Opinion of the Advocate General — ECLI:EU:C:2022:180
Date: 2022-03-10
Language of the case: Estonian
Subject matter: State aids;Competition;Transport
Procedure: Reference for a preliminary ruling;Reference for a preliminary ruling - inadmissible
Origin: Estonia

summary, those obligations, which may be reflected in a public service contract or, as occurs here, in a general rule, must be accompanied by appropriate financial compensation or by the grant of an exclusive right. 45. It is important to note that general rules relating to tariffs such as those at issue in these proceedings are not of the same nature as rules relating to passenger safety, environmental and employment protection and transport service quality standards. (23) Compliance with those standards, in so far as they shape the regulatory – as opposed to the tariff – framework in which the activity is performed, does not qualify for compensation. 2. Is it possible to exclude consideration? 46. Article 4(1)(b)(i) of Regulation No 1370/2007 refers to ‘the parameters on the basis of which the compensation payment, if any, is to be calculated’. (24) 47. That provision, the interpretation of which the referring court seeks, should not be read as though it gives Member States the power to grant or refuse compensation. Rather, it reflects the possibility that, where a public service contract is entered into pursuant to Article 3(1) of Regulation No 1370/2007, ‘a competent authority [may decide] to grant the operator of its choice an exclusive right’, as an alternative to financial compensation. 48. While the consideration ‘in return for the discharge of public service obligations’, as required by Article 3(1), has to be recorded in a public contract, (25) that will not be the case where the obligation consisting of setting maximum tariffs is imposed by ‘general rules’ (Article 3(2) of Regulation No 1370/2007). 49. As I have already observed, in the latter situation (which is the situation in this case), in accordance with Article 3(2) of Regulation No 1370/2007, ‘the competent authority shall compensate the public service operators for the net financial effect, positive or negative, on costs incurred and revenues generated in complying with the tariff obligations established through general rules in a way that prevents overcompensation.’ 50. It could be counter-argued that, since the public service obligation affects all transport operators equally, there is no reason why compensation should be payable in respect of it, since it does not involve competitive disadvantages for some to the benefit of others. 51. However, I do not believe that Regulation No 1370/2007 supports that view. 52. The Court ruled that Regulation No 1191/69, the precursor to the current regulation, authorised ‘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 [provided] 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.’ (26) 53. Regulation No 1370/2007 provides an equivalent basis for maintaining that position. The fact that, in the case giving rise to the judgment in Antrop, the operator was a public undertaking while in this case it is a private undertaking does not create an obstacle. (27) Rather, the imposition of a costly public service obligation on private entities of a commercial nature, which are deprived of some of the remuneration inherent in their activity, (28) justifies the introduction of compensation payments to balance the negative effects which may have an impact on their competitiveness in the market. 54. It is true that Regulation No 1370/2007 ensures that overcompensation, which would constitute State aid, to which I shall refer below, does not occur. It therefore lays down a number of containment mechanisms, (29) but does not permit the imposition of public service obligations, such as that at issue here, without compensation. 55. The Court has dealt with the scale of compensation payments and their compatibility with the State aid rules. (30) Unless I am mistaken, the Court has not given a ruling on national legislation which simply excludes the payment of compensation in the passenger transport sector for the discharge of public service obligations such as that under examination now. 56. In the judgment in Altmark, (31) the Court examined the lawfulness of certain public subsidies which were intended to enable the operation of regular transport services. When determining whether those subsidies were subject to Article 107 TFEU, the Court had to assess whether they were to be ‘regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations’. (32) 57. The judgment in Altmark thus presupposed that an undertaking responsible for the discharge of clearly defined public service obligations was entitled to consideration (reimbursement), the calculation of which was not to exceed what was necessary to cover all or part of the costs incurred in discharging the public service obligations. (33) 58. Accordingly, the judgment in Altmark confirmed the general principle (that a transport operator should be compensated for a public transport obligation that is costly for it), and also dealt with setting out the conditions ‘for such compensation to escape classification as State aid in a particular case’. (34) 59. The particular feature of this dispute is, as I have noted, the fact that the national law excludes compensation. Against that background, it must be established whether Regulation No 1370/2007 can be used as a basis for the service provider to demand compensation from the authorities of the Member State. 60. In my view, the right to receive payment for the provision of the services supplied to users is inseparable from the pursuit of a commercial activity in the road passenger transport sector, where the transport undertaking has no revenue other than fare revenue. (35) Payment for those services is met either by users or by the authorities which impose the obligation to transport users free of charge. 61. Moreover, the limitation imposed does not affect ‘mere commercial interests or opportunities, the uncertainties of which are part of the very essence of economic activity, but applies to rights with an asset value creating, under the legal system, an established legal position enabling the holder to exercise those rights autonomously and for his benefit’. (36) 62. Accordingly, Article 4(1)(b)(i) of Regulation No 1370/2007 does not authorise the exclusion of appropriate compensation in a situation such as that at issue. C. Question 3 63. By the third question, the referring court seeks to ascertain whether Article 3(3) of Regulation No 1370/2007 provides a basis for excluding from the scope of that regulation general rules for establishing maximum tariffs for categories of passenger other than those referred to in that provision. (37) 64. Pursuant to Article 3(3) of Regulation No 1370/2007, Member States may exclude from the scope of the regulation ‘general rules on financial compensation for public service obligations which establish maximum tariffs for pupils, students, apprentices and persons with reduced mobility.’ 65. That option is conditional on the Member State notifying the Commission of those general rules, providing ‘complete information on the measure and, in particular, details on the calculation method.’ 66. The previous rules, contained in Regulation No 1191/69, (38) also laid down a similar option, applicable to undertakings whose activities are confined exclusively to the operation of urban, suburban or regional services. 67. As in other cases already examined by the Court, (39) the conditions laid down in Article 3(3) of Regulation No 1370/2007 are not satisfied in this case either, in the light of the information provided in the order for reference and the observations of the parties who have participated in the preliminary ruling proceedings. 68. There is nothing in the information and observations concerned to indicate that the Republic of Estonia expressed the intention to exclude its general rules (on maximum tariffs applicable to certain categories of person) from the scope of Regulation No 1370/2007, or that it notified any such rules to the Commission. 69. In those circumstances, the third question is rather hypothetical in nature (and, therefore, inadmissible), since the factual condition to which the application of Article 3(3) of Regulation No 1370/2007 is linked is not fulfilled in the dispute. 70. In any event, the power to exclude those general rules from the scope of Regulation No 1370/2007 does not authorise Member States to disregard the requirements derived from other rules and principles of EU law. I do not believe there is any need for me to expand on this point, for, as I have already noted, the Republic of Estonia has not made use of that option. D. Question 4 71. The fourth question is raised in the event that ‘Regulation No 1370/2007 is not applicable in the present case’. In those circumstances, the referring court asks whether the grant of compensation may be based on another legal act of the Union, such as the Charter. 72. It is not necessary to reply to that question, in view of the fact that Regulation No 1370/2007 applies to the dispute and that it sets out the rules applicable to compensation inherent in public service obligations which are laid down by general rules. 73. There is therefore no need to refer to the Charter in order to provide legal cover for the compensation payments with which these proceedings are concerned. 74. The Charter may be used as an interpretation tool in view of the fact that, as the Estonian Government acknowledges, Paragraph 34 of the ÜTS entails a limitation of the fundamental rights of transport operators. The Estonian Government repeats more than once (40) that Paragraph 34 does not excessively limit the freedom to conduct a business (41) and the right to property, thus agreeing that such a limitation exists. 75. Limitations of fundamental rights may be permissible if regard is had to Article 52(1) of the Charter. (42) For the sectors in which the European Union exercises its powers, such as the road passenger transport sector, the balance between the recognition of a fundamental right and permissible limitations (based on legitimate objectives of general interest) under that article of the Charter, is struck by the Union. (43) 76. As far as compensation payable for public service obligations in the road passenger transport sector is concerned, that balance is struck by the provisions of Regulation No 1370/2007. E. Question 5 77. The referring court asks ‘what conditions must the compensation, if any, to be granted to the carrier meet in order to comply with the State aid rules’. 78. Worded thus, the question resembles an enquiry rather than a genuine question referred for a preliminary ruling which seeks the interpretation of specific provisions of EU law that have a bearing on the dispute. 79. Inevitably, the reply must be equally abstract and confined to pointing out that: – Under Article 93 TFEU, included in Title VI (‘Transport’), ‘aids shall be compatible with the Treaties … if they represent reimbursement for the discharge of certain obligations inherent in the concept of a public service.’ – Article 3(2) of Regulation No 1370/2007 provides that the competent authority ‘shall compensate the public service operators for the net financial effect, positive or negative, on costs incurred and revenues generated in complying with the tariff obligations established through general rules in a way that prevents overcompensation.’ – That compensation must comply with Articles 4 and 6 of Regulation No 1370/2007 and with the annex thereto. The annex contains the rules applicable to compensation for the cases indicated in Article 6(1) (public service obligations imposed by general rules), so that any compensation is not excessive. (44) – In so far as compensation payments for compliance with tariff obligations laid down by general rules are paid under Regulation No 1370/2007, they will be compatible with the internal market and exempt from the requirement of prior notification to the Commission. (45) – Compensation may constitute State aid, which a Member State must notify to the Commission under Article 108 TFEU, only if that compensation is excessive in relation to the calculation parameters laid down in the provisions referred to above. (46) – Ultimately, account must be taken of the criteria laid down by the Court in the Altmark judgment (47) for identifying the existence of State aid, which is governed by Article 107 TFEU. State aid is to be understood as aid which affords an advantage, not that which is strictly compensatory. ‘State aid’ within the meaning of Article 107 TFEU is not the same as aid which merely compensates for the fulfilment of public service obligations. (48) 80. The function of applying those criteria to the dispute goes beyond the role of interpreting EU law, which Article 267 TFEU assigns to the Court. It is, therefore, for the referring court to determine whether, in this case, the amount of compensation should be estimated as any loss of profits suffered by the transport undertaking, calculated by reference to the basic ticket price or such other criteria as the referring court may consider appropriate. The provisions of the annex to Regulation No 1370/2007, to which the referring court refers in the final part of the order for reference, will provide it with guidance for that task. V. Conclusion 81. In the light of the foregoing considerations, I propose that the Court of Justice reply as follows to the Tallinna Halduskohus (Administrative Court, Tallinn, Estonia): (1) Articles 2(e) and 3(2) of Regulation (EC) No 1370/2007 of the European Parliament and of the Council of 23 October 2007 on public passenger transport services by rail and by road and repealing Council Regulations (EEC) Nos 1191/69 and 1107/70 are to be interpreted as meaning that the general rule which requires all undertakings providing regular passenger transport services by road to transport certain categories of passenger free of charge constitutes a public service obligation. (2) Article 4(1)(b)(i) of Regulation No 1370/2007 does not authorise the exclusion, by a national law, of payment to a transport operator of the compensation due for that public service obligation. (3) In accordance with Article 3(3) of Regulation No 1370/2007, a Member State may exclude from the scope of that regulation general rules on financial compensation for public service obligations which establish maximum tariffs for certain categories of passenger, notifying those rules to the Commission with complete information on the measure. (4) Any compensation due for the discharge of public service obligations must comply with Articles 4 and 6 of Regulation No 1370/2007 and the annex thereto. Where, in order to comply with tariff obligations laid down by general rules, compensation is paid under Regulation No 1370/2007, that compensation will not be regarded as State aid, will be compatible with the internal market and will be exempt from the requirement of prior notification to the Commission. 1 Original language: Spanish. 2 Regulation of the European Parliament and of the Council of 23 October 2007 on public passenger transport services by rail and by road and repealing Council Regulations (EEC) Nos 1191/69 and 1107/70 (OJ 2007 L 315, p. 1). 3 Law on public passenger transport (RT I, 23 March 2015, 2), in the version applicable to the main proceedings (RT I, 30 June 2020, 24); ‘the ÜTS’. 4 From August 2013 and March 2015, respectively, those undertakings held licences to provide passenger transport services, under which they provided regular transport services by bus on a commercial basis in Estonian territory. Following their merger on 29 July 2019, Lux Express Estonia continued that activity. 5 Since the application in the administrative proceedings was lodged, the amount claimed has changed, as regards its temporal scope, to encompass the period from 1 January 2016 to 31 January 2020. 6 The Estonian Government (paragraphs 7 to 9 of its observations) states that, where regular transport services are freely provided by private undertakings, those undertakings assume their own commercial risk, select the regular service route that interests them and, in order to operate that route, submit an application for a licence. If any routes are not economically attractive to commercial transport operators but are of interest to users, the competent authority establishes a public service obligation by concluding a public service contract. That contact is usually awarded through a tendering procedure and sets out the conditions for provision of the service and any applicable subsidies. 7 Point 9 of this Opinion. 8 Article 2(e) of Regulation No 1370/2007. Recital 5 of the regulation is similarly worded: ‘many inland passenger transport services which are required in the general economic interest cannot be operated on a commercial basis. The competent authorities of the Member States must be able to act to ensure that such services are provided. The mechanisms that they can use to ensure that public passenger transport services are provided include the following: the award of exclusive rights to public service operators, the grant of financial compensation to public service operators and the definition of general rules for the operation of public transport which are applicable to all operators.’ 9 Article 1(1) of Regulation No 1370/2007. 10 Defined in points (i) and (l) of Article 2 of Regulation No 1370/2007, respectively. A public service contract reflects an ‘agreement between a competent authority and a public service operator’. A general rule means ‘a measure which applies without discrimination to all public passenger transport services of the same type in a given geographical area’. 11 There is little doubt that the Estonian legislature qualifies as a competent authority within the meaning of Article 2(b) of Regulation No 1370/2007. 12 Observations of the Estonian Government, paragraph 11. According to the Estonian Government, the ÜTS ‘echoes the Estonian Constitution’ and ‘the special care that society affords to families with young children and persons with disabilities, so that limitations of fundamental rights for that purpose must be regarded as lawful. The legislature has a broad discretion when it limits fundamental rights for social policy purposes’. The fact that a limitation of fundamental rights occurs is acknowledged more than once: not only in paragraph 11 (twice) but also in paragraphs 12, 22, 49 and 50 of the Estonian Government’s observations. 13 In the judgment of 14 October 2021, Viesgo Infraestructuras Energéticas (C‑683/19, EU:C:2021:847), the Court categorised as a public service obligation (within the meaning of Article 3(2) of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ 2009 L 211, p. 55)) a duty having similar features, which was imposed on retail undertakings to supply electricity at a reduced rate to vulnerable customers. 14 In the judgment of 14 October 2021, Viesgo Infraestructuras Energéticas (C‑683/19, EU:C:2021:847), the Court held that Directive 2009/72 did not preclude ‘the system for financing a public service obligation consisting in the supply of electricity at a reduced rate to certain vulnerable consumers from being established … without any compensatory measure’ (paragraph 61). 15 Article 3(1) of Regulation No 1370/2007 refers specifically to consideration ‘in return for the discharge of public service obligations’. 16 Under Article 2(g) of Regulation No 1370/2007, compensation is identified as ‘any benefit, particularly financial, granted directly or indirectly by a competent authority from public funds during the period of implementation of a public service obligation or in connection with that period’. 17 Article 2(f) of Regulation No 1370/2007 treats as such ‘a right entitling a public service operator to operate certain public passenger transport services on a particular route or network or in a particular area, to the exclusion of any other such operator’. 18 Council Decision of 13 May 1965 on the harmonisation of certain provisions affecting competition in transport by rail, road and inland waterway (OJ 1965 L 88, p. 1500). 19 Regulation 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 1969 L 156, p. 1). 20 Although the amendment effected by Council Regulation (EEC) No 1893/91 of 20 June 1991 amending Regulation (EEC) No 1191/69 (OJ 1991 L 169, p. 1) deleted Article 1(4) of Regulation No 1191/69, it retained Article 9, which meant that compensation in respect of financial burdens devolving upon undertakings by reason of the application to passenger transport of transport rates and conditions imposed in the interests of one or more particular categories of person continued to exist. 21 Therefore, the compensation obligation did not cover ‘general measures of price policy’ or ‘measures taken with respect to transport rates and conditions in general with a view to the organization of the transport market or of part thereof’. See judgment of 27 November 1973, Nederlandse Spoorwegen (36/73, EU:C:1973:130, paragraphs 11 to 13). 22 Added pursuant to Regulation (EU) 2016/2338 of the European Parliament and of the Council of 14 December 2016 (OJ 2016 L 354, p. 22). 23 These are referred to in recital 17 of Regulation No 1370/2007. 24 Italics added. 25 See Communication from the Commission on interpretative guidelines concerning Regulation (EC) No 1370/2007 on public passenger transport services by rail and by road (OJ 2014 C 92, p. 1) (‘the Commission Communication’), section 2.2.3, second paragraph. 26 Judgment of 7 May 2009, Antrop and Others (C‑504/07, EU:C:2009:290; ‘judgment in Antrop’), paragraph 21. 27 In accordance with recital 12 of Regulation No 1370/2007, ‘it is immaterial from the viewpoint of Community law whether public passenger transport services are operated by public or private undertakings’. 28 The Estonian Government and Lux Express Estonia disagree when estimating the real effect of the measure in economic terms. The Estonian Government submits that that effect is ‘low’ (paragraph 15 of its observations), whereas the operator submits that it places a significant burden on its turnover. 29 Article 4, Article 6 and the annex. 30 Judgment in Antrop, paragraph 23: ‘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.’ 31 Judgment of 24 July 2003, Altmark Trans and Regierungspräsidium Magdeburg (C‑280/00, EU:C:2003:415; ‘judgment in Altmark’). 32 Ibidem, paragraph 87. 33 The conditions in the Altmark judgment appear to have inspired the wording of a number of provisions of Regulation No 1370/2007. 34 Judgment in Altmark, paragraph 88. 35 Lux Express Estonia notes (paragraph 3 of its observations) that ticket sales are its sole source of revenue as it does not receive State subsidies. It adds (paragraph 28 of its observations) that it does not benefit from other elements of compensation, such as the grant of exclusive rights, either. 36 Judgment of 3 September 2015, Inuit Tapiriit Kanatami and Others v Commission (C‑398/13 P, EU:C:2015:535, paragraph 60). As I have already pointed out, how such a right is quantified in each case is a separate matter. Certain obligations imposed (for example, the obligation relating to very young children who do not occupy a seat) may have no negative effects on an operator’s finances. 37 The list of beneficiaries under Article 3(3) of Regulation No 1370/2007 (pupils, students, apprentices and persons with reduced mobility) could include, by analogy, the categories under Paragraph 34 of the ÜTS. The latter refers to children of pre-school age and to other persons, minors and adults, who have disabilities. As the Estonian Government states (paragraph 41 of its observations), the general rules which establish maximum tariffs for categories of passenger similar to those referred to in Article 3(3) should comply with that article for the same reasons of general interest. 38 Second subparagraph of Article 1(1), as amended by Regulation No 1893/91. 39 Judgment of 3 April 2014, CTP (C‑516/12 to C‑518/12, EU:C:2014:220, paragraph 20): ‘nothing in the documents before the Court suggests that the Italian Republic has made use of the option, provided for in the second subparagraph of Article 1(1) of Regulation No 1191/69, of excluding 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 cases in the main proceedings and the question referred for a preliminary ruling must be examined in the light of those provisions’. See also judgment in Antrop, paragraph 17. 40 See footnote 12 of this Opinion. 41 Since ‘a burden … capable of affecting his economic activity’ is placed on the transport operator, the right of freedom to conduct a business, protected by Article 16 of the Charter, is applicable (see judgment of 15 September 2016, McFadden (C‑484/14, EU:C:2016:689, paragraph 82)) in addition to the right to property. 42 Judgment of 21 May 2019, Commission v Hungary (usufruct over agricultural land) (C‑235/17, EU:C:2019:432, paragraph 88): ‘under [Article 52(1) of the Charter] limitations may be imposed on the exercise of the rights recognised by the Charter, as long as the limitations are provided for by law, respect the essence of those rights and, subject to the principle of proportionality, are necessary and genuinely meet objectives of general interest recognised by the European Union or the need to protect the rights and freedoms of others.’ 43 Subject, naturally, to the review by the Court of the validity of provisions of EU secondary law. 44 Compensation must not place an operator in a more favourable position than its competitors on the market. Therefore, in accordance with paragraph 2 of the Annex to Regulation No 1370/2007, the financial effects are assessed ‘by comparing the situation where the public service obligation is met with the situation which would have existed if the obligation had not been met.’ If the net financial effect limit is exceeded, the excess will constitute State aid. 45 Commission Communication, section 2.4.1: ‘In the case of public passenger transport services by rail and by road, provided that compensation for those services is paid in accordance with Regulation (EC) No 1370/2007, such compensation shall be deemed compatible with the internal market and shall be exempt from the prior notification requirement laid down in Article 108(3) TFEU, in accordance with Article 9(1) of that Regulation.’ 46 Ibid., section 2.2.4. 47 Ibid., section 2.4.1: ‘In order not to constitute State aid, such compensation would have to respect the four conditions laid down by the European Court of Justice in the Altmark judgement’. 48 Judgment in Altmark, paragraph 87.