Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL concerning the granting of aid for the co-ordination of transport by rail, road and inland waterway

(presented by the Commission)

EXPLANATORY MEMORANDUM

Introduction

1. It is almost 30 years since Regulation (EEC) 1107/70 [1] on the granting of aids for transport by rail, road and inland waterway was adopted by the Council. At the time of adoption, land transport operators (particularly in the rail sector) and networks were to a large extent administered by the Member States themselves. Once Council Decision 65/271/EEC of 13 May 1965 [2], on the harmonisation of certain provisions affecting competition in transport by rail, road and inland waterway, had confirmed that the land transport sector was subject to the general State aid rules of the EC Treaty, it was necessary to specify what amounted to "co-ordination" within Article 73 EC Treaty so that the boundaries between that exception and those general rules could be known with certainty. Council Regulation (EEC) 1107/70 sought to do this.

[1] OJ L130/1, 15.6.1970, as last amended by Council Regulation (EC) 3578/92 (OJ L364/11, 12.12.1992), Council Regulation (EC) 2255/96 (OJ L304/3, 27.11.1996) and Council Regulation (EC) 543/97 (OJ L84/6, 26.3.1997)

[2] OJ 88/1500, 24.5.1965

2. Since then the road, rail and inland waterway sectors have gone through major processes of liberalisation, at various speeds and to differing extents. In addition, various guidelines and other instruments relating to Articles 87 and 88 EC Treaty have been published. Although Council Regulation (EEC) 1107/70 has to some extent been amended to deal with these developments, such amendment has been piecemeal and there is a clear case for a wholesale simplification and consolidation of the text so that every Article has a purpose suited to the needs of the current context. The Commission believes the best way of achieving such clarity and simplicity is to replace the existing Regulation with an entirely new Regulation.

3. One of the functions of the proposed Regulation is to clarify how the application of Article 73 EC Treaty will reflect the manner in which the transport market has developed over time. Article 73 certainly has a role to play with regard to the financing of infrastructure. The present Regulation proposes therefore a comprehensive exception for aid for the development and eventually operation of transport infrastructure which benefits infrastructure managers and, in the freight sector, aid for the benefit of users of transport infrastructure which compensates them for the unpaid costs of competing modes.

Liberalisation of the Land transport sectors

4. Liberalisation in land transport is delayed through the requirement of Article 71 EC Treaty for specific market access legislation. Contrary to other business sectors, which were immediately liberalised through the Treaty provisions on freedom to provide services, full market access to transport markets is still to be achieved. The various measures of liberalisation that have been taken with regard to freedom to provide land transport services since the adoption of Council Regulation (EEC) 1107/70 can be summarised as follows.

1. Road

5. Access to international road haulage was opened up to Community competition in 1969 through a system of Community quotas. In 1992 the Council adopted a Regulation abolishing quantitative restrictions on access to the market in the international carriage of goods by road [3] as from 1 January 1993 and introducing a Community authorisation entitling the holder to provide international goods transport services by road anywhere in the Community, to be granted to undertakings according to common qualitative criteria. Following the limited introduction of cabotage in July 1990 [4] (i.e., the right for non-resident carriers to operate services entirely within a Member State), the Council agreed in June 1993 on a progressive annual increase in the quota leading to the abolition of any quantitative restrictions on the provision of cabotage services on 1 July 1998 [5].

[3] Council Regulation (EEC)881/92 (OJ L95/1, 9.4.1992)

[4] Council Regulation (EEC)4059/89 (OJ L390/3, 30.12.1989)

[5] Council Regulation (EEC)3118/93 (OJ L 279, 12.11.1993, p.1.)

6. Access to the international market for the carriage of persons has been liberalised through Council Regulation (EEC) 684/92 of 16 March 1992 on common rules for the international carriage of passengers by coach and bus [6]. This Regulation, which entered into force on 1 June 1992, lays down market access conditions for each type of road passenger transport service. Cabotage rights were introduced by Council Regulation (EEC) 2454/92 of 23 July 1992 laying down the conditions under which non-resident carriers may operate national road passenger transport services within a Member State [7] and was replaced by Council Regulation (EEC)12/98 of 11 December 1997 laying down the conditions under which non-resident carriers may operate national road passenger transport services within a Member State [8]. Under this Regulation, road passenger transport cabotage, except for national regular services, is liberalised as from 1 January 1996.

[6] OJ L 74/1, 20.3.1992

[7] OJ L 251/1, 29.8.1992

[8] OJ L 4/10, 8.1.1998

7. The freedom of establishment, although not subject to any specific restrictions on the basis of the EC Treaty articles, has been given effect in the road transport sector through the Directives on admission to the occupation [9].

[9] Council Directive 96/26/EC of 29 April 1996 on admission to the occupation of road haulage operator and road passenger transport operator and mutual recognition of diplomas, certificates and other evidence of formal qualifications intended to facilitate for these operators the right to freedom of establishment in national and international transport operations (OJ L 124/1, 23.05.1996)

2. Rail

8. Community legislative initiatives aimed at encouraging a degree of commercial independence of the railways, at least in accounting terms, date back to the 1970s [10]. In 1985 the application of the transparency Directive was extended to encompass undertakings in the rail, road and inland waterway sectors, thus requiring, inter alia, greater transparency in the accounts of railway undertakings [11].

[10] Council decision of 20 May 1975 on the improvement of the situation of railway undertakings and the harmonisation of rules governing relations between such undertakings and the State (OJ L152/3, 12.6.1975)

[11] Commission Directive 85/413 EEC of 24 July 1985 amending Directive 80/723 EEC on the transparency of financial relations between Member States and public undertakings (OJ L 229/20, 28.8.1985)

9. But real liberalisation of the sector began in 1991 with the adoption of Council Directive 91/440/EEC [12] on the development of the Community's railways. The aim of this Directive was to improve the efficiency of the railway system and to integrate it into a competitive market. It provided for management independence of railway undertakings; separation of accounts of railway operations and infrastructure (with optional management separation); an improvement in the financial structure of the railways by the reduction of historical indebtedness; and the compulsory provision of access and transit rights for international groupings of railway undertakings and for railway undertakings engaged in the combined transport of goods.

[12] OJ L237, 24.8.1991, p.25.

10. Rules governing the freedom of establishment for railway undertakings carrying out services under Directive 91/440/EEC are set down in Council Directive 95/18/EC on the licensing of railway undertakings [13] which lays down the broad principles of a Community licensing system.

[13] OJ L 143/70, 27.6.1995

11. In 1995 the Commission presented a proposal for a Directive amending Article 10 of Directive 91/440/EEC, proposing to extend its scope to freight in general and to international passenger services [14].

[14] COM (95) 337 final, adopted by the Commission on 19 July 1995: Communication from the Commission on the development of the Community's railways; application of Directive 91/440/EEC; Future measures to develop the railways; Proposal for a Council Directive amending Directive 91/440/EEC on the development of the Community's railways

12. It was recognised that access rights could be unusable in the absence of rules governing the setting of access charges and the allocation of track capacity. Rules governing these issues and safety certification were set down in Council Directive 95/19/EC.

13. It became clear that some of the provisions of Council Directive 91/440/EEC and Council Directives 95/18/EC and 95/19/EC were too vague to be effective. In particular they did not enable railway undertakings to be confident that they could actually use the access rights that had been created in Council Directive 91/440/EEC. After extensive studies, the Commission has responded with a package of proposals that strengthen some of the elements of the directive, extend the licensing rules to all railway undertakings in the Community and establish clear rules and processes for setting charges and capacity allocation. This package of proposals was adopted by the Commission in July 1998 and has been transmitted to the Council and the European Parliament for adoption. It has become known as the "railway infrastructure package" [15].

[15] COM (1998) 480 final, adopted by the Commission on 22 July 1999, OJ C321/6, 20.10.98, and amended proposal COM(99)616 final, adopted by the Commission on 25 November 1999: Proposal for a Council directive amending Directive 91/440/EEC on the development of the Community's railways; Proposal for a Council directive amending Directive 95/18/EC on the licensing of railway undertakings, Proposal for a Council directive relating to the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification.,

3. Inland waterways

14. Historically, national systems of "chartering by rotation" have existed. Under these systems requests for transport were granted by rota to carriers, at previously fixed prices. Council Directive 96/75/EEC of 19 November 1996 [16] now requires Member States to abolish such systems from 1 January 2000, from which time contracts in the field of national and international inland waterway transport in the Community are to be freely concluded and prices freely negotiated.

[16] OJ L 304/12, 27.11.1996

4. Combined transport

15. The market for providing combined transport services has now been fully liberalised since 1 July 1993 under Articles 2 and 4 of Council Directive 92/106/EEC on the establishment of common rules for certain types of combined transport of goods between Member States [17]. Any EU/EEA company or person is free, under the general rules of the EC Treaty on freedom of establishment and freedom to provide services, to offer combined transport services anywhere in the Community.

[17] OJ L 368/38, 17.12.1992

The application of Article 87(1) EC Treaty to State financing of infrastructure

16. According to Article 87(1) EC Treaty, aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.

17. State financing of infrastructure open to all potential users in a non-discriminatory way and managed by the State does normally not fall under Article 87(1) EC Treaty as in this case no advantage is conferred on an undertaking competing with other undertakings. Most land transport infrastructure financing (e.g. road infrastructure constructed and maintained by the public authorities, inland waterway channels) takes the form of this kind of investment.

18. Transport operators and any other users of transport infrastructure clearly fulfil the definition of undertaking - that is, an entity which operates in a competitive market with a long-term expectation of generating profit or, at least, of cost recovery. It is clear from the Court's jurisprudence on the term undertaking that the central issue in this context is whether an economic activity is being carried out. The organisational form, by which the activity is carried out, is less relevant. Thus for example the establishment or management of roads by administrations which are not seeking any economic return on their investment will be always outside the scope of this Regulation.

19. A private or public transport infrastructure manager, separate from State administration, will always meet the definition. From the point of view of existing or potential competitors, any financial benefit then provided to such undertakings may, in principle, distort competition. An effect on trade between Member States is realised through market access legislation on Community or national level. Public procurement rules and the Treaty articles on freedom of establishment and free movement of capital also have a certain impact.

20. If such an infrastructure manager was however chosen by an open and non-discriminatory procedure, and, therefore, the State support granted to it for maintenance and provision of land transport infrastructure represents the market price to achieve the desired result, in principle the financing will be deemed to be compatible with the common market.

21. In other cases, investment aid provided to a particular manager of infrastructure should be permitted as compatible only to the extent it is necessary to enable the realisation of the project or activity concerned and provided it does not give rise to a distortion of competition to an extent contrary to the common interest.

The application of Article 73 EC Treaty and the legal basis of the Regulation

22. A specific State aid approach is needed in transport because of the requirement for State intervention to ensure transport services which serve the purposes of town and country planning and which meet social and environmental concerns. This entails the need for public expenditure - not only with regard of the building of infrastructure but also to meet operating losses of services in the general interest.

23. The Treaty, in its Article 73, has provided for a State aid exemption meeting these concerns. The coordination of transport and compensation for the provision of public services is considered aid-worthy. Community secondary legislation and its specific application have built on this Treaty article.

24. In contrast to Article 87(3)c EC Treaty, the notion of co-ordination in article 73 implies more than facilitating the development of an industry. It involves some form of planning by the State. Accordingly, in the light of the developments in liberalisation, the need for State financial measures to co-ordinate land transport has now been considerably reduced. Most types of aid to land transport can now be dealt with by the types of horizontal aid measures applicable to all business sectors. Indeed, in a liberalised market co-ordination may be achieved by the market itself insofar the as the free interplay of market forces is not hampered by market failures. Accordingly, the concept of aid meeting the needs of co-ordination of transport underlying this regulation refers to the need for Government intervention arising (1) in the absence of competitive markets or (2) in the presence of market failures like negative externalities or public goods.

25. In addition to Article 73 EC Treaty, the legal basis of the proposed Regulation includes Article 71 EC Treaty since it is an instrument implementing the Common Transport Policy and Article 89 EC Treaty since it exempts certain measures from the notification requirements in Article 88(3) EC Treaty.

Compensation for public service obligations

26. The financing of public services is dealt with by the second case of the aid exemption given in Article 73 EC Treaty, which states that aid that represents reimbursement for the discharge of obligations inherent in the concept of a public service shall be compatible with the Treaty. Public service obligations are obligations which the transport undertaking in question, if it were considering its own commercial interest, would not assume or would not assume to the same extent or under the same conditions. Council Regulation (EEC) 1191/69 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 [18] establishes criteria fixing the amount of State compensation that is permitted when such public service obligations are imposed. The Regulation provides also for rules on public service contracts, which in principle do not raise a State aid issue.

[18] OJ L 156/1, 28.6.1969 as amended by Council Regulation of 20 June 1991 (OJ L169/1, 29.6.1991)

27. The Commission has set out its intention to identify how the regulatory framework for domestic passenger transport could best be updated in order to achieve greater transparency in the financial relationships between public authorities and undertakings providing transport services, and where market forces could best be introduced - possibly in the form of tendering [19].

[19] See COM(95) 601, The citizens' network - fulfilling the potential of public passenger transport in Europe. See also COM(96) 421 final, A strategy for revitalising the Community's railways and COM(98)431, Developing the Citizens' Network.

The application of Article 87(3)c EC Treaty

28. The more a sector is liberalised, the less is the need for the State to provide financial support to undertakings on the grounds of "co-ordinating" transport, and State aid relating to the development of a transport industry therefore falls not under Article 73 EC Treaty but under the conditions of Article 87(3)c EC Treaty. Under this Article the Commission can authorise State aid to facilitate the development of certain economic activities or of certain economic areas, where the aid does not adversely affect trading conditions to an extent contrary to the common interest.

29. The Commission has adopted several horizontal regulations and guidelines that further specify the application of the Article to research and development, environmental protection, employment, training and rescue and restructuring of firms in difficulty [20].

[20] Community framework for State aid for research and development (OJ C 45/5, 17.2.1996); Community guidelines on State aid for environmental protection (OJ C 72/3, 10.3 94) Guidelines on aid to employment (OJ C 334/4, 12.12.1995); Community guidelines on State aid for rescuing and restructuring firms in difficulty (OJ C 368/12, 23.12.94). It should be noted that the Community guidelines on State aid for small and medium-sized enterprises (OJ C 213/4, 23.7.1996) do not cover transport undertakings (paragraph 3.3).

1. Rescue and restructuring of firms in difficulty

30. With regard to railway companies, Council Directive 91/440/EEC repealed, as from 1 January 1993, previous Community legislation, which allowed for debts to be written off unconditionally. Write-offs of debt generated since that date now have to be notified to the Commission and will be subject to treatment under the State aid rules. One particular guiding principle is the need to strike a balance between providing the necessary funds to incumbent national railways to help them adapt to the changing market situation on the one hand, and other factors such as the need to ensure that they make necessary productivity improvements on the other hand. This philosophy was first set out in the Commission's White paper of 1996. [21]

[21] COM (96) 421 final, White paper on a "Strategy for revitalising the Community's railways, Paragraph 29:"...The Commission will only authorise such aid if it is in accordance with the Treaty, in particular Article 92 (now Article 87). In practice a necessary, but not necessarily a sufficient, condition of authorisation would be a restructuring programme, in accordance with the Community guidelines."

2. Development of a sector in general

31. The Commission examines on a case-by-case basis aid for transport undertakings covering matters such as early retirement, capacity reduction, new environmental and safety technologies (investment aid for vehicles is cleared only under the strict objectives of the Community environmental framework), training, and mergers and co-operative arrangements - in so far as horizontal Community legislation, frameworks or guidelines on State aid provide for the necessary exceptions.

Explanation of the text of the proposal

32. In this section the main points arising from the text of the proposed regulation will be explained article by article, to the extent that they are not discussed elsewhere in this memorandum.

Article 1 - Scope

33. The proposed Regulation implements the part of Article 73 EC Treaty which concerns co-ordination of transport activities concerning rail, road and inland waterways.

34. It follows, in particular, that maritime transport facilities are not covered by the regulation. It is necessary to distinguish between different functions of transhipment and not to consider the locations of transhipment facilities.(e.g. inside or outside maritime port areas). Transhipment between land transport modes is consequently covered by the present regulation, regardless of the location of the corresponding transhipment facilities. However, all transhipment involving maritime transport, even in combination with land transport modes, falls outside the proposed Regulation

Article 2 - Definitions

35. When defining "transport infrastructure" the line needs to be drawn between, on the one hand, assets which play a long-term role in assisting the operation of the main infrastructure, including navigational and safety systems and, on the other hand, moveable facilities and equipment, which can not be considered as infrastructure.

36. The term "infrastructure manager" may be more familiar in the railway context than in other land transport modes. However for the purposes of this proposed Regulation common terminology and a common approach are required, and for this reason the term is used to signify any public, private or mixed undertaking responsible in particular for establishing or maintaining transport infrastructure.

37. The application of the Article 3 exemption is dependent on the "infrastructure manager" being an undertaking. This mirrors Article 87(1) EC Treaty. See also the explanations concerning the application of Article 87(1) EC Treaty to State financing of infrastructure above.

38. The notion of external costs is not yet defined in Community law. See also explanations on how Article 4 of the Regulation will be applied.

Article 3 - The general infrastructure EXCEPTION

1. Introduction

39. As indicated by the Commission in the recent White Paper on infrastructure charging [22], the increasing role of independent undertakings operating under commercial perspectives in developing and managing transport infrastructure, in the land transport sector in particular, has highlighted the need to clarify and update the Commission's approach to State aid for infrastructure in this sector. Nevertheless, an important initial point is that the provision of many kinds of land transport infrastructure remains to a large extent an activity in which Member States play a central role, and State aid policy is not intended in any way to discourage this where it is necessary and does not significantly distort competition. The Commission has often stated that the financing of infrastructure projects where the infrastructure is to be made generally available to all users in accordance with Community law usually raises no State aid issue. For example, the White Paper on rail transport states that "it is the Commission's practice to authorise public investment in infrastructure, so long as it is equally accessible under the same non-discriminatory conditions and does not distort competition" [23].

[22] Commission White Paper COM(1998)466 final , Fair payment for infrastructure use - A phased approach to a common transport infrastructure charging framework in the European Union, Bulletin of the EU, Supplement 3/98.

[23] COM (96)421 final, , Paragraph 31.

40. A legal exception is however needed for those cases, which may prima facie raise an issue of State aid. To date, exceptions have existed (under Council Regulation (EEC) 1107/70) for direct investment in inland waterway and combined transport terminals only. Specific exceptions, however, cause legal uncertainty and competitive distortions. In addition, they do not encourage a more integrated approach to infrastructure in land transport. Accordingly the Commission believes it best to replace those specific exceptions with a general infrastructure exception. The value of the exception is that it will provide legal certainty to infrastructure managers where they need it. It will do this by providing the Commission with the legal means to approve cases of financing for the development or management of infrastructure in land transport where State aid issues may prima facie arise in the future. The following sub-section gives, by way of example, some key practical areas where an exception is needed.

2. The impact of tendering and tendering principles

41. The Commission takes the view that where aid within the meaning of Article 87(1) EC Treaty exist, the holding of an open and non-discriminatory tender will in most cases, render the aid compatible with the common market since it ought to ensure that:

- the compensation to the manager for the activity concerned is the least amount necessary for, or the market price of, the product and

- any advantage gained by the manager as a result of the contract itself, or in competing for traffic, or as a user of the infrastructure if some capacity is reserved to the manager, is one which the manager's competitors had an equal opportunity of obtaining.

42. Tendering will often be required under the public procurement rules, in which case the detailed procedures contained in those rules must be followed. While application of Community procurement rules will avoid many problems concerning infrastructure projects and State aids, they will not always apply.

43. First, as confirmed in the Commission's recent Communication on this subject, the rules do not currently require a pure service concession contract to be put out to tender [24]. A concession for the management of infrastructure alone can be an example of a service concession. Second, a fundamental feature of the public procurement rules is that they are based on the existence of a contract. Thus for example aid for a consortium granted the right by administrative action or even by law to manage an infrastructure project would fall outside the rules. Third, not every subsidy for infrastructure will necessarily involve a "procurement" by the State. Fourth, it may become necessary to deal with any State aid issues independently of any remedies for breach of the public procurement rules which may well not be appropriate by themselves to resolve the State aid issue.

[24] COM(1998)143 final, Public Procurement in the European Union, 11.03.1998, page 9. The Works Directive is likely to be of most relevance (Council Directive 93/37/EEC of 14 June 1993 , OJ L 199/54, 9.8.1993). Clearly the individual circumstances of the case would need to be checked to see if any works above, or likely to be above, the financial threshold set by the Directives were involved in the contract, bringing it within the tendering requirement.

44. In most potential State aid cases, no Community prescription exists for an open, transparent and non-discriminating procedure. The most appropriate approach seems to be to refer to the broad principles that should be followed. Such principles derive from the approach chosen in other Community acts: the sale of land guidelines [25], the maritime State aid guidelines [26] and the air transport access Regulation [27]. In adapting those principles to the needs of land transport infrastructure the Commission believes the most appropriate approach is that:

[25] Commission Communication concerning aid elements in land sales by public authorities (OJ C 209, 10.7.1997, p.3).

[26] Community guidelines on State aid to maritime transport (OJ C 205/5, 5.7.1997).

[27] Council Regulation (EEC)2408/92 (OJ L 240/8, 24.8.92), Article 4. See also: Application of Articles 87 and 88 EC Treaty and Article 61 of the EEA Agreement to State aids in the aviation sector (OJ C 350/5, 10.12.1994).

- the competent authority should advertise the contract to all potentially interested bidders at EU/EEA level, and then communicate the specification and selection criteria to all parties who express an interest, giving them enough information and time to prepare a proper bid and

- the award criteria should either be the lowest contribution requested or the most economically advantageous offer - in which case relevant factors should be ranked in order of priority - and the criteria chosen should in fact be applied.

3. Practical illustrations of the need for an exception

a) Public Private Partnerships

45. In recent years many large infrastructure projects have involved a partnership between the Member State concerned and one or more private undertakings which often contribute capital and bear substantial risk in relation to the building of new infrastructure. In return, the private undertaking or consortium will be awarded State financial support to carry out the project and may be given the exclusive right to manage the infrastructure once it is built.

46. The Commission has often stated its view that such projects may entail consideration under the State aid rules, although the public support can frequently be arranged so that it is compatible with those rules [28]. Aid for infrastructure may affect competition in particular between potential infrastructure managers for the award of the infrastructure management or building contract and between transport operators as users of the infrastructure. The managers to whom the contract is awarded may themselves be a potential user of the infrastructure and may, as part of the contract, be awarded the exclusive use of part of its capacity. If an open and non-discriminatory procedure is carried out to select the relevant undertaking or consortium this ought in principle solve any issues mentioned above and make the aid compatible with the common market [29].

[28] See in particular COM(97)453 final, Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on Public-Private Partnerships in Trans-European Transport Network Projects at section 2.2, final paragraph.

[29] i.e. the issue ought to be resolved for State aid purposes. The reservation of capacity itself may be dealt with separately under the general competition rules of the EC Treaty (see the Commission's Communication SEC(97) 1673 final, Clarification of the Commission recommendations on the application of the competition rules to new transport infrastructure projects)

47. However, where there is no tender, or no adequate tender, there is a need for an infrastructure exception so that the State support may in principle be examined and exempted if the amount of support is limited to what is strictly necessary to achieve the project concerned and competition is not distorted to an extent contrary to the common interest and therefore falls within the rules.

b) Trans European Network

48. The Council has confirmed the Commission's policy to encourage Public Private Partnership financing methods for infrastructure projects, especially for those seen as important to the development of the Trans European Network [30]. Such projects are likely to be either extensions of open networks by existing managers - in which case no notification will be required under this regulation - or new projects or projects with a new manager, in which case an open, transparent and non-discriminating procedure should avoid the application of Article 87(1) EC Treaty. In the rare case where they are not tendered, such projects must be notified and may be exempted under Article 3.

[30] 11007/97 (Presse 292 - G) 2031st Council meeting, Transport, 9.10.1997, paragraphs 4 and 5.

c) Terminals

49. The initiative to build transport terminals or other smaller transport infrastructure often comes from private undertakings or consortia (typically operators of combined transport services) rather than from the Member State. In such cases, a public tender for the aid concerned is not in practice likely to happen. Some terminal capacity may be reserved to the manager or consortium which receives the aid, so that they can use it for their own services. Managers of terminals may also compete with managers of other terminals or of other pieces of transport infrastructure to attract users who have a choice of routes to use their particular terminal.

50. Accordingly, most instances of financial support for terminals prima facie raise State aid issues which need to be assessed in each case. The assessment should ensure that the amount given is no more than necessary to achieve the building of the infrastructure concerned and that it can be operated in a viable way and in particular will achieve the desired modal shift without distorting competition to an extent contrary to the common interest. This is precisely what the exception in Article 3 will ensure.

d) State support for railway infrastructure

51. Council Directive 91/440/EEC provides that "Member States may accord the infrastructure manager, having due regard to Articles 73, 87 and 88 EC Treaty, financing consistent with the tasks, size and financial requirements, in particular in order to cover new investments". The Directive requires inter alia that railway undertakings should become increasingly independent of the State and that separate accounts should be provided for operation and infrastructure. Managerial separation of these two areas is not required by the Directive but a considerable number of Member States are moving in that direction.

52. Against this background, financial support by a Member State for the building of a new piece of infrastructure, or for extension of existing infrastructure, or for ongoing management costs, may benefit an infrastructure manager as against other potential managers of that piece of infrastructure. It may give the manager excess funds to enable it to compete in tenders for other projects. It may also, of course, benefit one or more particular users as against other users, if access is not unrestrictedly open. Given the present state of railway liberalisation in the EU the Commission would have to evaluate in the individual case whether State aid issues arise. However, when they do arise, an exception is needed to specify that the State aid rules will be complied with if the funding is no greater than necessary to achieve the project concerned and if there is no distortion of competition to an extent contrary to the common interest. For the time being, the Commission proposes that no pre-notification should be required for aid granted in relation to existing railway networks, which are open in accordance with Community principles.

53. An exception for infrastructure will also reinforce the requirements of Council Directive 91/440/EEC as to the provision of certain access rights: if those rights are not made available, the infrastructure will no longer be open and the exception from notification will no longer apply.

e) Networks

54. Some of the issues discussed above may also arise regarding revenue-generating roads or inland waterway infrastructure. Competition between infrastructure managers for the right to manage a piece of infrastructure (or between each other for traffic) may in practice be more of an issue for terminals than for networks at this stage, but in order to deal with cases in which a State aid issue may be raised in the future, an exception is needed to specify that aid which is necessary for the management or establishment of the infrastructure concerned may be exempted (Article 3, e.g. terminals) or considered exempt (Article 6(1), e.g. networks) in the absence of a significant distortion of competition.

4. Relation between State aid rules and charging rules

55. Community law includes rules on charging with regard to road transport [31]. There are reasons to adopt rules with regard to railway charging - as the Commission has already proposed [32]. Therefore it is necessary to ensure that any future Community requirements on infrastructure charging [33] are not undermined by Member States financing infrastructure managers to a point where they can "make ends meet" without recovering the costs required by such legislation from the users of the infrastructure. In assessing whether the aid provided for the infrastructure is no greater than necessary any Community legislation on infrastructure charging that may be in force at the time of the grant of the aid concerned shall be taken into account.

[31] Council Directive (EEC)99/62 on the charging of heavy goods vehicles for the use of certain infrastructures (OJ L 187/42, 20.7.1999))

[32] COM(98) 480final, see.above

[33] COM(98) 466 final, see above

56. To take freight as an example, the proposal for a railway infrastructure charging Directive requires that charges for railway infrastructure equate, at minimum, to the additional cost directly incurred by the infrastructure manager as a result of the operation of the train. It is therefore necessary to recognise that if such a rule comes into force, the amount which the State would be permitted to fund under such a regime should in any event not exceed the difference between the full cost to the infrastructure manager of such access, eventually an appropriate profit, and the "marginal cost" to be recovered from the user. The proposed infrastructure exception would achieve this since it provides that the requirements of any charging rules in force should be taken into account.

5. Requirements for the aid

57. Investment aid in general has to be necessary for the realisation of a project. The aid has to be the ultimate incentive and it needs to be proved that market forces would not have achieved the project or not in the same way. Also retroactive aid is strictly forbidden as it would undermine this concept. Article 3(1)a provides for the necessary condition.

58. The other condition, Article 3(1)b, is that the State contribution should not give rise to a distortion of competition contrary to the common interest. The easiest way to prove the common interest is the compliance of the project with the objectives of the Common transport policy. The least impact on competition is, in principle, achieved through moderate amounts of aid or other benefits and a long-term perspective for the project. As regards terminals in particular, Member States will be expected to also demonstrate viability by means of a utilisation forecast, as State support for a non-viable terminal could give rise to a distortion of competition. An estimate of the source of the traffic should also be provided, in order to show that there is attraction of new traffic and no significant shift from another terminal.

Article 4 - State aid to compensate for unpaid costs of competing modes

59. The concept of sustainable mobility on which the development of the common transport policy is based, calls for an integrated transport system in which transport modes compete on a fair basis, in that the user pays the internal and external costs of the particular transport operation at the point of use [34]. Operators should also form transport chains in which each mode is used for the part of the journey where it is most competitive.

[34] See Commission White Paper COM(92)494 final, The future development of the common transport policy, Bulletin of the EC Supplement 3/93. Paragraph 98 states: "The problem of coverage of infrastructure and external costs is complex and involves a wide range of issues. However, the weight of the best available evidence suggests that certain sections of the road transport industry do not cover their costs, particularly when external costs are taken into account". See generally paragraphs 96 to 103.

60. The reality is, however, that Member States still recover infrastructure costs for different land transport modes in different ways and to different degrees. These range from, at one extreme, systems in which access charges are zero with full infrastructure costs being funded by the State, through systems in which charges are based on short-run marginal cost, with the infrastructure manager recouping the balance of the financial needs of the infrastructure from the State, to systems at the other extreme, in which access charges are based on full or average total cost recovery. There is not yet in existence any Community legislation which harmonises methods for calculating infrastructure access charges within or across land transport modes [35]. The Commission has suggested the establishment of a framework in which users of road transport pay at least the marginal cost of access to the infrastructure in each case, including costs for which charging is not currently widespread such as infrastructure damage, environmental, congestion and accident costs, thereby achieving a more appropriate balance of price signals and incentives as between the land transport modes. If a rigorous framework of this kind were to exist and be applied throughout the Community, a provision such as Article 4 would not be needed. In other words, an exception that will in practice permit aid for freight transport by rail, inland waterway and combined transport on grounds that it compensates for the unpaid costs of road transport is proposed as a practical and necessary "second-best" solution suited to the current legislative context.

[35] Council Directive (EEC)93/89 on the application by Member States of taxes on certain vehicles used for the carriage of goods by road and tolls and charges for the use of certain infrastructures (OJ L 279/32, 12.11.1993) replaced by Council Directive (EEC)99/62 see above-) is a first step to move towards a rigorous distinction between different types of vehicle according to the damage they cause to the infrastructure. The Commission has published a White Paper COM(1998) 466, Fair payment for infrastructure use - A phased approach to a common transport infrastructure charging framework in the European Union, Bulletin of the EU Supplement 3/98.

61. In order, however, that this exception remains consistent with the financial discipline and efficiency that Article 3, and indeed the State aid rules in general, seek to foster, various general conditions are proposed. [36]

[36] These conditions were applied by the Commission in its decision of 21.04.98 in case N 588/98 concerning a Danish aid scheme compensating rail transport for unpaid-external costs of road transport

62. First, the aid must form part of a scheme that treats different undertakings within the same mode equally.

In addition, the aid must relate to goods transport. This is because aid relating to unmet infrastructure and external costs in the passenger sector can already be given under the provisions of Council Regulation (EEC)1191/69, and is appropriately subject to the disciplines which that Regulation imposes. To make the type of aid envisaged by this Article also available in the passenger sector could lead to a lack of clarity about the conditions that should be attached, and possibly even to over-compensation.

63. Next, four specific conditions are set out in sub-paragraphs (a) to (d) of the first paragraph of Article 4:

(a) The scheme should last no more than three years. The purpose of the time limitation is not to prevent a scheme from operating in practice for more than three years; it is rather to require pre-notification of the scheme in time for it to be reassessed in the light of experience gained in the intervening period both by the State concerned in respect of the particular scheme and by the Commission generally. In this way the Commission may refine its practice as to what is required, particularly under conditions (b) and (d), as cost valuation methods develop.

(b) The Member State must provide a reasoned and quantified comparative cost analysis, including valuation of relevant external costs of competing modes, in order to show that such public support genuinely constitutes compensation for specific unpaid external costs. Over time the Commission expects to develop principles for such valuation exercises which may be embodied in future legislation, but until then it intends to take a case by case approach. Member States may obtain some guidance as to different methods of valuing external costs from Annex 2 of the Green Paper on Fair and Efficient Pricing [37], but it is proposed that it should be for each Member State to develop their own approach, which the Commission should monitor for internal consistency and compatibility with the principles outlined in this Section. The analysis should be carried out or approved by an independent consultant so as to add a degree of objectivity to the assessment.

[37] Commission Green paper COM(1995)691 Final, Towards fair and efficient pricing in transport - Policy options for internalising the external costs of transport in the European Union , Bulletin of the EU Supplement 2/96.

(c) The scheme must provide for aid to be granted on non-discriminatory terms between transport undertakings within the same transport mode. This is self-explanatory: the same opportunities should be open to all inland waterway undertakings, for example.

(d) Even if the scheme fulfils conditions (b) and (c), the Commission must be satisfied, that the State aid does not give rise to a distortion of competition to an extent contrary to the common interest. In other words, the Commission must be satisfied, that the aid scheme will lead to an effective shift of transport to rail, inland waterways or combined transport on environmental grounds, as opposed to an exchange of traffic flows between two environmentally friendly modes. By way of illustration, a state aid scheme likely to shift traffic flows from short sea shipping to rail would fail to meet this condition. Furthermore, in the absence of a Community framework for the valuation of external costs, and given that aid permitted under Article 4 will be operating aid which is usually prohibited, paragraph (c) is a necessary safeguard to deal with a situation which may arise at a point in the future where, notwithstanding the apparent consistency of the valuation method employed with methods previously accepted by the Commission, there is reason to believe that the scheme would give rise to levels of aid which are clearly disproportionate to the common interest being served. As the objective of Article 4 is to encourage the use of less environmentally damaging forms of transport, an example for the application of sub-paragraph (d) would be that the level of aid granted under a scheme has to be proportionate to the modal shift this scheme is likely to achieve. The Commission will carry out its assessment under this condition on a case-by-case basis.

Article 5 - General conditions

64. These two conditions are self-explanatory. So far as Article 5(1) is concerned, clearly it is important to ensure that aid exempted on the basis that it is used for a particular purpose is indeed used strictly for that purpose. This is particularly important to prevent cross-subsidisation from an infrastructure-manager to activities linked to the use of infrastructure. Article 5(2) ensures that the correct calculation of the necessary or appropriate amount of aid to be granted under any provision of the proposed regulation is made by taking into account any aid granted for the same purpose under another provision of Community law.

Article 6 - Notification

65. As confirmed in recital 14, aid granted under the proposed regulation is notifiable by virtue of Article 88(3) EC Treaty unless the regulation provides otherwise.

66. Article 6(1) carves out from that pre-notification requirement a particular kind of aid which may be expected to have less of an impact on competition than other kinds of infrastructure aid, namely aid for the management, maintenance or provision of an open network, subject to the following points.

67. First, aid for terminals for combined transport, inland waterway or road operations should always be notifiable (assuming it falls within Article 87(1)), since it may be expected to have a greater effect on competition than aid relating to other parts of a land transport network.

68. Second, the elements set out in condition (a) must be satisfied. The infrastructure must form an integral part of a network and must have the same manager as that network. Access to the network must also be open in accordance with Community law. Thus, for example, aid relating to an independently managed rail terminal at the end of a spur off a main railway line, or a terminal run and used by a manufacturing company would be pre-notifiable, whereas aid to a railway infrastructure manager for an extension to the network would not be pre-notifiable, provided access to the network was open in accordance with Community legislation.

69. Third, condition (b) requires that the capacity of the infrastructure must not be wholly or partly reserved for the use of one or more transport undertakings. This is primarily aimed at the situation where capacity is reserved for the use of the infrastructure manager in their capacity as transport operator. In such a situation there is likely to be an effect on competition in the meaning of Article 87(1). Hence the requirement for pre-notification in such cases.

70. It is in such cases in particular, however, that the incentive to tender operates most clearly, since an open, transparent and non-discriminating procedure which fulfils the principles discussed in the sub-section on Article 3(1) above ought to prevent a State aid issue arising, thus removing the need for pre-notification in such cases.

71. Reservation of capacity should be distinguished from the mere allocation of slots or train paths, which does not count as capacity reservation for the purposes of this Article. This distinction is clearly set out in the Commission's communication on the application of competition rules to new infrastructure projects [38].

[38] SEC (97) 1673 final: Clarification of the Commission recommendations on the application of the competition rules to new transport infrastructure projects. See in particular paragraph 32.

72. Where aid is granted for infrastructure that links the premises of an undertaking (e.g. a factory) to the rail, road or inland waterway network, and which may be termed "dedicated infrastructure" since it is dedicated to one particular end user - for example railway sidings, private quays or certain private roads - there is a particular need to ensure that the recipient undertaking does not use the funds received to subsidise any other activity. In these cases the infrastructure is often managed by the end user themselves, and an open, transparent and non-discriminating procedure is therefore almost by definition not possible. Pre-notification is therefore required. A Member State may choose to pre-notify a scheme rather than each and every piece of dedicated infrastructure.

73. Railway terminals and stations are considered part of the integrated network and are also exempted only if open access is provided and they are operated under the same manager

74. In conclusion, prior notification under Article 88(3) EC Treaty will be required for:

- investment in combined transport, inland waterway and road terminals and land transport infrastructure not forming an integral part of a network or managed by an undertaking separate from the network manager,

- investment in reserved transport infrastructure where open and non-discriminatory procedures have not been followed

- investment in dedicated transport infrastructure, and

- schemes which compensate for cost disparities.

Article 7 - Information requirements

75. In cases in which no prior notification requirement is proposed, a more general ex post periodic information is required. Member States must provide, on an annual basis, the information set out in Article 7 so that the Commission can still monitor the granting of such aid for compliance with the proposed Regulation.

76. The Member States are also requested to keep a record of the information which led to each of these State aid decisions. This will enable the Commission to monitor the granting of such aid, and where necessary to intervene if it considers that the principles of the proposed Regulation have been infringed. The obligation will of course only apply where the infrastructure is managed by an undertaking (see the definition of "infrastructure manager") and where aid in the sense of Article 87(1) EC Treaty exists. This will mean for example that such records on roads, which do not generate revenue for an undertaking and which therefore fall outside the scope of this Regulation need not to be kept.

77. Article 7 does not merely duplicate the requirements of Council Regulation (EEC) 1108/70, which requires annual notification of investment and operational expenditure by category of land transport infrastructure. Article 7 requires slightly more targeted information at the level of each project, covering the specific items set out therein (identity of beneficiary, project costs etc.) and also ensures that the relevant information is kept for the Commission to take a decision at a later stage if necessary.

Articles 8, 9 and 10 - Monitoring, revocation and transitional arrangements

78. It is desirable that an Advisory Committee should exist so that the Regulation and its application may be monitored in the light of the developments taking place in the sector. The revocation of Regulation (EEC) 1192/69 is discussed below.

79. So far as transitional arrangements are concerned, the Commission considers that the proposed Regulation does not make notifiable any aid measures which were previously non-notifiable. There will, however, be existing aid schemes which have already been cleared by the Commission but which should, for consistency, be altered to comply with the new rules and re-notified. Whatever legal instrument such schemes may have been cleared under in the past, if they provide for aid for one of the purposes set out in the proposed Regulation (for example, aid to transport undertakings for the use of rail, inland waterway or combined transport infrastructure), a consistent approach requires that they be altered and re-notified in this way.

Reasons for Council Regulation (EEC)1107/70 not being reproduced

80. This section explains the absence of various provisions from the proposed Regulation which currently appear in Council Regulation (EEC) 1107/70. However, the issues referred to in those provisions are dealt with by horizontal frameworks and guidelines under Article 87(3) of the Treaty.

Article 1 of Council Regulation 1107/70

81. The phrase "in so far as such aids relate specifically to activities within that sector" is merely declaratory of what is already implied in the first part of Article 1, and can therefore be dispensed with. Article 2 of Council Regulation 1107/70

82. This Article is again merely declaratory and no longer needs to be included, since the Court of Justice has confirmed that the effect of Article 73 "cannot be to exempt aid to transport from the general system EC Treaty concerning aid granted by the States and from the controls and procedures laid down therein" [39].

[39] Case 156/77 Commission v Belgium [1978] ECR 1881.

Article 3 of Council Regulation 1107/70

83. Opening paragraph and paragraph 2 - So far as the general structure of the opening paragraph is concerned, the intention of the proposed Regulation remains to set out the circumstances in which co-ordination measures may be taken within the meaning of Article 73 EC Treaty.

84. Paragraph 1(a) - Burdens other than those mentioned in Council Regulation (EEC) 1192/69 have never been brought to the Commission's knowledge by Member States.

85. Paragraph 1(b) - The principle behind this exception remains embodied in the proposed Regulation. The key difference, however, is that rather than merely 'taking into account' the infrastructure costs that other modes do not bear, the Commission's policy is now strictly to limit aid to the value of those unpaid costs, including external costs, and to require Member States to justify their calculations of such amounts. See the explanation of Article 4.

86. Paragraph 1(c) - No decision has ever been based on this paragraph. In the meantime the Commission has laid down general conditions for research and development aid in the Community Framework for State Aid for Research and Development [40]. Research and development can no longer be seen as an area for 'co-ordination' but rather an area where aid may be justified on the basis that it helps to develop a project or sector, that is, within the terms of Article 87(3)b or c. The Framework contains detailed provisions on matters such as intensity, eligible costs, different treatment for aid depending on its distance from the market and additional information to be supplied. The Commission has traditionally taken a favourable view of State aid for research and development in the light of its aims and risks, the size of its financial requirements and the reduced likelihood of distortions of competition given its distance from the market. Aid for the development of transport systems and technologies has an overall benefit for the Community in general, and is appropriately dealt with under the Framework.

[40] OJ C 45/5, 17.2.1996

87. Paragraph 1(d) - The scope of this provision is limited in time until the entry into force of legislation on market access. This provision is therefore already obsolete as all sectors have market access legislation even though full liberalisation has not been achieved everywhere. In addition, aid measures improving insufficient market structures may be based on and exempted under Article 87(3)c EC Treaty.

88. Paragraph 1(e) and (f) Paragraph 1(e), which dealt with combined transport, expired on 31.12.1997 [41]. Paragraph 1(f), which dealt with inland waterway transport, expired on 31.12.1999. [42]

[41] According to Council Regulation (EC)543/97, OJ L 84/6, 26.3.97, amending Regulation (EEC)1107/70

[42] According to Council Regulation (EC)2255/96, OJ L304/3, 27.11.1996, amending Regulation (EEC)1107/70

89. Article 3(2) - No State aid exception has ever been requested under this article. If the circumstances referred to in this paragraph were to be the subject of a notification to the Commission, an exception might be possible by directly applying the Treaty articles and, in particular Articles 73, 86(2) or 87(3)c EC Treaty.

Revocation of the exemption from the notification obligation Council Regulation (EEC)1192/69 [43]

[43] OJ L 156/8, 28.6.69

90. Council Regulation (EEC) 1192/69 on common rules for the normalisation of the accounts of railway undertakings dates from a similar period to Council Regulation (EEC)1107/70. Its general aim was to eliminate disparities of competition between railways and other modes of transport or in some cases other sectors of the economy due to additional financial burdens imposed or benefits conferred by public authorities, insofar as these did not represent compensation for continuing to provide a commercially not viable public service in compliance with an obligation imposed by a Member State (which was dealt with under Council Regulation (EEC) 1191/69). The Regulation therefore covered all sorts of other commercially not viable obligations which Member States, for social or other reasons, placed on railway undertakings at the time. The historical context of the Regulation is that railways were at one time used by Member States to some extent as 'instruments of macroeconomic policy', for example, to create employment and demand for construction works.

91. Articles 4, paragraphs (2), (3) and (4) of Council Regulation (EEC) 1192/69 have become obsolete. Their application has either expired or the Commission has not adopted the relevant legislation implementing the articles. Few Member States inform the Commission of their application of Article 4(1) of the Regulation. Under the Article compensation for the following items may be provided under the strict condition that other transport undertakings are not obliged to carry similar burdens:

- Payments which railway undertakings are obliged to make but which, for the rest of the economy, including other modes of transport, are borne by the State,

- expenditure of a social nature incurred by railway undertakings in respect of family allowances different from that which they would bear if they had to contribute on the same terms as other transport undertakings,

- payments in respect of retirement and pensions borne by railway undertakings on terms different from those applicable to other transport undertakings,

- the bearing by railway undertakings of the costs of crossing facilities.

92. Insofar as Member States continue to support Railway undertakings under Article 4(1) of Council Regulation (EEC) 1192/69 for a transitional period, the Commission will have to ensure that such support is strictly limited to an amount necessary to compensate railway undertakings for the remaining financial burdens. It is therefore required that such compensation is notified to the Commission under Article 88(3) EC Treaty, whereby Member States may propose multiannual schemes.

2000/0023 (COD)

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL concerning the granting of aid for the co-ordination of transport by rail, road and inland waterway

(Text with EEE relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 71, 73 and 89 thereof,

Having regard to the proposal from the Commission [44],

[44] OJ C , , p. .

Having regard to the opinion of the Economic and Social Committee [45],

[45] OJ C , , p. .

Having regard to the opinion of the Committee of the Regions [46],

[46] OJ C , , p. .

Acting in accordance with the procedure laid down in Article 251 of the Treaty [47],

[47] OJ C , , p. .

Whereas:

(1) The elimination of disparities liable to distort the conditions of competition in the transport market is an essential objective of the common transport policy;

(2) Significant progress has now been made in the liberalisation of the inland transport sectors:

a) in the road haulage sector competition was introduced to international operations on 1 January 1993, and cabotage operations, first introduced on 1 July 1990, are from 1 July 1998 on no longer subject to any quota [48],

[48] Council Regulation (EEC)4059/89 of 21 December 1989 laying down the conditions under which non-resident carriers may operate national road haulage services within a Member State (OJ L 390/3, 30.12.1989) replaced by Council Regulation (EEC)118/93 of 25 October 1993 laying down the conditions under which non-resident carriers may operate national road haulage services within a Member State (OJ L 279/1 12.11.1993) and Council Regulation (EEC)881/92 of 26 March 1992 on access to the market in the carriage of goods by road within the Community to or from the territory of a Member State or passing across the territory of one or more Member States (OJ L 95/1 9.4.1992) respectively.

b) the transport of passengers by road is liberalised with the exemption of national regular services [49],

[49] Council Regulation (EEC)684/92 of 16 March 1992 on common rules for the international carriage of passengers by coach and bus (OJ L 74/1, 20.3.1992) as last amended by Concil Regulation (EC)11/98 of 11 December 1997 (OJ L 4/1, 8.1.1998) and Council Regulation (EC)12/98 of 11 December 1997 laying down the conditions under which non-resident carriers may operate national road passenger transport services within a Member State (OJ L 4/10, 8.1.1998)

c) in the railways sector access to infrastructure for international groupings and railway undertakings offering international combined transport services has been introduced, and management independence and separation of accounts for infrastructure and services have been provided for [50],

[50] Council Directive 91/440/EEC of 29 July 1991 on the development of the Community's railways (OJ L 237/25, 24.8.1991)

d) the inland waterways sector has been progressively liberalised leading to the free conclusion of contracts and free negotiation of prices as regards both national and international inland waterway transport in the Community from 1 January 2000 [51], and

[51] Council Directive 96/75/EC of 19 November 1996 on the systems of chartering and pricing in national and international inland waterway transport in the Community (OJ L 304/12, 27.11.1996)

e) the market for combined transport services has been fully liberalised since 1 July 1993 [52].

[52] Council Directive 92/106/EEC of 7 December 1992 on the establishment of common rules for certain types of combined transport of goods between Member States (OJ L 68/38, 17.12.1992)

(3) However the process of liberalisation in all inland transport sectors is not complete, and moreover harmonised charging mechanisms to compensate for the unpaid costs of transport modes have not yet been established. In those circumstances there is liable to exist State aid which meets the needs of co-ordination of transport and which for this reason remains compatible with the EC Treaty insofar as the aid does not infringe other provisions of Community law.

(4) Articles 87 to 89 EC Treaty and Council Regulation (EC) 659/99 laying down detailed rules for the application of Article 93(new Article 88) [53] shall apply to aid intended for transport by rail, road, and inland waterway.

[53] Council Regulation (EC)659/99 of 22 March 1999 laying down detailed rules for the application of Article 93 of the Treaty, (OJ L 83/1, 27.3.1999)

(5) Article 73 provides an exemption from the prohibition contained in Article 87(1) and accordingly this Regulation does not prejudge the prior question as to whether there is aid in the sense of Article 87(1). This regulation is also without prejudice to other Treaty articles such as Article 86(2).

(6) Insofar as Article 73 EC Treaty declares aid compatible with the common market which represents reimbursement for the discharge of obligations inherent in the concept of a public service, it is implemented by Council Regulation (EEC) 1191/69 [54] as modified. Insofar as Article 73 declares aid compatible with the common market which meets the needs of co-ordination of transport it accordingly remains appropriate to lay down in a Council Regulation the circumstances in which aids shall be considered to meet such needs.

[54] Council Regulation (EEC)1191/69 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 L 156/1, 28.6.1969)

(7) Council Regulation EEC) 1107/70 [55] was designed to achieve the aims described above; whereas, however, it is now necessary to adapt it to fit the framework on access to the market now in force.

[55] Council Regulation (EEC)1107/70 of the Council of 4 June 1970 on the granting of aids for transport by rail, road and inland waterway (OJ L 130 /1, 15.06.1970)

(8) It is now Community policy to encourage public/private partnerships for new transport infrastructure projects, particularly in the case of projects seen as important to the development of the Trans European Network [56]. The State aid rules should be applied in such a way as not to penalise those infrastructure projects which contain some private sector participation as against those which do not; whereas, accordingly, it is appropriate to provide a general exception for aid to infrastructure managers rather than one targeted at specific kinds of projects.

[56] Council conclusions of the 2031. Council meeting - TRANSPORT, paragraphs 4 and 5 on Public-Private Partnerships(PPPs) in the context of Trans-European Network (TEN) projects, 11007/97 (Presse release: Luxembourg 9.10.1997

(9) Public financing of the management, maintenance or provision of inland transport infrastructure open to all potential users in accordance with Community law and managed by the State does not fall under Article 87(1) EC Treaty as in this case no advantage is conferred to an undertaking competing with other undertakings.

(10) State support granted to an infrastructure manager, public or private but separate from the State, for the management, maintenance or provision of inland transport infrastructure is presumed to be compatible with the common market if that manager was chosen by an open and non-discriminatory tender, as it was thereby assured that the amount of State support represents the market price to achieve the desired result.

(11) However, if any particular aid to a manager of infrastructure does not fall under this presumtion of compatability, it should still be permitted as compatible with the EC Treaty to the extent it is necessary to enable the realisation of the project or activity concerned and provided it does not give rise to a distortion of competition to an extent contrary to the common interest. By way of example, state support for the construction and operation of combined transport terminal infrastructure liable to attract significant traffic flows from competing terminals instead of leading to modal shift from road to environmentally friendly modes of transport, is deemed to distort competition to an extent contrary to the common interest.

(12) Furthermore, the requirements of any Community legislation on infrastructure charging that may be in force should be taken into account in assessing the amount of aid that is proportionate. In the rail sector this approach is compatible with Article 7(3) of Council Directive 91/440/EEC, which provides that Member States may accord railway infrastructure managers, having regard to Articles 73, 87 and 88 EC Treaty, financing consistent with the tasks, size and financial requirements, in particular in order to cover new investments, and whereas the same principles should apply to infrastructure managers in all inland transport sectors.

(13) The Community has for some time advocated a policy of achieving a sustainable transport system, which permits and encourages measures to compensate for unpaid additional costs of other competing transport modes, such as infrastructure damage, pollution, noise, congestion, health and accident costs.

(14) With regard to the transport of goods, aid schemes which provide for such measures in connection with the use of infrastructure and which do not disproportionately hamper the attainment of other Community objectives, should be supported. Accordingly Member States should be required to demonstrate with a reasonable degree of transparency that such schemes compensate for specific incremental unpaid costs of competing modes of transport and they should be limited in time. However, until internalisation of specific unpaid external and infrastructure costs is achieved within or across land transport modes, any such State scheme authorised by the Commission may in principle be renewed. With regard to passenger transport this issue can be taken into account when transport operator apply for exclusive rights or financial compensation in accordance with Community legislation and in particular, Council Regulation (EEC) 1191/69; .

(15) Other aid provided in liberalised sectors should be considered under Article 87 EC Treaty, particularly under the notion of development of a sector set out in subparagraph (3)c thereof.

(16) Aid granted under this Regulation is notifiable in accordance with Article 87(3) EC Treaty and Council Regulation (EC) 659/99 laying down detailed rules for the application of Article 93 (new 88) of the Treaty, except where this Regulation provides otherwise.

(17) Aid for the management, maintenance or provision of infrastructure other than combined transport, inland waterway and road terminals which forms an integral part of an existing open transport network having a single infrastructure manager can be monitored effectively by the Commission on the basis of a periodic general information requirement rather than a specific pre-notification requirement.

(18) However, in the case of aid for the management, maintenance or provision of the aforementioned terminals, or where the infrastructure concerned has a manager separate from the network manager, or where its capacity is wholly or partly reserved to one or more transport undertakings (as opposed to the granting of an access right on open infrastructure), there may be a greater impact on competition and therefore the pre-notification requirement should not be removed.

(19) To ensure transparency and effective monitoring, it is appropriate to establish rules concerning the records that Member States should keep regarding the aid exempted by this Regulation; For the purposes of the annual report to be provided to the Commission by Member States, it is appropriate for the Commission to establish its specific requirements, including, having regard to the wide availability of the necessary technology, information in computerised form.

(20) Council Regulation (EEC) 1192/69 [57] was introduced to eliminate disparities which arise by reason of the imposition of exceptional financial burdens on, or the grant of benefits to, railway undertakings by public authorities; However, following Council Directive 91/440/EEC Member States are now required to ensure that railway undertakings are afforded a status of independent operators behaving in a commercial manner and adapting to market needs, and therefore such disparities have either been eliminated or should be eliminated.

[57] Council Regulation (EEC)1192/69 of 26 June 1969 on common rules for the normalisation of the accounts of railway undertakings (OJ L 156/8, 28.6.1969)

(21) Articles 4, paragraphs (2), (3) and (4) of Council Regulation (EEC) 1192/69 have become obsolete. Insofar as Member States continue to support Railway undertakings under Article 4(1) of Council Regulation (EEC) 1192/69 for a transitional period, the Commission will have to assure that such support is strictly limited to an amount necessary to compensate railway undertakings for the remaining financial burdens and it is therefore required that such compensation is notified to it under Article 88(3) EC Treaty. The exemption from the notification obligation contained in Regulation (EEC) 1192/69 should be revoked.

HAVE ADOPTED THIS REGULATION:

Article 1-Scope

This Regulation shall apply to aid, which meets the needs of co-ordination of transport by rail, road and inland waterway.

Article 2-Definitions

In this Regulation the following terms have the following meanings:

transport infrastructure - permanent facilities for the movement or transhipment of passengers and goods and associated safety and navigational assets essential for the management of these facilities.

infrastructure manager - any public, private or mixed public/private undertaking managing, maintaining or providing transport infrastructure

transport undertaking - any undertaking wishing to make use of any particular transport infrastructure, whether solely for its own benefit or in order to provide services to other persons or undertakings.

specific unpaid external and infrastructure costs - costs not recovered from the user of transport infrastructure through specific charges. They may include infrastructure damage, pollution, noise, congestion, health and accident costs.

Article 3-Aid for Infrastructure

1. Aid granted to an infrastructure manager for the management, maintenance or provision of inland transport infrastructure, shall be compatible with the EC Treaty provided that the aid compared to the total financing of the project:

(a) is necessary to enable the realisation of the project or activity concerned and

(b) does not give rise to a distortion of competition to an extent contrary to the common interest.

2. Assessment under this Article shall take into account the requirements of any Community legislation on infrastructure charging that may be in force at the time of the grant of the aid concerned.

Article 4-Aid for the use of infrastructure

1. A scheme for granting aid to transport undertakings for the purpose of the use of infrastructure for goods transport, shall be compatible with the EC Treaty to the extent that:

(a) the scheme has a maximum duration of three years,

(b) it is demonstrated on the basis of a comparative cost analysis that such aid is limited to compensation for specific unpaid external and infrastructure costs for the use of competing transport infrastructure, net of any such unpaid costs for the use of the infrastructure in question,

(c) the scheme provides for aid to be granted on non-discriminatory terms to transport undertakings within the same transport mode, and

(d) the aid does not give rise to a distortion of competition to an extent contrary to the common interest.

2. Assessment under this Article shall take into account the requirements of any Community legislation on the definition or estimation of external costs that may be in force at the time of the grant of the aid concerned.

Article 5-General conditions

1. Where an undertaking receiving any aid granted under this Regulation is not only engaged in the subsidised activity but also in another economic activity, the funds provided shall be kept in separate accounts and shall be managed without any possibility of transfer to such other activity.

2. In calculating the permissible amount of aid to be granted under any provision of this Regulation any aid granted for the same purpose coming from any other State or Community resources shall be taken into account.

Article 6-Notification

1. Aid, granted for the management, maintenance or provision of inland transport infrastructure other than terminals for combined transport, inland waterway or road operations shall not be required to be notified in accordance with Article 88(3) EC Treaty where the following conditions are satisfied:

(a) the infrastructure forms an integral part of a network which has the same manager as the infrastructure concerned and access to which is open on non-discriminatory terms to any person or undertaking wishing to use it,

(b) the capacity of the infrastructure is not wholly or partly reserved for the use of one or more transport undertakings.

2. Unimodal railway terminals and stations are considered to form an integral part of the railway network.

Article 7-Information requirements

1. In relation to aid falling within Article 6, Member States

(a) shall maintain detailed records. Such records shall contain all information necessary to establish that the conditions for exemption, as laid down in this Regulation, are fulfilled. Member States shall maintain a record for 10 years from the date on which the aid was granted. Member States shall, on written request, provide the Commission with copies of such records within a period of 20 working days, or such longer period as may be fixed in the Commission's request and

(b) are hereby required to provide the Commission on an annual basis, not later than 31 March for the preceding calendar year, with a summary information on aid schemes implemented and individual aid granted outside such schemes in the form provided for in the Annex and in particular with:

- a description of the supported project including the exact amount of the aid, the overall project costs, the identity of the beneficiary and the timing,

- future plans or arrangements for management of the infrastructure concerned and for access to the infrastructure concerned and

- any other information likely to be relevant to a State aid assessment.

2. The first date on which such information will be provided shall be 31 March of the year following the first full calendar year to elapse after the entry into force of this Regulation. The information provided on that date should relate to the period from the date of entry into force of this Regulation until the end of such calendar year and should also be provided in a computerised form.

Article 8-Monitoring of this regulation

An Advisory Committee is hereby established subject to Article 79 EC Treaty. It shall be composed of representatives of the Member States and chaired by the representative of the Commission. The Committee may examine and give an opinion on all general questions regarding the operation of this Regulation.

Article 9-Revocation

1. Council Regulation (EEC) 1107/70, as modified, is hereby revoked.

2. Articles 4(2), 4(3), 4(4), 13(2) and 13(3) of Council Regulation (EEC) 1192/69, as modified, shall be deleted.

Article 10-Transitional arrangements and entry into force

1. Aid measures, which by virtue of Article 5 of Regulation 1107/70, as amended, have been exempted from the procedure provided for in Article 88 (3) of the Treaty, shall remain exempted for a period of 12 months after the entry into force of this regulation.

2. Member States shall amend such aid measures during this period so as to be made compatible with Article 6 of this regulation and shall inform the Commission thereof.

3.. This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Communities. This regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the European Parliament For the Council

The President The President

ANNEX

Form accompanying the summary information on any individual aid granted or aid schemes implemented

Member State [Region]:

Date of implementation (aid scheme) or grant (individual aid):

Name and address of responsible authority:

Title of aid scheme implemented or name of beneficiary granted individual aid:

Objective of aid:

Legal basis:

Budget:

Aid intensity:

Duration:

Other information (optional):