also government agencies) respond to different incentives

• Heterogeneous Automatic Train Protection systems (ATP)




16

• The European Interoperability Directive mentions 3 points: facilitate movement of international rail, create a market for services and equipment and ensure interoperability

• Define standards and corresponding technologies that will allow the smooth usage of the European infrastructures by the various train operating companies defines available capacity, possible safety levels, strategic options for both TOCs and IMs, and the overall costs of the European railway system

• “It is a significant challenge for liberalized infrastructures to align the mode of governance with the needs to safeguard certain critical technical functions”

• Individual objectives and preferences typically prevail against the technical needs of the system for safeguarding the reliability and technical integrity

InteroperabilityInteroperability


17

• Critical institutional arrangements

• Technical interoperability refers to the purely technical interfaces between rolling stock and infrastructures

• Operational interoperability refers to the operational rules between railway undertakings

InteroperabilityInteroperability


18

Actu

alD

eploym

ent

Tech

nical

coordin

ation

MoU

European Community

(EC)

Article 21 Committee

European Railway Agency

(ERA)

Community of European

Railways (CER)

European Infrastructure

Managers (EIM)

European Railway Supply

Industry (UNIFE)

ERTMS Users Group(EEIG)

International Union of

Railways (UIC)

Political an

d strategic

coordin

ation

Declaration of interest

Union industry of signalling(UNISIG)

ERTMS domestic projects



Corridor A projectCorridor B

projectCorridor C project

ER

TM

SP

latform

ERTMS ecosystemERTMS ecosystem

« Organizations are agents of institutional change »


19

Acts as the system authority for ERTMS

• European Railway Agency (ERA) is the institutional answer to standardization issues in the railway sector– Prepares the review and updating of TSIs and makes

recommendations to take account of developments in technology or social requirements

– Contributes to the development and implementation of rail interoperability – ensure that the TSIs are adapted to technical progress and market trends and to the social requirements;

– Monitors progress with the interoperability of the railway systems– Examines from the point of view of interoperability, any railway

infrastructure project

European Railway Agency (ERA) 1/2



20

• ERA does not have any decision-making (nor regulatory) powers it only submits opinions and recommendations to the EC

• The gap between technical coordination and actual deployment is hardly filled by ERA the “reality of corridors” never reaches ERA

• Standardization process itself poses a problem going back and forth between ERA and Member States

• Conflict between short-term (deployment via corridors) and long term sustainability (standards)

Appointment of a European coordinator to facilitate the coordinated deployment of ERTMS bridge the gap between ERA’s technical and

political work, and the actual deployment




21

• What explains that, unlike most other European network utilities (like telecommunication or electricity and gas), the railway sector does not have a European Regulators Group?

• Is ERA a hybrid solution between a sectoral agency and a European regulator towards which the EC wants to go in order to restrict the delegation of power (formal decision powers are with Art. 21 Committee)?

• Does the current institutional framework – and the creation of ERA – offer the optimal design to the technological and competitive shifts taking place in the railway sector?

DiscussionDiscussion


22

Developing a pan-European railway Developing a pan-European railway standard in the era of liberalizationstandard in the era of liberalization

• Shift has taken place in railway systems during the 1990s end of this “national rail market” equilibrium

• Supranational legislations started to impose new rules on domestic jurisdictions

• Different actors operating under different power relations, e.g. vertical separation of infrastructure management from train operations

Difficulties in ERTMS standardization and the disappointing level of deployment questions what type of institutional setting could best enhance the changes for achieving a truly interoperable European

railway market


23

Coordination is even more needed in the deployment of technology since further standardization takes place in parallel

• ETCS is as much related to operational than to technical aspects

“You can only find all failures with [thousands of] runs”• Further development can be jeopardized by one stakeholder’s

losses (in this case: suppliers)• Solution to locally optimize with dedicated supplier may not be the

right one for the rest of the network• Long time needed by the European Standardization Bodies to

deliver a European standard• Standardization takes place in parallel to the railway market’s

liberalization which involved major re-definition of the stakeholders, including at the institutional level

Broader findings1/3Broader findings1/3


24

• Current organizational framework for ERTMS is not well suited to the railway sector’s evolution:

• At technical level: separate handling of GSM-R and ETCS

• At institutional level: lack of coordination between stakeholders (e.g. NSA and NB not included)

• Different policy at country level (framework is there but no Member-States took the step to transpose it) discrepancy of national operational rules and a move towards defining them on a national basis rather than at the EU level

• Different strategy at company level many undertakings want to buy off-the-shelf solutions – just a few companies (SNCF, DB) are willing to do the work + discrepancy of business cases for the various stakeholders (business cycles, type of operations, etc.)

Broader findings 2/3Broader findings 2/3

Problem is not a lack of regulation but a delay in meeting the new railway regimeSingle/shared railway system requires new institutional thinking


25

• One should have started with operational rules (and not technical rules)

• Implementation round has most likely been premature (rush between the pilot projects and the lines)

• ERTMS means radical technical and operational changes but, given the history of railway, it will require a profound change in culture

• Issues compounded by the broader context of major institutional change

Broader findings 3/3Broader findings 3/3

CH attributes the successful deployment of ERTMS on 2 lines to strong cooperation with the Federal Office of Transport (NSA) but…

the challenge posed by ERTMS goes further than the “correct” institutional setting: it requires strong leadership


26

Institutions, technology and performance for ERTMS

Institutions, technology and performance for ERTMS

System relevant functions:Interoperability

Technical coordination:UIC (specifications)

UNISIG (specifications)

Institutional coordination:Commission

ERA (TSI)Coordinators (corridors)

Degree of coherence

Infrastructure performanceCost /benefits of interoperability

Seamless networkFaultless technology

Leave out interconnection,capacity management andsystem management

Measuring issue…Time/cost to develop?Time/cost to deploy?Lines equipped (KM)?

Performance=f(coherence)

1. Coordination mechanism:CentralizedDecentralizedPeer-to-peer

Coherence between technical and institutional coordination occurs if they are based on the same coordination mechanism

2. Scope of control


27

• Compatible time to react to signals of critical technical functions outside scope of case study

• Compatible technological and institutional scope EU-wide project but…

• Compatible of information flows important effort to ensure “inside-out” (ERA) but weak “outside-in”

• Compatible incentives dissimilar business cases for the actors (freight/passenger, rolling-stock/infrastructure)

• Compatible economic and technical agents absence of slot allocator

• Compatible performance criteria tension between economic, technical and social performance

• Compatible technical and economic preferences emphasis on the former but realization that the latter prevails…

Criteria for coherenceCriteria for coherence


28

3. Discussion on how to move the program forward

3. Discussion on how to move the program forward

• Additional theoretical papers co-evolution and coherence in the theoretical approaches

• Detailed case studies cross-country and cross-industry

• New constructs like micro-institutions?

Documents

CHAIR OF NETWORK INDUSTRY MANAGEMENT 2nd Annual NGI Day on Coherence between Institutions and Technologies in Infrastructures Marc Laperrouza, Senior Research