CELEX: 62007CJ0504
Regulation (EEC) No 1191/69
Public service obligations
Grant of compensation
Urban passenger transport sector

This reference for a preliminary ruling concerns Articles 73 EC and 87 EC and Regulation (EEC) No 1191/69 of the Council of
26 June 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport
by rail, road and inland waterway (OJ, English Special Edition 1969 (I), p. 276), as amended by Council Regulation (EEC) No
1893/91 of 20 June 1991 (OJ 1991 L 169, p. 1; ‘Regulation No 1191/69’).
The reference was submitted in the course of proceedings between, on one hand, the Associação Nacional de Transportadores
Rodoviários de Pesados de Passageiros (Antrop) and a number of other undertakings (‘Antrop and Others’), and, on the other
hand, the Conselho de Ministros (Council of Ministers), the Companhia de Carris de Ferro de Lisboa SA (‘Carris’) and the Sociedade
de Transportes Colectivos do Porto SA (‘the STCP’) regarding compensation payments of EUR 40 916 478 and EUR 12 376 201 respectively,
awarded to the latter bodies in respect of 2003 by Resolution No 52/2003 of 27 March 2003 of the Conselho de Ministros.

Legal context
The first and second recitals in the preamble to Regulation No 1191/69 state:
‘Whereas one of the objectives of the common transport policy is to eliminate disparities liable to cause substantial distortion
in the conditions inherent in the concept of a public service which are imposed on transport undertakings by Member States;
Whereas it is therefore necessary to terminate the public service obligations defined in this Regulation; whereas, however,
it is essential in certain cases to maintain such obligations in order to ensure the provision of adequate transport services;
whereas the adequacy of transport services must be assessed in the light of the state of supply and demand in the transport
sector and of the needs of the community.’
Article 1(1) to (5) of Regulation No 1191/69 provides:
‘1.      This Regulation shall apply to transport undertakings which operate services in transport by rail, road and inland waterway.
Member States may exclude from the scope of this Regulation any undertakings whose activities are confined exclusively to
the operation of urban, suburban or regional services.
2.      For the purposes of this Regulation:
–        “urban and suburban services” means transport services meeting the needs of an urban centre or conurbation, and transport
needs between it and surrounding areas,
–        “regional services” means transport services operated to meet the transport needs of a region.
3.      The competent authorities of the Member States shall terminate all obligations inherent in the concept of a public service
as defined in this Regulation imposed on transport by rail, road and inland waterway.
4.      In order to ensure adequate transport services which in particular take into account social and environmental factors and
town and country planning, or with a view to offering particular fares to certain categories of passenger, the competent authorities
of the Member States may conclude public service contracts with a transport undertaking. The conditions and details of operation
of such contracts are laid down in Section V.
5.      However, the competent authorities of the Member States may maintain or impose the public service obligations referred to
in Article 2 for urban, suburban and regional passenger transport services. The conditions and details of operation, including
methods of compensation, are laid down in Sections II, III and IV.
Where a transport undertaking not only operates services subject to public service obligations but also engages in other activities,
the public services must be operated as separate divisions meeting at least the following conditions:
(a)      the operating accounts corresponding to each of these activities shall be separate and the proportion of the assets pertaining
to each shall be used in accordance with the accounting rules in force;
(b)      expenditure shall be balanced by operating revenue and payments from public authorities, without any possibility of transfer
from or to another sector of the undertaking’s activity.’
Pursuant to Article 2(1) and (2) of Regulation No 1191/69:
‘1.      “Public service obligations” means obligations which the transport undertaking in question, if it were considering its own
commercial interests, would not assume or would not assume to the same extent or under the same conditions.
2.      Public service obligations within the meaning of paragraph 1 consist of the obligation to operate, the obligation to carry
and tariff obligations.’
Article 6(2) of Regulation No 1191/69 states:
‘Decisions to maintain a public service obligation or part thereof, or to terminate it at the end of a specified period, shall
provide for compensation to be granted in respect of the financial burdens resulting therefrom; the amount of such compensation
shall be determined in accordance with the common procedures laid down in Articles 10 to 13.’
Article 10 of Regulation No 1191/69 provides:
‘1.      The amount of the compensation provided for in Article 6 shall, in the case of an obligation to operate or to carry, be equal
to the difference between the reduction in financial burden and the reduction in revenue of the undertaking if the whole or
the relevant part of the obligation in question were terminated for the period of time under consideration.
However, where the calculation of economic disadvantage was made by allocating among the various parts of its transport activities
the total costs borne by the undertaking in respect of those transport activities, the amount of the compensation shall be
equal to the difference between the costs allotable to that part of the undertaking’s activities affected by the public service
obligation and the corresponding revenue.’
The first subparagraph of Article 17(2) of Regulation No 1191/69 provides:
‘Compensation paid pursuant to this Regulation shall be exempt from the preliminary information procedure laid down in Article
[88](3) [EC].’

The main proceedings and the questions referred for a preliminary ruling
Carris is a public undertaking which, by administrative contract, obtained a public service concession for passenger transport
by buses, electric vehicles and mechanical lifts within the administrative limits of the city of Lisbon. In accordance with
its public service obligations, Carris is, inter alia, required to ensure the conceded service operates smoothly and continuously
under the price conditions specified by the awarding authority.
The STCP, for its part, is a public undertaking which holds a public service concession for passenger transport within the
administrative limits of the city of Oporto, pursuant to a law converting a municipal service into a limited company.
In return for the provision of the urban passenger transport services, Carris and the STCP have, for many years, enjoyed various
advantages awarded by the State. These consist of, inter alia, compensation payments, capital injections and State credit
guarantees.
Outside the geographical limits of the areas covered by their respective concessions, Carris and the STCP, without being subject
to a public service obligation, also operate bus routes on which other undertakings are active, inter alia Antrop and Others.
Those latter undertakings provide transport services under the public service delegation regime and are subject to rules concerning
routes, times and fares. The activity of Carris and SCTP on those routes led Antrop and Others to claim a distortion of competition
and challenge Resolution No 52/2003.
Antrop and Others submit that their only resource is operating revenue from the fares charged, so that operating losses from
their activity are covered exclusively by their own capital, whereas any losses, the investment costs and the capital costs
of Carris and the STCP are covered by public subsidy. The award of that subsidy is consequently a factor distorting competition.
Therefore, the appellants in the main proceedings claimed that the part of Resolution No 52/2003 under challenge infringes
the national legislation relating to competition and the provisions of Community law on State aid, in particular Articles
86 EC, 87(1) EC, 88 EC and 89 EC, Regulations No 1191/69 and Regulation (EEC) No 1107/70 of the Council of 4 June 1970 on
the granting of aids for transport by rail, road and inland waterway (OJ, English Special Edition 1970 (II), p. 360).
In those circumstances, the issue was raised before the national court of the need for an order for reference to the Court
of Justice.
After having heard the arguments of the parties and having held it was necessary to make such an order for reference, the
Supremo Tribunal Administrativo (Supreme Administrative Court) decided to stay the proceedings and to refer to the Court the
following questions for a preliminary ruling:
‘(1)  In the light of Articles 73 [EC], 87 [EC] and 88 [EC] and of Regulation No 1191/69, may the national authorities impose public
service obligations on a public undertaking entrusted with the provision of public passenger transport in a municipality?
(2)       If the answer is in the affirmative, must the national authorities pay compensation in respect of those obligations?
(3)       Must the national authorities, where they are not obliged to hold a tendering procedure for the award of a concession for
the operation of a transport network, extend the compensation obligation to all the undertakings which are regarded, under
domestic law and within the same area, as offering public passenger transport?
(4)       If the answer is in the affirmative, what criterion must apply to the payment of compensation?
(5)       In the case of undertakings providing passenger transport by bus which, by virtue of a public concession, carry on their activity
on an exclusive basis within specified urban districts, but also carry on that activity in competition with private operators
outside the urban areas covered by such exclusivity, does the grant by the State, year by year, of aid intended to cover the
constant operating deficits of such undertakings amount to State aid prohibited by Article 87(1) EC, where:
(a)       it is not possible to ascertain on the basis of reliable data from the relevant accounts the difference between the costs
imputable to the part of the activity of those undertakings in the area covered by the concession and the corresponding income
and consequently it is not possible to calculate the additional cost deriving from the performance of public service obligations
which, under the terms of the concession, may attract State aid?
(b)       the supply of transport services by the undertakings in question may, as a result, be maintained or increased, which entails
the consequence that the opportunities for other undertakings established in this or in another Member State to provide their
transport services may be diminished?
(c)       the above applies notwithstanding the provisions of Article 73 [EC]?
(6)       Having regard to the conditions which the Court of Justice lays down regarding the present Article 87(1) [EC] ..., in particular
in its judgment of 24 July 2003 in Case C-280/00
Altmark Trans and Regierungspräsidium Magdeburg
[ECR I-7747], for classification of State aid (
First
, there must be an intervention by the State or through State resources.
Second
, the intervention must be liable to affect trade between Member States.
Third
, it must confer an advantage on the recipient.
Fourth
, it must distort or threaten to distort competition), what is the meaning and scope of the expressions (i) conferring of
an advantage (ii) which distorts competition, in a situation in which the beneficiaries have exclusive rights for public passenger
transport services in the cities of Lisbon and Oporto but also operate links to those cities, in areas where other operators
are also active? In other words, what criteria must be applied in order to be able to conclude that the conferring of an advantage
distorts competition? In that connection, is it relevant to ascertain the percentage of costs which, as far as the undertakings
are concerned, is attributable to transport services operating outside the area of exclusivity? In short, is it necessary
that the aid has repercussions on the activity carried on outside the exclusivity area (Lisbon and Oporto) in clearly significant
terms?
(7)       Is the intervention by the Commission [of the European Communities] provided for in Articles 76 [EC] and 88 [EC] the only
legal way of enforcing the [EC] Treaty rules on State aid or does the effectiveness of Community law additionally require,
in particular, the possibility of direct application of those rules by the national courts at the request of those private
individuals who consider themselves to be adversely affected by the grant of a subsidy or aid contrary to the competition
rules?’

The questions referred

The first to fourth questions
It is appropriate to deal with the first four questions together, since they essentially concern the powers of the Member
States to impose public service obligations on transport undertakings and the obligations to pay compensation to those undertakings
which may arise as a result.
It must first of all be noted that nothing in the documents before the Court suggests that the Portuguese Republic has made
use of the option, provided for in the second subparagraph of Article 1(1) of Regulation No 1191/69, to exclude from the scope
of that regulation any undertakings whose activities are confined exclusively to the operation of urban, suburban or regional
services. Consequently, the provisions of that regulation are fully applicable to the case in the main proceedings and the
questions referred for a preliminary ruling must be examined in the light of those provisions.
Although its objective is the termination of obligations arising from the concept of a public service, as is apparent both
from the first and second recitals in the preamble to Regulation No 1191/69 and Article 1(3) thereof, Article 1(5) of that
regulation provides that the competent authorities of the Member States may maintain or impose the public service obligations
referred to in Article 2 for urban, suburban and regional passenger transport services. The conditions and details of operation,
including methods of compensation, are laid down in Sections II, III and IV of that regulation.
Under Article 6(2) of Regulation No 1191/69, decisions to maintain a public service obligation or part thereof, or to terminate
it at the end of a specified period, are to provide for compensation to be granted in respect of the financial burdens resulting
therefrom; the amount of such compensation is to be determined in accordance with the common procedures laid down in Articles
10 to 13 of the regulation.
Since the obligation to pay compensation is, under Regulation No 1191/69, necessarily linked to the performance of public
service obligations, undertakings which, in the situation referred to by the national court in the third question, are regarded
as offering a public passenger transport service in a municipality without being subject to any public service obligations,
are not entitled to such compensation.
The answer to the first four questions is therefore that Regulation No 1191/69 must be interpreted as meaning that it authorises
the Member States to impose public service obligations on a public undertaking entrusted with the provision of public passenger
transport in a municipality and that it provides for compensation to be granted in respect of the financial burdens resulting
therefrom; the amount of such compensation is to be determined in accordance with the provisions of that regulation.

The fifth question
By its fifth question, the referring court is essentially inquiring whether the grant by a Member State of compensation payments,
such as those at issue in the main proceedings, to transport undertakings holding a public service concession and which are
entitled, within specific urban districts, to carry on their activity on an exclusive basis because of the public service
obligations to which they are subject, constitutes State aid prohibited by Article 87(1) EC where, in addition, those undertakings
also carry on their activity in competition with private operators outside those specified districts and where it is not possible
to calculate the additional cost deriving from the performance of the public service obligations.
It must first be noted that Article 87 EC is one of the general provisions of the Treaty on State aid, whereas Article 73
EC creates an exception in the field of transport to the general rules applicable to State aid, by providing that aids which
meet the needs of coordination of transport or represent reimbursement for the discharge of certain obligations inherent in
the concept of a public service are compatible with the Treaty. Regulation No 1191/69 establishes a system which the Member
States must comply with when they consider imposing public service obligations on undertakings in the land transport sector
(see
Altmark Trans and Regierungspräsidium Magdeburg
, paragraph 53).
Pursuant to Article 6(2) of Regulation No 1191/69, decisions to maintain a public service obligation or part thereof, or to
terminate it at the end of a specified period, are to provide for compensation to be granted in respect of the financial burdens
resulting therefrom; the amount of such compensation is to be determined in accordance with the common procedures laid down
in Articles 10 to 13 of that regulation.
Article 10 of Regulation No 1191/69 provides, inter alia, that the amount of the compensation must, in the case of an obligation
to operate or to carry, be equal to the difference between the reduction in financial burden and the reduction in revenue
of the undertaking if the whole or the relevant part of the obligation in question were terminated for the period of time
under consideration. However, where the calculation of economic disadvantage was made by allocating among the various parts
of its transport activities the total costs borne by the undertaking in respect of those transport activities, the amount
of the compensation is to be equal to the difference between the costs allotable to that part of the undertaking’s activities
affected by the public service obligation and the corresponding revenue.
As is apparent from the findings made by the referring court and as reflected in the very wording of the fifth question, since
the activities of Carris and the STPC outside their respective areas of exclusivity were not subject to a public service obligation,
it is not possible to ascertain on the basis of reliable data from the accounts of those two undertakings the difference between
the costs imputable to the parts of their activities in the areas covered by the respective concessions and the corresponding
income and consequently it is not possible to calculate the additional cost deriving from the performance of public service
obligations by those undertakings.
Accordingly, the requirement set out in Article 10 of Regulation No 1191/69 is not fulfilled, since the costs imputable to
the part of the activity of Carris and the STPC carried out in the areas in which each was granted an exclusive concession
could not be clearly established.
In such a case, since the compensation payments paid to those undertakings were not granted in accordance with Regulation
No 1191/69, they are consequently not compatible with Community law and it is therefore unnecessary to examine them in the
light of the Treaty provisions relating to State aid, in particular Article 87(1) EC (see, to that effect,
Altmark Trans and Regierungspräsidium Magdeburg
, paragraph 65).
Having regard to the foregoing, the answer to the fifth question is that Regulation No 1191/69 precludes the grant of compensation
payments, such as those at issue in the main proceedings, where it is not possible to determine the amount of the costs imputable
to the activity of the undertakings concerned carried out in the performance of their public service obligations.

The sixth question
In the light of the answer to the fifth question, it is not necessary to answer the sixth question.

The seventh question
By this question, the national court is essentially asking what the role of the national courts is where they find that State
aid has been granted contrary to provisions of Community law.
Since the compensation payments at issue in the main proceedings fall within the scope of Regulation No 1191/69, their compatibility
with Community law must be assessed, as observed in paragraph 28 of this judgment, in accordance with the provisions laid
down by that regulation and not in the light of the Treaty provisions relating to State aid.
Where the referring court reaches the conclusion that those payments were not granted in accordance with Regulation No 1191/69,
it is a matter for that court, having regard to the fact that that regulation is directly applicable, to establish all the
consequences, under national law, as regards the validity of the acts giving rise to those payments.
Having regard to the foregoing, the answer to the seventh question is that, where a national court finds certain aid measures
to be incompatible with Regulation No 1191/69, it is a matter for that court to establish all the consequences, under national
law, as regards the validity of the acts giving effect to those measures.

Costs
Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court,
the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs
of those parties, are not recoverable.
On those grounds, the Court (Second Chamber) hereby rules:
1.
Regulation (EEC) No 1191/69 of the Council of 26 June 1969 on action by Member States concerning the obligations inherent
in the concept of a public service in transport by rail, road and inland waterway, as amended by Council Regulation (EEC)
No 1893/91 of 20 June 1991, must be interpreted as meaning that it authorises the Member States to impose public service obligations
on a public undertaking entrusted with the provision of public passenger transport in a municipality and that it provides
for compensation to be granted in respect of the financial burdens resulting therefrom; the amount of such compensation is
to be determined in accordance with the provisions of that regulation.
2.
Regulation No 1191/69, as amended by Regulation No 1893/91, precludes the grant of compensation payments, such as those at
issue in the main proceedings, where it is not possible to determine the amount of the costs imputable to the activity of
the undertakings concerned carried out in the performance of their public service obligations.
3.
Where a national court finds certain aid measures to be incompatible with Regulation No 1191/69, as amended by Regulation
No 1893/91, it is a matter for that court to establish all the consequences, under national law, as regards the validity of
the acts giving effect to those measures.
[Signatures]
*
Language of the case: Portuguese.