2004/298/EC: EFTA Surveillance Authority Decision of 16 July 2003 on a Compensation Scheme for Express Bus Operators (Norway)
Date: 2003-07-16
Institutions: EFTA Surveillance Authority
Subjects: Norway, State aid, bus, control of State aid, indemnification, transport company

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EUROPEAN ECONOMIC AREA

EFTA SURVEILLANCE AUTHORITY

EFTA SURVEILLANCE AUTHORITY DECISION

of 16 July 2003

on a Compensation Scheme for Express Bus Operators

(Norway)

(2004/298/EC)

THE EFTA SURVEILLANCE AUTHORITY,

Having regard to the Agreement on the European Economic Area (1), in particular to Articles 49, 61 to 63
and to Annex XIII (2) thereof,

Having regard to the Agreement between the EFTA States on the establishment of a Surveillance Authority
and a Court of Justice (3), in particular to Article 24 and Article 1 of Protocol 3 thereof,

Having regard to the Authority's Guidelines on the application and interpretation of Articles 61 and 62 of
the EEA Agreement (4), in particular to Chapters 5, 6 and 15 thereof,

Having regard to the Authority's decision to open the formal investigation procedure (5),

Having called on interested parties to submit their comments, pursuant to the provisions laid down in
Chapter 5 of the Authority's State Aid Guidelines (6), and having regard to their comments,

(1) Hereinafter referred to as the ‘EEA Agreement’.
(2) In particular, to the Acts referred to in point 4, Chapter I ‘Inland Transport’ of Annex XIII to the EEA Agreement (i.e.
Council Regulation (EEC) No 1191/69 of 26 June 1969 on action by the Member States concerning the obligations
inherent in the concept of a public service in transport by rail, road and inland waterway (OJ L 156, 28.6.1969, p.
1), as amended, in particular, by Council Regulation (EEC) No 1893/91 of 20 June 1991 (OJ L 169, 29.6.1991, p. 1);
the legal act referred to in point 32, Chapter II ‘Road Transport’ (i.e. Council Regulation (EEC) No 684/92 of 16
March 1992 on common rules for the international carriage of passengers by coach and bus (OJ L 74, 20.3.1992, p.
1), as amended by Council Regulation (EC) No 11/98 of 11 December 1997 amending Regulation (EEC) No 684/92
on common rules for the international carriage of passengers by coach and bus (OJ L 4, 8.1.1998, p. 1) and the legal
act referred to in point 33 a, Chapter II ‘Road Transport’ (i.e. Council Regulation (EEC) No 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 (OJ L 251, 29.8.1992, p. 1), as replaced by the legal act referred to in point 33 b, Chapter II
‘Road Transport’ (i.e. Council Regulation (EC) No 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,
8.1.1998, p. 10).

(3) Hereinafter referred to as the ‘Surveillance and Court Agreement’.
(4) Guidelines on the application and interpretation of Articles 61 and 62 of the EEA Agreement and Article 1 of
Protocol 3 to the Surveillance and Court Agreement, adopted and issued by the EFTA Surveillance Authority on 19
January 1994, published in OJ L 231, 1994, EEA Supplements 03.09.94 No. 32, last amended by the Authority's
Decision No. 264/02/COL of 18 December 2002, not yet published; hereafter referred to as the ‘Authority's State
Aid Guidelines’.

(5) Decision of 18 December 2000, Dec. No. 381/00/COL, published in OJ C 125, 26.4.2001 as well as the EEA Supple-

ment to the Official Journal of the EC No. 22, 26.4.2001.

(6) In particular, point 5.3.2. of the Guidelines.

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Whereas:

I. FACTS

A. PROCEDURE AND CORRESPONDENCE

1. OPENING OF THE FORMAL INVESTIGATION PROCEDURE

Following a complaint against the compensation scheme for express bus operators, the Authority carried
out a preliminary examination of the scheme in question under the EEA State aid rules. This examination
led to the Authority's decision of 18 December 2000 to open the formal investigation procedure against
the compensation scheme for express bus operators. The decision was communicated to the Norwegian
Government by letter of that same day (Doc. No. 00-9192-D).

In this letter, the Norwegian Government was invited, pursuant to point 5.3.1.(1) of Chapter 5 of the
Authority's State Aid Guidelines, to submit its comments on the opening of the formal investigation proce-
dure. The Norwegian authorities were further requested to provide all necessary information to assess the
compatibility of the compensation scheme with the EEA State aid provisions.

The Authority reminded the Norwegian Government that, in accordance with point 6.2.3 of Chapter 6 of
the Authority's State Aid Guidelines, unlawful aid may be recovered from the recipients should the
Authority find the compensation scheme to be incompatible with the EEA Agreement. Against this back-
ground, the Norwegian Government was asked to forward a copy of the decision to the recipients of the
aid immediately.

Finally and with respect to the proposed continuation of the compensation scheme for 2001, the Authority
reminded the Norwegian Government of its obligation not to put the aid into effect.

2. COMMENTS AND FURTHER INFORMATION SUBMITTED BY THE NORWEGIAN GOVERNMENT

The Norwegian Government submitted its comments to the opening of the formal investigation procedure
by letter dated 31 January 2001, received and registered by the Authority on 8 February 2001 (Doc. No.
01-1029-A). It claimed that the compensation scheme did not constitute ‘new aid’, and that, in any case,
the compensation scheme was exempted from the obligation of prior notification because it was in accord-
ance with Council Regulation (EEC) No 1191/69 (7). Consequently, the Norwegian Government informed
the Authority that payments under the compensation scheme would not be suspended.

By letter of 12 April 2001 (Doc. No. 01-2781-D), the Authority acknowledged receipt of this letter and
requested additional information.

By letter of 15 June 2001, received and registered by the Authority on 20 June 2001 (Doc. No. 01-4686-
A), the Norwegian Government submitted the information requested.

(7) According to Article 17(2) of Council Regulation (EEC) No 1191/69 reimbursements for public service obligations
granted in accordance with this Regulation are exempt from the notification requirement and thus not subject to the
standstill obligation.

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3. COMMENTS AND ADDITIONAL INFORMATION SUBMITTED BY THIRD PARTIES

After having opened the formal investigation procedure, but before the publication of the decision in the
Official
Journal, the Norwegian Transport Association (‘Transportbedriftenes Landsforening’) submitted
comments on the opening decision by letter of 21 February 2001, registered by the Authority on 23
February 2001 (Doc. No. 01-1387-A).

The complainant was informed of the opening of the formal
December 2000 (Doc. No. 00-9193-D).

investigation procedure by letter of 18

After having received comments on the opening of the formal investigation from the Norwegian Govern-
ment, the Authority addressed the complainant again, by letter of 12 April 2001 (Doc. No. 01-2780-D). In
this letter, the Authority summarised the arguments brought forward by the Norwegian Government with
respect to the opening of the formal investigation procedure and invited the complainant to submit his
views on these arguments. Furthermore, the complainant was invited to submit additional information, in
particular regarding the competitive situation between occasional services and regular services (provided by
express bus operators) in Norway. The complainant responded to this invitation by letter of 21 May 2001,
received and registered by the Authority on 23 May 2001 (Doc. No.01-3911-A).

No further comments were submitted by third parties within the time limits set in point 5.3.2.(1) of
Chapter 5 of the Authority's State Aid Guidelines (8), i.e. 26 May 2001.

4. ADDITIONAL INFORMATION SUBMITTED BY THE NORWEGIAN GOVERNMENT IN RELATION TO THIRD

PARTY COMMENTS

By letter of 30 October 2001 (Doc. No. 01-8453-D), the Authority transmitted third party submissions to
the Norwegian Government. In addition, the Authority informed the Norwegian Government that it did
not consider the compensation scheme for non-subsidised bus operators to be covered by Council Regu-
lation (EEC) No 1191/69. Finally, and with respect to a possible justification under the Environmental
Guidelines, the Authority stressed in particular that the compensation scheme would have to be limited in
and, in principle, reduced over time, that the compensation awarded to bus operators must remain below
costs due to the actual consumption of autodiesel on regular bus routes; and that the degree of compensa-
tion must furthermore be limited in order to provide an incentive for bus operators to reduce consumption
of autodiesel. Against this background, the Norwegian Government was requested to supply additional
information.

By letter from the Ministry of Transport and Communications dated 31 January 2002, received and regis-
tered by the Authority on 5 February 2002 (Doc. No. 02-1006-A), the Norwegian Government submitted
its comments to the third party submissions. It also submitted its views on the Authority's assessment as
regards the application of Council Regulation (EEC) No 1191/69 and submitted the information requested.
Further comments were submitted by the Norwegian Government (cf. letter from the Ministry of Transport
and Communications dated 4 April 2002, received and registered by the Authority on 9 April 2002 (Doc.
No. 02-2573-A)).

5. THIRD PARTY COMMENTS SUBMITTED AFTER THE DEADLINE FOR COMMENTS HAD EXPIRED

After the deadline for comments from third parties had expired (i.e. 26 May 2001), the Authority also
received further comments from the Norwegian Transport Association (cf. fax dated 7 February 2002,
received and registered by the Authority on that same day (Doc. No. 02-1058-A) as well as a letter dated 9
April 2002, received and registered by the Authority on 11 April 2002 (Doc. No. 02-2557-A)) and from
the complainant (cf. letter dated 8 May 2002, received and registered by the Authority on 15 May 2002
(Doc. No. 02-3635-A)).

(8) According to point 5.3.2. (1) of Chapter 5 of the Authority's State Aid Guidelines, interested parties may submit

their comments to the opening decision within one month from the date of publication.

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B. DESCRIPTION OF COMPENSATION SCHEME FOR EXPRESS BUSSES

1. THE NORWEGIAN AUTODIESEL LEVY: ABOLISHMENT OF THE EXEMPTION FOR BUS OPERATORS

The autodiesel levy (‘autodieselavgift’) was originally introduced as of 1 October 1993 (when it replaced
the kilometre tax introduced in 1978) (9). The tax is levied on the consumption of autodiesel and the rate
per litre is fixed annually by Decision of the Norwegian Parliament (10). Bus operators providing passenger
transport were exempted from this levy, (as they were previously exempted from the kilometre tax). In the
Parliamentary Bill on Green Taxes (St. prp. nr. 54 (1997-1998) ‘Grønne Skatter’), the Norwegian Govern-
ment considered the previous exemption for buses not to be justified on environmental grounds since it
relieved buses of external costs arising from the use of roads, accidents and pollution and did not give
these operators an economic incentive to reduce these costs. Consequently, the Norwegian Government
proposed to abolish the exemption from the autodiesel levy for bus operators in order to give these under-
takings an incentive to increase efficiency and to make environmentally oriented investment decisions.

As of 1 January 1999, all bus operators providing passenger transport (i.e. both regular (11) and occa-
sional (12) transport services) were, in principle, subject to the autodiesel levy.

2. INTRODUCTION OF COMPENSATION SCHEMES

However, in order to avoid a weakening of the competitiveness of public transport (i.e. regular passenger
transport), it was proposed to compensate certain categories of bus operators (so-called ‘tilskuddsberettiget
bussdrift’ or ‘subsidised’ bus operators, i.e. bus operators eligible for direct State subsidies for the provision
of regular passenger transport services (13)) for the costs resulting from the abolition of the exemption. For
other categories of bus operators (so-called ‘ikke-tilskuddsberettiget bussdrift’ or ‘non-subsidised’ bus opera-
tors, i.e. bus operators providing regular passenger transport services, but not eligible for direct State subsi-
dies in this respect (14)), the Parliamentary Bill on Green Taxes stated that no compensation should be
granted since these bus operators were considered to be able to cover the increased costs either through an
increase in ticket prices or through a reduction in profits. It was further maintained that the abolition of
the tax exemption would give the bus companies an incentive to enhance efficiency and make their opera-
tions more environmentally friendly.

Following the Government's proposal, the Parliament decided in the autumn 1998 to introduce a compen-
sation scheme for ‘subsidised’ bus operators. Although not initially foreseen under the Government's
proposal regarding the green tax reform, a separate compensation scheme for so-called ‘non-subsidised’
bus operators was adopted by the Norwegian Parliament in its Decision on the revised State Budget for
1999 adopted in the spring 1999 (St. prp. nr. 67 (1998-1999)). This scheme is under the Ministry of
Transport's responsibility (cf. St.prp.nr. 1 (1999-2000), chapter 1330, post 71 ‘Tilskudd til ekspressbusser’).

(9) Regulation of 8 June 1993 on the autodiesel levy, ‘Forskrift om avgift på mineralolje til framdrift av motorvogn og

om merking av mineralolje’.

(10) More detailed information on the applicable rates since 1999 are provided in table 2 below.
(11) The term ‘regular transport’ is used in this decision in line with the definition given in Article 2(1) of Council Regu-
lation (EC) No 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.

(12) The term ‘occasional transport’ is used in this decision in line with the definition given in Article 2(3) of Council
Regulation (EC) No 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.

(13) For a more detailed description of this category of bus operators, see point C. of the present decision.
(14) For a more detailed description of this category of bus operators, see point C. of the present decision.

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Therefore, with the introduction of compensation schemes for both ‘subsidised’ and ‘non-subsidised’ bus
operators, bus operators providing regular passenger transport were, as of 1 January 1999,
(partly)
compensated for the costs resulting from the autodiesel levy. On the other hand, other bus operators, inter
alia, those providing occasional transport services, had to bear the costs resulting from the autodiesel levy
in full.

The rules governing the compensation for express bus operators were laid down in two letters dated 21
February 2000, which were communicated to the eligible bus operators (15).

The amount of compensation per company is calculated according to the distances operated under the
‘route plan’, applying a certain rate per kilometre. This rate is not fixed in advance but will be determined
once the total distances of all licensees have been established (16). According to the Norwegian Government,
the rates applicable for the years 1999 and 2000 were 1,37 and 1,41, respectively, and for 2001 and
2002 estimated to be 1,07 and 0,62 NOK per km, respectively.

In addition, compensation is granted for so-called ‘position driving’ (17) and ‘assistance driving’ (18).
According to the Norwegian authorities, compensation in these cases was only granted where ‘position
driving’ and ‘assistance driving’ exceeded 10 % of driving according to schedule. Furthermore, compensa-
tion is also granted for ‘approved deviations’ from the route schedule (19).

Domestic transport services provided in the course of international transport (‘cabotage services’) are also
included in the compensation scheme. It is assumed that foreign operators providing such cabotage
services are doing so in a pool with Norwegian operators. It is further assumed that the Norwegian opera-
tors act on behalf of the foreign operators when claiming compensation.

3. SCOPE OF THE PRESENT INVESTIGATION

In its decision of 18 December 2000, the Authority opened the formal investigation procedure against the
‘compensation scheme for express bus operators’ (20). In its comments to the opening decision, the Norwe-
gian Government clarified that the recipients of the aid scheme under investigation were not identical to
‘express bus operators’. The term ‘express bus’ was used by the operators as a marketing term. According
to the Norwegian Government, ‘express bus operators’ were in fact providing both ‘subsidised’ and ‘non-
subsidised’ services. In light of these explanations, the Authority points out that the compensation scheme
under investigation is that introduced for ‘non-subsidised’ bus operators providing regular passenger trans-
port. The compensation scheme for ‘subsidised’ bus operators is not subject to the formal investigation
procedure.

(15) A more detailed description of the provisions of the compensation scheme is given in the Authority's opening deci-

sion.

(16) This rate is apparently calculated by dividing the total amount earmarked for the purpose of the compensation

scheme by the total kilometres for which applications for reimbursement have been submitted.

(17) ‘Position driving’ is necessary before and after driving according to schedule, e.g. driving to and from garage/depot.
(18) ‘Assistance driving’ is necessary so that all passengers attending a specified route should be served at any point in

time according to schedules.

(19) ‘Approved deviations’ are meant to be those deviations as referred to by the Norwegian Government in its response
to the Authority's request for additional information of 12 April 2001: ‘… larger deviations [from the defined route]
have not occurred unless as part of public service obligations specified in the licence …’.

(20) This term was used by the Authority in its opening decision, based on the title of the scheme under investigation

given in the Norwegian State Budget.

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C. DESCRIPTION OF LEGAL FRAMEWORK CONDITIONS GOVERNING REGULAR PASSENGER TRANSPORT IN

NORWAY

1. LEGAL FRAMEWORK CONDITIONS GOVERNING THE PROVISION OF REGULAR PASSENGER TRANSPORT

SERVICES IN NORWAY

According to the Norwegian Government, all regular passenger transport services in Norway are governed
by the Transport Act (Lov om samferdsel 1976 nr. 63) and the regulation on domestic passenger transport
(Forskrift om persontransport i rute innenlands med motorvogn eller fartøy). (21) All operators holding a
licence in accordance with § 3 of the Transport Act are allowed to provide regular passenger transport
services. On the other hand, all operators holding a licence are subject to the same conditions governing
the provision of regular passenger transport, as laid down in the Transport Act and the regulation on
domestic passenger transport. The provisions in the regulation on domestic passenger transport stipulate,
inter alia, that the licensee has a right as well as an obligation to provide the transport service covered by
the licence. The route schedule as well as the tariffs is to be approved by the competent authorities. (22) In
case an operator applies for a termination of the transport service in question (e.g. to abandon the trans-
port services on a route or to change the conditions of the transport service), the competent authorities
may require the operator to continue operations, while granting compensation for possible deficits on the
route in question which cannot be financed through profits generated on other routes (cf. § 19 (2) of the
regulation on domestic passenger transport).

2. DISTINCTION BETWEEN SO-CALLED ‘SUBSIDISED’ AND ‘NON-SUBSIDISED’ OPERATORS

The Norwegian Government stressed that the distinction between ‘subsidised’ and ‘non-subsidised’ opera-
tors was not based on the Transport Act or any other legal act governing the provision of regular
passenger transport.

The Authority notes, however, that ‘subsidised’ and ‘non-subsidised’ operators are subject to different rules
as regards the procedure proceeding the award of the right to offer regular passenger transport services on
individual routes as well as the eligibility (or not) for direct State subsidies for the provision of such trans-
port services.

It results from the information in the Authority's possession that so-called ‘subsidised’ operators are
selected through a tender procedure to provide regular transport services. These services are compensated
for under ‘framework agreements’ concluded with the county concerned. The conditions governing the
tender procedures, the conclusion of such arrangements and the award of compensation are laid down in a
Regulation on tender procedure for local transport services (‘Forskrift om anbud i lokal rutetransport’). On
the other hand, on routes where expectations about commercial transport possibilities are good, bus opera-
tors may apply for licences to run regular passenger transport services on the route in question. These
applications are evaluated by the competent authorities, taking into consideration the need for transport
and competition. Bus operators providing regular passenger transport services upon application are not
entitled to receive direct State subsidies. Accordingly, they are called ‘non-subsidised’ bus operators.

D. THE AUTHORITY'S DECISION TO OPEN THE FORMAL INVESTIGATION PROCEDURE, COMMENTS FROM

NORWAY AND THIRD PARTY COMMENTS SUBMITTED IN THE COURSE OF THE PROCEEDINGS

In December 2000, the Authority decided to open the formal investigation procedure against the compen-
sation scheme for express bus operators (23). In this decision, the Authority expressed doubts as to the
compatibility of the compensation scheme with the functioning of the EEA Agreement. In the Authority's
view, the compensation scheme for express bus operators, introduced in 1999, constituted ‘new aid’. Given
that the scheme had not been notified to the Authority in accordance with Article 1(3) of Protocol 3 to the
Surveillance and Court Agreement, the compensation scheme had to be regarded as ‘unlawful on proce-
dural grounds’ pursuant to Chapter 6 of the Authority's State Aid Guidelines. Furthermore, the Authority
expressed doubts concerning the compatibility of the compensation scheme, in particular, with Article
61(3)(c) of the EEA Agreement, in combination with the Environmental Guidelines.

(21) The Norwegian Government referred in its submissions to ‘supplementary instructions’.
(22) A more detailed description of the conditions governing regular passenger transport services in Norway is given

below.

(23) See footnote 5.

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1. STATE AID WITHIN THE MEANING OF ARTICLE 61(1) OF THE EEA AGREEMENT

(a) The Authority's views as expressed in the opening decision

Based on the information obtained in the preliminary investigation procedure, the Authority could not
exclude that the compensation scheme reinforced the competitive position of companies that operate
passenger transport services both inside and outside Norway and was, therefore, liable to distort competi-
tion and affect trade between the Contracting Parties.

The Authority's preliminary conclusion was based on the following circumstances:

Undertakings benefiting from the compensation scheme may provide both regular and occasional services.
According to the Authority, it could, therefore, not be excluded that payments made under the compensa-
tion scheme were used to provide occasional transport services (a service which is fully liberalised).

Even in cases where bus operators exclusively provided regular services, distortive effects on competition
could not be excluded since, ‘non-subsidised’ bus operators were — if only to a certain extent — in compe-
tition with occasional bus services.

With respect to international regular transport services, the Authority was not convinced that foreign
operators would receive compensation on a non-discriminatory and transparent basis. Finally,
the
Authority pointed out that even if the scheme were to be applied without discrimination as regards foreign
operators providing transport services in Norway, effects on trade could not be excluded since Norwegian
bus operators benefiting from the compensation payments may compete outside Norway for both occa-
sional and regular transport services.

(b) Comments from the Norwegian Government to the opening decision

In its comments to the opening decision (cf. letter dated 31 January 2001), the Norwegian Government
took the view that the compensation scheme did not constitute aid within the meaning of Article 61(1) of
the EEA Agreement. The compensation granted for regular services could not affect the competitive situa-
tion of occasional services given that the markets for regular and occasional services were two different
markets with a very limited interface. In addition, the Norwegian Government claimed that trade was not
affected by the compensation scheme, given that compensation was granted to all (domestic and foreign
operators) providing regular cabotage services within Norway. Furthermore, the compensation was calcu-
lated only in relation to the kilometres driven within Norway.

(c) Additional information submitted by the Norwegian Government

Information provided by the Norwegian Government showed that out of the total number of 100 opera-
tors that provided regular bus services in Norway and that received compensation for the autodiesel levy
under the compensation scheme at issue, 49 were also engaged in occasional services,
i.e. 49 %. The
Norwegian Government also submitted figures which showed that, within the Norwegian bus and coach
industry, non-scheduled services (24) constitute normally less than 15 % of total operating costs of the
companies concerned.

As regards the competitive situation between regular and occasional services, the Norwegian Government
explained (cf. letter dated 15 June 2001) that these services constituted two separate markets given the
different legislative obligations which govern both transport activities (licence requirement for regular but
not for occasional services; additional obligations regarding timetables, frequency and route schedules for
regular but not for occasional services) and the nature of the activity which was claimed to be different
from the customer's point of view.

(24) This term is used by the Norwegian Government. The Authority understands the term as referring to transport
services other than ‘regular transport services’ within the meaning of Article 2(1) of Council Regulation (EC) No 12/
98; see footnote 2.

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According to the Norwegian authorities, a regular service may only be a good alternative to an occasional
service for a group of passengers if attractions, hotels, etc. are situated along the specified route. The
Norwegian Government also stated that a customer might, under certain circumstances, find that in certain
situations there is an economically meaningful choice between travelling by hiring an occasional service or
travelling by scheduled (25) service. Normally, this situation would, according to the Norwegian Govern-
ment, not occur frequently, and the providers of regular bus services have, to a very limited extent, served
the customer groups usually served by providers of occasional services.

It was further stated that the Norwegian Transport Act provided for the possibility of regular bus services
to pick up groups of passengers within a reasonable distance from their scheduled stops. To the Norwegian
authorities' knowledge, larger deviations had not occurred, unless as part of public service obligations
specified in the licence. Such obligations may include transport services to special excursion spots.

In addition and as regards the statement in the opening decision that regular bus operators were allowed
to reschedule their destinations in wintertime, so as to provide transport service to tourist sites, the Norwe-
gian Government explained that applications for the rescheduling of ‘non-subsidised’ bus services had to be
evaluated by the Ministry of Transport and Communications, considering the need and the impacts on
competition of rescheduling. Furthermore, according to the Norwegian Government, operators were, in
principle, not allowed to reschedule their transport route if a group of people so requires (however, it
would seem that such re-scheduling could be possible, provided that it will not interrupt the transport
services according to schedule, i.e. respecting timetables and stopping points).

As regards foreign carriers benefiting from the compensation scheme,
the Norwegian Government
informed the Authority that, for the time being, there is only one operator, the Swedish company Swebus
AB, which provides international regular cabotage transport services in Norway; this company operates in
a pool with the Norwegian operator, AS Østfold Bilruter.

As regards Norwegian operators engaged in transport activities abroad, the Norwegian Government
informed the Authority that, for the time being, 330 Community licences have issued (26). Information
about licences for regular transport services would need to be obtained from the respective countries.

(d) Comments from the Norwegian Transport Association to the opening decision

The Norwegian Transport Association, while acknowledging that scheduled (27) services were in competi-
tion with occasional services, claimed that such competition would be an integral part of the Norwegian
and European transport policy. The Norwegian Transport Association claimed that changes in schedules
(due to variations in demand over the year) as well as the possibility of picking up groups within a reason-
able distance from their scheduled stops would be inherent to such services and covered by Council Regu-
lation (EEC) No 684/92 as amended by Council Regulation (EC) No 11/98. As regards international sched-
uled (28) services, the Norwegian Transport Association stated that foreign operators would be treated in
the same way as domestic operators. As regards the applicability of Article 61(1) of the EEA Agreement to
the compensation scheme at issue, the Norwegian Transport Association argues, in its letter dated 9 April
2002, that the regular bus transport services benefiting from the compensation scheme at issue were
confined within Norway; competition rules would therefore not be applicable to the compensation scheme
at issue.

(25) This term is used by the Norwegian Government. The Authority understands the term as referring to ‘regular trans-

port services’ within the meaning of Article 2 (1) of Council Regulation (EC) No 12/98; see footnote 2.

(26) The Norwegian Government has, however, not indicated which number of such licences was held by bus operators

subject to the present investigation.

(27) This term is used by the Norwegian Transport Association. The Authority understands the term as referring to
‘regular transport services’ within the meaning of Article 2(1) of Council Regulation (EC) No 12/98; see footnote 2.
(28) This term is used by the Norwegian Transport Association. The Authority understands the term as referring to ‘inter-
national regular transport services’ within the meaning of Article 3(3) of Council Regulation (EC) No 12/98; see foot-
note 2.

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(e) Comments from the complainant

According to the complainant, ‘non-subsidised’ bus operators are in competition with tourist coaches. In
this respect, the complainant refers to certain routes served by both ‘non-subsidised’ bus operators and
tourist coach operators and where both operators compete for the same group of customers (e.g. express
bus routes to Oslo airport, where operators providing regular services are in competition with tourist
coaches).

In addition, the complainant claims that scheduled buses are allowed — contrary to what the Norwegian
Government has maintained — to reschedule their routes and drive groups of people to tourist areas,
typical tourist bus operations (in this respect, the complainant refers to the Valdresbusses serving the route
Oslo-Beitostølen, ‘a typical tourist area’; other examples mentioned by the complainant concern the routes
Oslo-Trysil, Oslo-Hemsedal and Oslo-Geilo). Such deviations from the route schedule would result in an
overlapping of services.

Furthermore, ‘non-subsidised’ bus operators would receive compensation for ‘assistance driving’ and ‘posi-
tion driving’. Both activities would be used by these bus operators to provide transport services in competi-
tion with the complainant (in this respect, the complainant refers in particular to the route Valdres-Oslo;
on the return journey/position driving, bus operators would provide tourist services for groups of passen-
gers).

Finally, the complainant emphasised that ‘non-subsidised’ bus operators receive compensation for the
provision of regular passenger transport on routes on which the licensed bus operators, at the same time,
offer the transport of goods.

(f) Comments from the Norwegian Government to third party comments

The complainants allegations, in particular as regards routes served by both regular bus operators and
occasional bus operators and the possibility for regular bus operators to reschedule routes in order to
allow those operators to drive groups to tourist areas were not contested by the Norwegian Government
(cf. Norwegian Government's letter dated 31 January 2002). Reference was however made to the control
mechanisms established under the compensation scheme which would ensure that compensation payments
could not be misused, i.e. benefiting an operator's tourism activity and that compensation would only be
granted for distances according to the specified routes and timetables. As regards the transport of goods,
the Norwegian Government informed the Authority that, according to information from the Norwegian
Association of Transport Enterprises, the figures regarding the share of turnover generated by the transport
of goods compared to the turnover generated by regular transport was ‘probably less than 1 %’.

As regards the effects of the compensation scheme concerning assistance driving, position driving and
approved deviations from the route schedules as laid down in the licence, the Norwegian Government
stated that, for the year 1999, the assistance and position driving compensated for amounted to less than
4 % of driving according to schedule. Based on these figures, the Norwegian Government took the view
that the inclusion of position driving and assistance driving had insignificant effects on competition. The
Norwegian Government confirmed that approved deviations (29) were also compensated for.

(29) ‘Approved deviations’ are meant to be those deviations as referred to by the Norwegian Government in its response
to the Authority's request for additional information of 12 April 2001: ‘… larger deviations [from the defined route]
have not occurred unless as part of public service obligations specified in the licence. Such obligations may be to
serve … special excursion spots …’.

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2. NOTIFICATION REQUIREMENT AND STANDSTILL OBLIGATION

(a) Authority's views as expressed in the opening decision

In the opening decision, the Authority took the view that the compensation scheme in question constituted
‘new aid’. In the Authority's view, the compensation scheme could not be regarded as ‘existing aid’ within
the meaning of point 7.2 (1) first bullet point of Chapter 7 of the Authority's State Aid Guidelines, since
the compensation payment was not based on a legal act which was in operation at the time of the entry
into force of the EEA Agreement (after the exemption from the autodiesel levy for bus operators was abol-
ished as of 1 January 1999, the compensation scheme for so-called ‘non-subsidised’ bus operators was
introduced). Furthermore, the compensation was determined according to specific rules, part of which
were communicated to the bus operators concerned in two letters dated 21 February 2000. These rules
constituted a new legal framework for the provision of aid to certain regular bus operators. Therefore, the
compensation could not be considered to be a continuation of a tax concession which was laid down in a
different legal act.

(b) Comments from the Norwegian Government to the opening decision

In its comments to the opening of the formal investigation procedure, the Norwegian Government argued
that it was irrelevant that the compensation scheme constituted a new legal framework. Decisive in deter-
mining whether a measure constitutes ‘new aid’ or ‘existing aid’ was whether additional money was granted
and new beneficiaries included. In this respect, the Norwegian Government claimed that the compensation
scheme was less extensive (both in money terms and in terms of eligible companies) than the previous tax
exemption: according to the Norwegian Government, when determining the compensation amount for
1999 a 6 % reduction in fuel consumption was assumed; furthermore, the scope of the compensation
scheme was limited to regular transport undertakings whereas the previous tax exemption covered all bus
operators, including those offering occasional services.

3. COMPATIBILITY ASSESSMENT UNDER COUNCIL REGULATION (EEC) No 1191/69

(a) Authority's views as expressed in the opening decision

Even though not invoked by the Norwegian Government in the course of the preliminary investigation,
the Authority assessed whether Regulation No 1191/69 could be applicable. Based on the information at
its disposal, the Authority came to the preliminary conclusion that ‘… the compensation for “non-subsi-
dised” bus operators would not seem to fall within the scope of Regulation No. 1191/69, since the eligible
operators do not seem to be subject to public service obligations within the meaning of Article 2 of that
Regulation.’ Furthermore, the Authority expressed the view that ‘…, on the basis of the rules regarding
compensation payments, as laid down in the two letters of 21 February 2000, it was apparent that the
compensation awarded to the bus operators in question had not been determined in accordance with the
procedure laid down in Regulation No. 1191/69 (in particular Art. 9 et seq.). …’

(b) Comments from the Norwegian Government to the opening decision

In its comments to the opening of the formal investigation procedure, the Norwegian Government claimed
that the compensation scheme would fall under Council Regulation (EEC) No 1191/69.

According to the Norwegian Government, all regular passenger transport services in Norway fell within
the scope of Council Regulation (EEC) No 1191/69. The Norwegian Government maintained that both
‘subsidised’ and ‘non-subsidised’ bus operators are subject to the same legal framework conditions. There
was no distinction between these two groups under the Norwegian Transport Act. Consequently, the
Norwegian Government did not see a justification to assess both types of operations differently. Assuming
that the Authority found the compensation for so-called ‘subsidised’ bus operators in compliance with the
EEA Agreement, the Norwegian Government claimed that the compensation granted to so-called ‘non-
subsidised’ operators should also be regarded as compatible with the EEA Agreement.

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The Norwegian Government stressed that the distinction between both categories of operators depending
on estimates as to which routes were commercially viable, was drawn prior to the removal of the tax
exemption. After the abolition of the tax exemption, the commercial situation of so-called ‘non-subsidised’
bus operators had changed. According to the Norwegian authorities, it was clear that the ‘non-subsidised’
bus operators would not necessarily assume the public service obligations they undertook prior to 1
January 1999 to the same extent or under the same conditions as they did if it had not been for the
exemption from the autodiesel levy.

According to the Norwegian Government, the Transport Act (‘Lov om samferdsel 1976 nr. 63’) and the
regulation on domestic passenger transport (Forskrift om persontransport i rute innenlands med motor-
vogn eller fartøy) stipulate a number of conditions governing the provision of regular passenger transport
services which entailed public service obligations (30):

— The operator has an unconditional obligation to carry, except in cases of force majeure (§ 7);

— The operator shall engage a sufficient number of buses to cover ordinary demand and if possible also

extraordinary demand that is foreseen (§ 8);

— The route schedules must be approved by the competent authority; all information regarding schedules,

starting points, intermediate stops and destination must be properly advertised (§ 10);

— Fares and discounts must be approved by the competent authority (§ 11);

— The operator must use tickets, ticketing machines and other equipment which is approved by the

competent authority (§ 12);

— The competent authority has the right to decide the use of terminals, stopping points and the exact

roads to be used for the routes (§ 13);

— The competent authority may decide that passengers have the right to reserve seats in advance (§ 15);

— The operator must equip bus stops with information boards.

In addition, it is claimed that many routes running parallel to railroad services are denied rights to take up
passengers near the railway services, which would constitute a public service obligation on the operators
concerned.

According to the Norwegian authorities it is obvious that the obligations contained in the Transport Act
and regulation on domestic passenger transport increase costs above what would be incurred if the services
had been run on a strictly commercial basis and that, in particular the restrictions in order to protect the
railway services, reduced revenues.

As regards the Authority's concern that the compensation scheme for express bus was not in line with the
requirements laid down in Article 10 to 13 of Council Regulation (EEC) No 1191/69, since the compensa-
tion was not calculated in accordance with the criteria set out therein, the Norwegian authorities claimed
that these discrepancies would not affect the compatibility of the compensation scheme with the Regu-
lation, since the amount of compensation awarded would still be within the range permissible under the
Regulation.

The Norwegian Government also refers to compensation schemes employed in other EU Member States,
which had not been the cause of objections from the European Commission (in this context, reference is
made in particular to an exemption from the diesel fuel tax in Denmark for scheduled bus services). It
claimed that Council Regulation (EEC) No 1191/69 has not been interpreted by the Commission in a very
strict manner and concluded that according to this lenient Commission approach all costs related to public
service obligations were reimbursable.

(30) References are made to the relevant provisions in the regulation on domestic passenger transport.

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(c) Additional comments from the Norwegian Government

In response to the Authority's letter of 30 October 2001, in which the Authority explained its doubts as
regards the application of Council Regulation (EEC) No 1191/69, the Norwegian Government reiterated its
view that the conditions contained in the Transport Act and the regulation on domestic passenger trans-
port constitute public service obligations imposed on the bus operators in question. In response to the
Authority's argument that these conditions could not be regarded as necessarily being imposed upon the
bus operator concerned, given that the operator had applied for a licence to run a particular service on a
certain route, the Norwegian Government stated that operators could not unilaterally change standards of
continuity, regularity and capacity as laid down in the licences in order to adapt to changed financial
circumstances (here the abolition of the exemption from the autodiesel levy). Applications for changes in
fares, schedules and routes were not always approved. Insofar as the applications to change certain condi-
tions was not granted, this would have to be considered as a public service obligation imposed on the
operator concerned. The Norwegian Government also stated that it was likely that after the abolition of the
previous exemption from the autodiesel levy some of the regular passenger services would no longer be
profitable. The result would probably be that some operators would withdraw their services. Other opera-
tors would be forced to increase fares and/or reduce frequency to stay profitable. According to the Norwe-
gian Government, neither a withdrawal of lines nor major increases in fares as a consequence of the aboli-
tion of the exemption from the autodiesel levy could be accepted by the Norwegian authorities.

The Norwegian Government stated that, according to the Transport Association, about 25 lines would
possibly be shut down in the absence of the compensation scheme and for the remaining lines price
increases of around 15 % could be expected. Asked by the Authority to provide verifiable information in
this respect, the Norwegian Government stated that considering the marginal profits of some of the opera-
tors, the Norwegian Government found no reason to doubt that withdrawal of some lines and/or increases
in fares would be a likely outcome of the abolishment of the compensation scheme. Exactly which services
would be withdrawn or on which routes tariffs would be increased if the compensation scheme were to be
abolished would only become evident once the scheme was actually abolished.

Furthermore, and as regards the costs resulting from these obligations, reference is made to the comments
submitted by the Transport Association (and in particular Annex II to the submission). This Annex
contained estimates of the financial consequences of the public service obligations. According to the
Norwegian Government the compensation scheme does not leave room for overcompensation. Generally,
the compensation was kept at a level well below the actual costs of the autodiesel levy. As regards the
exact costs of the public service obligation, the Norwegian Government acknowledged, however, that there
was no concrete verifiable information.

(d) Comments from the Norwegian Transport Association

According to the Norwegian Transport Association, all domestic scheduled bus services, whether called
‘non-subsidised’ or ‘subsidised’ operators were equally subject to public service obligations as laid down in
the Transport Act and regulation on domestic passenger transport, and should therefore be equally eligible
for compensation.

There would be nothing in Council Regulation (EEC) No 1191/69 that would indicate that remunerative
and non-remunerative services should be treated differently as regards public service obligations and
compensation.

According to the Norwegian Transport Association, the question of legality of tax relief as a practical form
of compensation for public service obligations has never been raised by an EC Member State or the Euro-
pean Commission itself. On the contrary, tax relief in various forms is a common way of compensating
public transport throughout the EU. According to the Norwegian Transport Association, Council Regu-
lation (EEC) No 1191/69 does not only apply to direct compensation payments but also to indirect forms
of aid, such as VAT exemptions, mineral oil exemption, etc. It stresses that practical and administrative
considerations have led to the choice of the aid in question in addition to a more complicated system of
direct compensation through operational subsidies. The indirect form of aid through compensation for the
mineral oil levy was regarded as being in line with Article 3(1) of Council Regulation (EEC) No 1191/69
which states that the competent authority shall select the way least costly to the community.

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The Norwegian Transport Association concedes that, formally, the Norwegian fuel tax restitution regime
was not tied directly to the actual costs resulting from the public service obligations imposed. However, as
long as no over-compensation exists and the necessary steps are taken to avoid this, compliance with Arti-
cles 10 to 13 of Council Regulation (EEC) No 1191/69 would be of a purely theoretical nature.

The Norwegian Transport Association provided a list of obligations contained in the relevant legal docu-
ments as well as several licences that contain restrictions on the operation on certain parts of the route for
which a licence was granted. According to the Norwegian Transport Association, the various obligations
increase costs above what would be incurred had the services been run on a strictly commercial basis and
reduce revenues due to restrictions on the serving of the market along parts of the routes in order to
protect the railways. According to the Norwegian Transport Association, the Authority's doubts that the
Norwegian authorities have not shown to what extent the operators in question assume additional obliga-
tions and costs compared to the level of services provided for purely commercial reasons, would be purely
theoretical. The operators in question were never able to provide regular transport services without public
service obligations. As regards the Authority's doubts concerning the qualification of the restriction to
serve routes along railway lines as being a public service obligation, the Norwegian Transport Association
claims that it would follow from Council Regulation (EEC) No 1191/69 that the imposition of reduced
revenues constituted a public service obligation. In this respect, it is maintained that compensation for
such obligations was commonly used in Europe in the calculations of public service obligations.

The Norwegian Transport Association presented estimates regarding the financial consequences of public
service obligations for scheduled bus services in Norway (subject to the compensation scheme administered
by the Ministry of Transport). In its view, the negative value of the various obligations would be higher
than the amount of fuel restitution. Even if there was an element of overcompensation, such advantages
for public service transport were inherent to the EEA wide public transport policy.

Based on the calculations and considerations set out in the Annex II to the submission of the Norwegian
Transport Association, financial consequences due to public service obligations can be summarised as
follows (31):

Table 1

Conditions/Obligations

Estimated extra costs

— Unconditional obligation to carry

— Engagement in sufficient number of buses

n.a.

n.a.

— Equipment of bus stops with information boards and

n.a.

other items

— Obligation to give financial and statistical information

n.a.

— Advertising in the ‘Rutebok for Norge’

NOK 0,1 million (1)

— Special fares and discounts

NOK 30 million p.a.

— Obligation to use specific terminals

NOK 13 million p.a. (2)

(31) It should be noted that the Norwegian Transport Association provided estimates for extra costs only for certain obli-

gations and only for certain companies; where information was lacking, the Authority noted ‘n.a.’.

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Conditions/Obligations

Estimated extra costs

— Excess costs due to the use of compulsory routes in

NOK 0,5 million p.a. (3)

certain areas

— Reduced operating efficiency due to imposed time
limitations in number of departures and

schedules,
periods of operation, mainly to protect railways

No general estimates were given; the Norwegian Transport
Association referred to one example where an operator
was not allowed to offer daytime bus services (for this
specific case a cost estimate was given of NOK 0,5 million
p.a.)

— Loss of revenues due to restrictions on the serving of
the market, most often to protect railway lines from
competition on similar routes

The Norwegian Transport Association stated that it was
not possible to make realistic calculations of the financial
consequences;
the loss in
it was however stated that
revenues would be higher than the calculation of excess
costs mentioned above.

(1) Referring to advertising the route schedule of the NOR-WAY express bus scheme.
(2) Reference was made to the obligatory use of specific terminals in Oslo, Trondheim, Kristiansand, Arendal, Stavanger, Haugesund,
Bergen, Elverum, Fagernes and Otta; estimates were, however, provided only for user fees at terminals in Oslo and partly in Trond-
heim.

(3) Estimates were given only for the south and westbound long distance buses from Oslo. The estimates for extra costs were only
provided with respect to these routes. It was, however, indicated that similar costs would occur also in other areas, especially in
major urban areas. In this respect, reference was also made to loss in revenues arising from prohibitions for serving town centres,
without however giving estimates in this respect.

In addition to these estimates, the Norwegian Transport Association provided examples of certain express
bus operators and the conditions under which certain routes were operated.

The Norwegian Transport Association stressed the importance of Norwegian express bus lines for the
remote and sparsely populated districts of Norway where no alternative public transport is available.

Finally, the Norwegian Transport Association maintained that a decision from the Authority declaring the
compensation scheme for one group of licensed bus operators as incompatible with the EEA Agreement
would seem to be in breach of Article 61 and possibly Article 59 of the EEA Agreement as well as Article
9 of Council Regulation (EEC) No 1017/68 on rules of competition in transport (32). Furthermore, the
Norwegian Transport Association draws the Authority's attention to the fact
that according to the
amended proposal for a new Regulation on action by Member States concerning public service require-
ments and the award of public service contracts in passenger transport by rail, road and inland
waterway (33), the rules of calculation of public service obligations under Article 1 in Annex I shall not
apply to exceptions from some or all of the financial effect of an excise duty on fuels. In this way, the
European Commission would intend to lift the fuel tax question completely out of the rules governing
compensation for public service obligations. The Norwegian Transport Association considers this an
important element which should be taken into account in the current investigation.

(e) Comments from the complainant

According to the complainant, the ‘non-subsidised’ bus operators are not subject to public service obliga-
tions. In particular, on routes which are also served by the railway, it would be the railway services which
would provide transport services in the public interest. There was no additional need for express busses
along these routes.

(32) Regulation (EEC) No 1017/68 of the Council of 19 July 1968 applying rules of competition to transport by rail,

road and inland waterway (OJ L 175, 23.7.1968, p. 1.

(33) COM (2002) 107 final, 21.2.2002.

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4. COMPATIBILITY OF THE COMPENSATION SCHEME UNDER THE ENVIRONMENTAL GUIDELINES

(a) Authority's views as expressed in the opening decision

In the opening decision, the Authority took the view that the Norwegian authorities had not demonstrated
that the compensation scheme complied with the conditions of the Environmental Guidelines as regards
level of compensation, the temporary and degressive nature of the aid, as well as the necessity of the aid to
offset losses in competitiveness.

(1) Possible over-compensation

In the opening decision, the Authority acknowledged that ‘a decrease in compensation as compared to the
relief previously granted under the exemption from the autodiesel levy might indicate that compensation
remains below costs resulting from the autodiesel levy.’ However, the Authority took the view that it could
not be ruled out that operators who received payments under the scheme could benefit from compensation
exceeding their actual costs resulting from the autodiesel levy.

(2) Incentive effect: temporary and degressive nature of the compensation scheme

As regards the temporary nature of the compensation scheme, the Authority observed in the opening deci-
sion that the compensation scheme did not contain any limitation in time. As regards the incentive effects
of the compensation scheme, the Authority had expressed the concern that, ‘… there is no clear signal as
to the future reduction of State support which would oblige bus operators to reduce their fuel consump-
tion.’

The Authority also observed that the Norwegian authorities did not submit ‘… information which would
have enabled the Authority to ascertain that compensation awarded under the scheme decreased continu-
ously since its introduction and compared to the situation before the abolition of the tax exemption in
1999.’

Finally, the Authority expressed the concern that, ‘… without information on the level of compensation
granted under the scheme, it is difficult to ascertain whether and to what extent the scheme has a sufficient
incentive effect.’

(3) Necessity to offset losses of competitiveness

As regards the compensation scheme for the so-called ‘non-subsidised’ bus operators as opposed to so-
called ‘subsidised’ bus operators, both providing regular transport services, the Authority observed in the
opening decision that the initial Government's proposal on Green Taxes stated that no compensation
would be necessary since these ‘non-subsidised’ bus operators were considered to be able to cover the
increased costs either through an increase in ticket prices or through a reduction in profits. Therefore, the
Authority had strong doubts as to whether the compensation scheme was necessary.

(b) Comments from the Norwegian Government

(1) Possible overcompensation

The Norwegian Government argued that the compensation scheme was limited to the extra costs due to
the introduction of the autodiesel levy. Furthermore, the Norwegian authorities informed the Authority
that the amount of compensation was calculated based on the consumption of the most energy efficient
vehicles. Overcompensation could only occur if an express bus operator would use less than 0,31 litres per
km. Any amounts allocated under the scheme which would exceed the amount necessary to compensate
for the consumption based on the most efficient vehicles would not be paid out. In addition, the Norwe-
gian Government pointed out that bus operators had expenses which were not completely compensated
for, such as assistance and position driving.

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As regards the level of compensation granted under the compensation scheme at issue, the Norwegian
authorities submitted the following figures:

Table 2

A

B

C

Amounts allocated under Chapter
1330, post 71 (NOK)

n.a.

71 million

75,4 million

50 million

29 million

1998

1999

2000

2001

2002

Amounts actually spent (NOK)

n.a.

64 million

66 million
(estimate)

50 million
(estimate)

29 million
(estimate)

from auto diesel

Revenues
levy
only related to regular passenger
services provided by
transport
operators
bus
non-subsidised
(NOK) (VAT inclusive)

n.a.

than

64

More
million

than

66

More
million

More
million

than

53

More
million

than

51

D=B/C

Compensation spent expressed as
percentage of revenue from auto-
diesel levy

n.a.

Less than 100 %

Less than 100 %

Less than 100 %

Less than 100 %

E

F

Autodiesel consumption (litres per
km) (1)

0,315
(estimate)

0,315
(estimate)

0,315
(estimate)

0,315
(estimate)

0,315
(estimate)

Autodiesel
exclusive VAT

levy (NOK per

litre)

3,43

3,54

3,74
(as from 1 July:
3,54)

3,04
(as from 1 July:
2,72)

2,77

Autodiesel
VAT incl.

levy (NOK per

litre)

4,22

4,35

4,6
(as from 1 July:
4,35)

3,77
(as from 1 July:
3,37)

3,43

G

Compensation (NOK per km)

n.a.

1,37

1,41

1,07
(estimate)

0,62
(estimate)

(1) According to the Norwegian Government, these figures represent consumption of the most efficient vehicles.

(2) Necessity to offset losses of competitiveness

The Norwegian Government claimed that the compensation scheme was necessary to maintain the compe-
titiveness of the bus operators providing regular passenger transport services. According to the Norwegian
authorities, experience from recent years made it evident that public transport on a scale sufficient to
compete effectively with the private car could not be upheld without substantial contributions from public
funds. It was considered important not to weaken the competitiveness of public transport in relation to
private cars.

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The Norwegian Government claimed that, contrary to what had been stated in the initial proposal (34),
profitability of these operators was not sufficient to absorb increased costs. Referring to the Norwegian
Parliament's decision, it was expected that the abolition of the previous exemption from the autodiesel levy
would change the commercial viability of many regular routes, with the consequence that so-called ‘non-
subsidised’ routes formerly operating with small profit margins would have to be closed down. As for the
other routes, ticket prices would have to be raised, with the danger of customers switching to private trans-
port. It was also stressed that an increase in ticket prices was not regarded as acceptable from the point of
view of providing public transport at affordable prices.

In this respect, the Norwegian Government referred to a report on an evaluation of the competitive situa-
tion of express busses (35). With respect to four selected routes (i.e. Haukeliekspressen, Møre-ekspressen,
Nordfjordekspressen and TIMEkspressen), the Norwegian Government stated from that report that the
percentage of travellers who alternatively would use a private car as driver or passenger would be on
average around 47 %.

The Norwegian Government claimed that the costs related to the use of the private car did not, at present,
reflect the external costs caused by this means of transport.

As regards the cost increases due to the abolition of the tax exemption, the Norwegian Government
submitted information allowing a comparison between costs under the old legal framework, i.e. with the
exemption from the autodiesel levy in 1998 and the costs under the new legal framework, i.e. after the
exemption had been abolished as from 1 January 1999. According to the Norwegian authorities, the
average price of autodiesel from retail dealers was NOK 4,38 (VAT incl.) per litre in 1998, while the
average price was NOK 8,27 (VAT incl. and including the autodiesel levy) in 1999. The cost per km was
NOK 1,38 in 1998 and NOK 2,61 in 1999 respectively (the cost per km was calculated based on the
assumed consumption of 0,315 litre per km).

(c) Comments from the complainant

The complainant claimed that the compensation scheme would result in operators being compensated for
0.45 litres per km, which was allegedly exceeding the real consumption.

(d) Comments from the Norwegian Transport Association

According to information from the Norwegian Association of Transport Enterprises, to which the Norwe-
gian Government referred, overall costs per km could be estimated as amounting to NOK 12 (VAT incl.
and including autodiesel levy). This would imply that fuel costs in 1998 (VAT incl. but without autodiesel
levy) could be estimated to be about 12 % of overall costs, while fuel costs in 1999 (VAT incl. and
including the autodiesel levy) could be estimated to be about 20 % of overall costs.

(e) Comments regarding the level playing field within the EEA

The Norwegian Government and the Norwegian Transport Association claimed that the compensation
scheme in Norway would be similar to derogations from the mineral oil duty in favour of local public
passenger transport within the European Union. These derogations were covered by the EC Mineral Oil
Directive (36) and the recent European Council decision of 12 March 2001 (37). In addition, the Norwegian
Government claimed that the special topography of Norway, as well as the fact that the country's popula-
tion lives very scattered around the country compared to other European countries, would require special
arrangements within the public transport sector. In remote areas of the country, it would be difficult to
maintain public transport on a commercial basis.

(34) Cf. Norwegian Government's proposal for the State Budget 1999 (St.prp. nr.1 (1998-1999)), which follows up on

the proposals made in the Parliamentary Bill on Green Taxes (St.prp. nr. 54 (1997-98)).

(35) ‘Evaluering av konkurranseflater for ekspressbussruter’, Hjellnes COWI AS, July 1999.
(36) Within the European Community, there are two ‘Mineral Oil Directives’: Council Directive 92/81/EEC of 19 October
1992 on the harmonization of the structures of excise duties on mineral oils (OJ L 316, 31.10.1992, p. 12) and
Council Directive 92/82/EEC of 19 October 1992 on the approximation of the rates of excise duties on mineral oils
(OJ L 316, 31.10.1992, p. 19).

(37) EC Council Decision of 12 March 2001 concerning reduced rates of excise duty and exemptions from such duty on

certain mineral oils when used for specific purposes (OJ L 84, 23.3.2001, p. 23).

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The complainant claimed, in his letter dated 8 May 2002, that the compensation scheme in Norway could
not be regarded as an acceptable exemption covered by Council Directive 92/81/EEC (38). In this respect,
he claims that the compensation is not dependent upon the amount of fuel actually used, but instead on
the route kilometres; this would not take into account that the amount of fuel used varied considerably
based on speed, time of the year, road quality, etc.. The complainant also points out that, according to the
Directive, exemptions may only be authorised if they do not give rise to distortions of competition.

II. APPRECIATION

A. STATE AID WITHIN THE MEANING OF ARTICLE 61(1) OF THE EEA AGREEMENT

Article 61(1) of the EEA Agreement stipulates:
‘Save as otherwise provided in this Agreement, any aid
granted by EC Member States, EFTA States 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, insofar as it affects trade between the Contracting Parties, be incompatible with the functioning
of the Agreement.’

Support measures under the compensation scheme are financed through the State budget (cf. State Budget,
Chapter 1330, post 71: Subsidies for express busses, ‘Tilskudd til ekspressbusser’). It follows from estab-
lished case law that measures which mitigate the charges that are normally included in the budget of an
undertaking, constitute State aid (39). Bus operators eligible under the compensation scheme receive a finan-
cial contribution which reduces their normal business expenses (i.e. costs due to the autodiesel levy), thus
giving them an advantage over their competitors.

In the Authority's view, this assessment is not altered by the findings of the European Court of Justice in
the ‘Ferring’ judgment (40). In that judgment, the Court held that tax measures which have the effect of
exempting certain operators from the tax in question, and which compensate for the additional costs actu-
ally incurred by these operators in discharging their public service obligations, might be regarded as a
service these operators provide and hence not State aid within the meaning of Article 92 of the EC Treaty
(now Article 87 EC). The Court also stated that, provided there is the necessary equivalence between the
exemption and the additional costs incurred, the operators in question would not be enjoying any real
advantage for the purposes of Article 92(1) of the EC Treaty (now Article 87 EC) because the only effect of
the tax measure in question was to put operators active in the same market on an equal competitive
footing.

Given the sector specific rules in the transport sector (in particular, Article 49 of the EEA Agreement and
Council Regulation (EEC) No 1191/69), it is not obvious that the conclusions of this judgment may be
applied to the transport sector. The question of qualification of public support for regular passenger trans-
port as State aid is currently pending before the European Court of Justice (41).

Furthermore, and as will be explained in more detail below, the Norwegian Government has not, in the
Authority's view, shown whether and to what extent the bus operators benefiting from the compensation
scheme are subject to public service obligations which would result in a possible competitive disadvantage
compared to other (commercial) bus operators. In addition, the Authority was not satisfied that the
compensation granted to express bus operators would be limited to the additional costs incurred due to
the alleged public service obligations. In fact, the compensation scheme as such provides for no explicit
link between possible public service obligations and the compensation. Consequently, the Authority cannot
rule out that financial support granted under the compensation scheme might confer on the eligible opera-
tors a real economic advantage subject to the EEA State aid rules.

(38) Council Directive 92/81/EEC of 19 October 1992 on the harmonization of the structures of excise duties on

mineral oils (OJ L 316, 31.10.1992, p. 12).

(39) Judgment of the European Court of Justice, Case C-387/92 Banco Exterior de España [1994] ECR I-877, paragraph

13, and Case C-75/97 Belgium v Commission [1999] ECR I-3671, paragraph 23.

(40) Judgment of the European Court of Justice of 22 November 2001, Case C-53/00, Ferring SA v ACCOSS [2001] ECR

I-9067, para. 27 and 29.

(41) Case C-280/00, ‘Altmark Trans GmbH’; request for preliminary ruling pending before the European Court of Justice:

OJ C 273, 23.9.2000, p. 8.

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The aid scheme is also specific inasmuch as it favours only undertakings in the transport sector.

For a measure to be caught by Article 61(1) of the EEA Agreement, it must also distort competition and
affect trade between the EEA States. When State financial aid strengthens the position of an undertaking
compared to other undertakings competing in intra-Community trade, the latter must be regarded as
affected by the aid (42). According to recent case law by the European Court of Justice,
‘… in matters
relating to State aid, it is sufficient that the market concerned be open, even partly, to competition for aid
to be capable of affecting trade between Member States’ (43).

As regards the possible distortive effects of the State support granted under the compensation scheme, the
Authority recalls the legal provisions applicable to passenger transport. Access to the international market
for the carriage of persons has been opened up through Council Regulation (EEC) No 684/92 of 16 March
1992 on common rules for the international carriage of passengers by coach and bus (44). Cabotage rights
were introduced by Council Regulation (EEC) No 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 (45), subsequently replaced by Council Regulation (EEC) No 12/98 of 11 December 1997 on the same
subject (46).

Pursuant to Council Regulation (EEC) No 12/98, road passenger transport cabotage, with the exception of
domestic regular services, was liberalised as from 1 January 1996. These provisions have opened up the
market to competition for occasional services, special regular services as well as regular services provided
in the course of an international regular service.

According to an analysis of the passenger transport market carried out by the European Commission, the
public transport market within the EC is gradually being opened to competition. With reference to 11 out
of the 15 Member States, the European Commission observes that legislation or administrative arrange-
ments have been introduced providing for competition in at least part of the urban, regional and inter-
regional bus and coach markets (47).

Furthermore, the European Commission's analysis refers to public procurement rules and, in particular,
national legislation in EC Member States, which would enhance EC/EEA wide market access. Finally, the
European Commission noted that transport undertakings showed an increasing interest in entering other
countries' domestic markets and have, to a certain extent, already acquired shares in national bus compa-
nies or operate public service transport outside their home markets (48).

As the Authority already pointed out in the opening decision, express bus operators provide both regular
passenger transport services and occasional transport services. Therefore, there is a risk that State support
under the compensation scheme might be used by express bus operators for occasional transport services.
Furthermore, even as regards the market for regular passenger transport services, State support granted
under the compensation scheme may be used by the eligible operators to provide similar services abroad
in countries which have opened up that market segment to competition.

(42) Case 730/79, Philip Morris v Commission [1980] ECR p. 2671, para. 11.
(43) Judgement of 4 April 2001, Case T-288/91, Regione Friuli Venezia Giulia v Commission, [2001] ECR II-1169, para.

95.

(44) OJ L 74, 20.3.1992, p. 1; incorporated into the EEA Agreement in Annex XIII, point 32.
(45) OJ L 251, 29.8.1992, p. 1; incorporated into the EEA Agreement in Annex XIII, point 33a.
(46) OJ L 4, 8.1.1998, p. 10; incorporated into the EEA Agreement in Annex XII, point 33b.
(47) See European Commission's first proposal for a Regulation on action by Member States concerning public service
requirements and the award of public service contracts in passenger transport by rail, road and inland waterway,
COM (2000) 7 final of 26.7.2000, in particular, page 4 of the explanatory memorandum: http://europa.eu.int/eur-
lex/en/com/pdf/2000/en_500PC0007.pdf. According to the information contained in this explanatory memor-
andum, in particular, Denmark, Finland and Sweden have already opened their transport markets.

(48) The Authority notes that Norwegian companies engaged in bus operations have acquired foreign undertakings
providing bus transport services, see e.g. European Commission decision of 10 December 1999 (Case No COMP/
M.1768-SCHOYEN/GOLDMAN SACHS/SWEBUS) declaring a concentration between inter alia the Norwegian
company Schoyen, engaged, in particular, in bus operations and the Swedish company Swebus, engaged in the
provision of bus and coach transport, compatible with the common market, published in OJ C 11 of 14.1.2000, p.
6.

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These circumstances alone lead to the conclusion that the compensation scheme which grants aid to under-
takings providing regular passenger transport on a local, regional and inter-regional level must be regarded
as being liable to distort competition and to affect trade within the meaning of Article 61(1) of the EEA
Agreement.

This conclusion is also in line with European Commission practice in this area (49).

In addition, the Authority observes that the information submitted by the Norwegian Government as well
as information and comments submitted by third parties in the course of the formal investigation proce-
dure indicate that the compensation granted to ‘non-subsidised’ bus operators actually distorts competition
and affects trade.

Firstly, information submitted in the course of the formal investigation procedure showed that almost 50 %
of operators eligible under the compensation scheme provided both regular and occasional services. Conse-
quently, any financial benefits granted to express bus operators for the operation of regular passenger
transport services could be channelled into other business areas, such as the provision of occasional trans-
port services.

Secondly, the Authority cannot exclude that, at least on certain routes, regular and occasional services are
in competition with each other. As regards the competitive situation between regular and occasional bus
services, the Norwegian Government claimed that due to differences in the legal conditions under which
scheduled and occasional services operate, occasional and regular passenger transport constituted two sepa-
rate markets. However, the Authority observes that the actual scope of competition between regular trans-
port services and occasional transport services cannot be determined in an abstract manner. Whether or
not both kinds of services are in competition with each other can only be determined based on individual
routes and the individual circumstances, such as distances, location, etc.

Based on the information submitted by the Norwegian Government and its comments to the complainant's
allegations in this respect, the Authority notes that there would seem to be a number of routes which are
served both by regular and occasional services. This would seem to be the case, in particular, where the
final destination is a tourist site/ski resort or where tourist attractions are located along a specific route. In
addition, the information submitted shows that operators providing regular transport services were allowed
to serve groups of passengers to special excursion spots.

The market for occasional services (as well as for the transport of goods/packages) is a fully liberalised
market. Therefore, State support which may distort competition on this market is also liable to affect trade.
Furthermore, the State support may also affect trade as regards the provision of regular transport services.
The fact that foreign operators providing international regular transport in Norway might equally benefit
from the compensation scheme at issue does not exclude effects on trade, because operators benefiting
under the compensation scheme may take advantage of the market opening in other EEA States and
provide regular transport outside Norway.

Therefore, the Authority concludes that the compensation scheme at issue is liable to distort competition
and affect trade between the Contracting Parties to the EEA Agreement.

Based on the foregoing considerations, the Authority concludes that the compensation scheme at issue
constitutes State aid within the meaning of Article 61(1) of the EEA Agreement.

(49) See European Commission decision regarding the continuation of the ecological tax reform, State aid N 575/A/99
— Germany, as well as the more recent Commission decision regarding the continuation of these measures beyond
March 2001, State aid N 449/2001 — Germany and the more recent Commission decision in State aid N 588/
2002 — United Kingdom concerning a grant scheme for long-distance coach services.

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B. NOTIFICATION REQUIREMENT AND STANDSTILL OBLIGATION

Pursuant to Article 1(3) of Protocol 3 to the Surveillance and Court Agreement, ‘[t]he EFTA Surveillance
Authority shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant
or alter aid…The State concerned shall not put its proposed measures into effect until the procedure has
resulted in a final decision’.

This notification requirement and standstill obligation concern ‘new aid’. On the other hand, ‘existing aid’
can be granted until the Authority finds the aid in question to be incompatible with the functioning of the
EEA Agreement. According to point 7.2 of Chapter 7 of the Authority's State Aid Guidelines, ‘existing aid’
is defined as ‘pre-EEA’ aid (i.e. ‘aid schemes in operation at the time of the entry into force of the EEA
Agreement’) and authorised aid.

In deciding whether or not an aid scheme is to be regarded as ‘new aid’ or ‘existing aid’, the Authority
examines the relevant legal provisions providing for the aid in question, and in particular the entry into
force of these provisions. The Authority is not obliged to carry out an economic analysis of the measure in
question as compared to aid schemes which had been in place prior to the introduction of new legal provi-
sions.

This view is confirmed by the case law of the European Court of Justice.

According to the European Court of Justice in the ‘Namur-Les Assurances’-case ‘…the emergence of new
aid or the alteration of existing aid cannot be assessed according to the scale of the aid or, in particular, its
amount in financial terms at any moment in the life of the undertaking if the aid is provided under earlier
statutory provisions which remain unaltered. Whether aid may be classified as new aid or as alteration of
existing aid must be determined by reference to the provisions providing for it.’ (50) (underlined here).

The fact that the previous tax exemption, which was based on decisions adopted under the Norwegian Act
on excise duties, was abolished and a new compensation scheme put into place, is sufficient to turn this
compensation scheme into ‘new aid’ within the meaning of Article 1(3) of Protocol 3 to the Surveillance
and Court Agreement.

In addition, the Authority takes the view that the compensation scheme introduced in 1999 contains
provisions regarding the scope of activities eligible for support and, in particular, the calculation of the
compensation, which are as such substantially different from the previous rules governing the tax exemp-
tion. In this respect, the Authority notes, in particular, that whereas the previous exemption from the auto-
diesel levy ensured that the benefits resulting from this tax exemption were, by definition, equal to the
costs resulting from the autodiesel levy, the newly introduced compensation scheme does not ensure that
operators may not receive more than their actual costs due to the autodiesel levy. The compensation
scheme bears the risk of overcompensation, given that the amount of compensation is not linked to the
actual autodiesel costs incurred by the operators concerned but is determined based on the route kilo-
metres driven by operators applying for State support under the scheme (51).

In the Authority's view, the compensation scheme was not exempted from the notification requirement
pursuant to Article 17(2) of Council Regulation (EEC) No 1191/69, since the conditions laid down in the
Regulation were not fulfilled (52).

(50) Judgment of the Court of 9 August 1994, Case C-44/93 Namur-Les Assurances du Crédit SA, [1994] ECR I-3829,

para. 28.

(51) This issue will be discussed in more detail below.
(52) For a detailed assessment of compensation scheme under Council Regulation (EEC) No 1191/69, see below.

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The Authority, therefore, concludes that the compensation scheme introduced in 1999 constitutes ‘new
aid’ which, pursuant to Article 1(3) of Protocol 3 to the Surveillance and Court Agreement, should have
been notified to the Authority in advance (53).

Since the compensation scheme at issue was not notified to the Authority in advance, it is considered as
being ‘aid unlawful on procedural grounds’, in accordance with Chapter 6 of the Authority's State Aid
Guidelines.

C. COMPATIBILITY OF COMPENSATION SCHEME FOR EXPRESS BUSSES

In light of the objectives invoked by the Norwegian Government, the Authority assessed the compensation
scheme for ‘non-subsidised’ bus operators under Council Regulation (EEC) No 1191/69 (and Article 49 of
the EEA Agreement) and Article 61(3)(c) of the EEA Agreement in combination with the Environmental
Guidelines.

1. COUNCIL REGULATION (EEC) No 1191/69

(a) Legal framework conditions

Pursuant to Article 49 of the EEA Agreement, ‘[a]id shall be compatible with this Agreement if it meets the
needs of coordination of transport or if it represents reimbursement for the discharge of certain obligations
inherent in the concept of a public service.’

Regulation (EEC) No 1191/69 of 26 June 1969 on action by the Member States concerning the obligations
inherent in the concept of a public service in transport by rail, road and inland waterway (54), as amended
by Council Regulation (EEC) No 1893/91 of 20 June 1991 (55) and incorporated into the EEA Agreement,
lays down the rules under which compensation payments for public service obligations can be regarded as
compatible with the functioning of the EEA Agreement.

Council Regulation (EEC) No 1191/69 declares compatible and exempts from the requirement of prior
notification compensation for public service obligations, where such obligations have been imposed and
where the amount of compensation has been determined in accordance with the provisions of the Regu-
lation.

Public service obligations within the meaning of the Regulation are defined and enumerated in Article 2 of
Council Regulation (EEC) No 1191/69. In follows from Article 2 of the Regulation that any such obliga-
tions may only give rise to compensation if it can be established that these obligations have been imposed
on the operators concerned contrary to their commercial interests.

Furthermore, Article 3 of Council Regulation (EEC) No 1191/69 allows EFTA States to maintain public
service obligations in order to ensure adequate transport services, having regard to the public interest and
the possible recourse to other forms of transport. Transport undertakings may apply to the competent
authorities for the termination of such obligations where the obligation entails economic disadvantages.
Article 6(2) of the Regulation requires that the decision to maintain public service obligations shall also
provide for compensation determined in accordance with the provisions of the Regulation (cf. Articles 10
to 13 of the Regulation).

(53) The Authority's conclusions are in line with European Commission practice, e.g. State aid N 1999/99 — Nether-

lands regarding tax relief for municipal transport undertakings.

(54) OJ L 156, 28.6.1969, p.1; incorporated into the EEA Agreement under point 4, Chapter I. ‘Inland Transport’ of

Annex XIII.

(55) OJ L 169, 29.6.1991, p.1; incorporated into the EEA Agreement under point 4, Chapter I. ‘Inland Transport’ of

Annex XIII.

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(b) Definition of public service obligations

At the outset, the Authority observes that it does not exclude that the conditions laid down in the Norwe-
gian regulation on domestic passenger transport could, in principle, be regarded as public service obliga-
tions referred to in Article 2(2) to (5) of Council Regulation (EEC) No 1191/69.

(c) Imposition of specific public service obligations on ‘non-subsidised’ bus operators

The Authority takes the view that, based on the information submitted, the conditions laid down in the
Norwegian regulation on domestic passenger transport cannot be regarded as having been imposed on the
bus operators benefiting under the compensation scheme for express busses.

In the Authority's view, there is a significant difference between ‘subsidised’ and ‘non-subsidised’ bus opera-
tors which require a different assessment under Council Regulation (EEC) No 1191/69. This difference
follows the legal framework conditions established under Norwegian law.
‘Subsidised’ operators were
selected to provide regular passenger transport services following a tender procedure in which the compe-
tent authorities lay down the specific conditions under which operators are invited to provide transport
services. The selected operators receive direct State support in the form of compensation for the costs
resulting from the provision of transport services at a level determined through the tender procedure. The
conclusion of a contract with operators having been selected by a tender and giving them the right to
operate a certain route, subject to the predetermined obligations, could be regarded as a decision by which
specific public service obligations were imposed on the selected operator. On the other hand, ‘non-subsi-
dised’ operators have taken up regular transport services out of commercial considerations. Consequently,
such operators are, according to Norwegian law, not entitled to receive direct State support for the provi-
sion of regular passenger transport services on these routes.

The Authority is of the opinion that the licence granted by the competent authorities to ‘non-subsidised’
bus operators to provide regular passenger transport services on certain routes, cannot be regarded as a
decision required by Article 3 and 6 of Council Regulation (EEC) No 1191/69. In the Authority's view, the
licence is rather the pre-requisite for the provision of regular passenger transport services, than a decision
by which the provision of such services was imposed on these operators. Even though the licence granted
to these bus operators entails the obligation to satisfy the conditions laid down in the Transport Act as
well as the regulation on domestic passenger transport, these conditions do not necessarily constitute
public service obligations imposed on the operators concerned, given that these operators have applied for
a licence to run regular transport services out of commercial considerations. In addition, the Authority
observes that the level of service appears to have been determined to a large extent by the bus operators
applying for a licence for regular passenger transport services on a given route, rather than by the public
authorities (56).

The Authority is aware that applications for licences on particular routes and the level of services offered
by the bus undertakings and contained in these licences were submitted under legal framework conditions
which relieved the operators in question (partly (57)) of the costs resulting from the autodiesel levy. It might
not be excluded that the commercial assumptions underlying the application for a licence to operate
regular passenger transport services have changed, where bus operators have to bear (part of) the auto-
diesel costs themselves.

(56) See e.g. the decision of the Møre and Romsdal County dated 6 February 2002 as well as the decision of the

Buskerud County dated 22 August 2001. Both decisions are available on the Internet.

(57) Where operators have applied for a licence prior to 1 January 1999, they have been fully exempted from the
payment of the autodiesel levy; on the other hand, where licences were awarded after that date, operators were, in
levy, while being entitled to receive compensation under the compensation
principle, subject to the autodiesel
scheme in question, thus being only partly relieved from the costs resulting from the autodiesel levy.

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The Authority also notes that the relevant legal provisions (cf. § 19 of the regulation on domestic
passenger transport) would seem to allow transport undertakings to request the termination of transport
services on a particular route or changes to conditions under which transport services are provided. Based
on such a request, the competent authorities could impose public service obligations on the operator
concerned, if the maintenance of transport services on that route is regarded as being in the public interest.
The application of this provision would have allowed the Norwegian authorities to determine which routes
were considered to be in the public interest and which conditions and obligations needed to be imposed
on the operator concerned, in order to ensure a service level the operator would not offer out of its own
commercial interests.

The Authority notes, however, that this provision was not applied in the present case. Therefore, the
Authority takes the view that there was no decision taken by the competent public authorities in which
public service obligations were imposed on specific operators.

(d) Determination of extra costs compared to costs incurred by ‘non-subsidised’ bus operators out of

their own commercial interest

The Authority is aware that § 19 of the regulation on domestic passenger transport may not have been
invoked due to the existence of the compensation scheme. The Authority therefore examined whether,
based on the operators' financial situation, non-subsidised bus operators could be regarded as assuming
obligations as laid down in the Transport Act and the regulation on domestic passenger transport contrary
to their commercial interest (in particular, where the operation of certain routes, without revenues from
the compensation scheme, would be loss making).

The Authority does not exclude that commercial (i.e. profitable) operators may be eligible for State support
in the form of compensation for public service obligations, as claimed by the Norwegian Transport Asso-
ciation. However, in order for such State support to be regarded as compatible with the functioning of the
EEA Agreement, the requirements laid down in Council Regulation (EEC) No 1191/69 must be fulfilled (in
particular, the additional net cost generated by specific public service obligations must be determined and
the compensation amount calculated accordingly).

According to the ‘common compensation procedures’ laid down in Articles 10 to 13 of Council Regulation
(EEC) No 1191/69, the amount of compensation has to be determined based on the extra costs of specific
conditions and obligations, net of benefits. The application of this method would require the competent
authorities to compare the situation in which the public service obligation is fulfilled, with the (real or
hypothetical) situation in which the operator in question would have been free to determine the operation
of the service in question on a purely commercial basis. The determination of the amount of compensation
requires a case-by-case assessment by the competent authorities of the cost and revenue effects due to the
public service obligations in question.

In this respect, the Authority notes that the compensation scheme at issue does not provide for such an
assessment. It is therefore difficult to see how the compensation scheme for express bus operators can be
regarded as satisfying the requirements laid down in Council Regulation (EEC) No 1191/69.

In addition, the Authority notes that the information submitted by the Norwegian Government and the
Norwegian Transport Association does not clearly establish the extra costs due to all alleged public service
obligations, nor does it establish such extra costs for individual carriers. In this respect, the Authority notes
that for some obligations (such as the unconditional obligation to carry) no estimates as regards extra
costs, were submitted. In addition, some of the obligations referred to by the Norwegian Government as
well as the Norwegian Transport Association would, in the Authority's view, not necessarily imply extra
costs compared to what the operators concerned would do in their own commercial interest (e.g. require-
ment that information regarding route schedules should be adequately publicised). Further conditions
would also seem to generate additional revenues that would have to be deducted from the extra costs.
However, no information on possible additional revenues due to the obligations referred to by the Norwe-
gian Transport Association was submitted.

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Consequently, the Authority takes the view that the Norwegian Government did not demonstrate the exis-
tence of extra costs with respect to all alleged public service obligations and all operators allegedly being
subject to such obligations.

(e) Compensation limited to the net extra costs due to public service obligations

The Norwegian Government argued that the compensation scheme could not result in overcompensation
for express bus operators since the amount of compensation would always remain below the costs due to
the autodiesel levy.

Whether or not the compensation only partly covers the costs due to the autodiesel levy, is irrelevant for
the assessment of the compatibility of the compensation scheme under Council Regulation (EEC) No 1191/
69, because the costs due to the autodiesel levy incurred by express bus operators, may not be equal to the
costs due to the alleged public service obligations.

As stated above, the information submitted only consisted of estimates for certain obligations and certain
operators. Certain obligations referred to by the Norwegian Transport Association would seem to be
applicable for all regular passenger services (e.g. unconditional obligation to carry, engagement of sufficient
number of buses, publication in the ‘Rutebok’), whereas other obligations would only seem to apply for a
certain number of operators (e.g. use of specific terminals, use of specific stopping points, requirement to
equip bus stops with information boards, priority for certain groups of passengers, use of tickets, tickets
machines approved by competent authorities) (58).

Therefore, the conditions under which regular transport services are provided and possible (net) additional
costs incurred by the bus operators concerned, may differ substantially from one bus operator to another
and from one route to another. On the other hand, the amount of compensation is determined based on
the route production. The amount does not vary depending on the existence or non-existence of specific
obligations or on the costs related to these obligations.

Consequently, the Norwegian Government has not demonstrated that the State support granted under the
compensation scheme does not entail any overcompensation of the alleged public service costs incurred by
the operators concerned.

(f) Conclusions regarding the assessment under Council Regulation (EEC) No 1191/69 and final

remarks

In light of the foregoing circumstances, the Authority concludes that the conditions under which express
bus operators provide regular passenger transport services cannot in an abstract manner be regarded as
public service obligations imposed on the operators in question. Furthermore, the Norwegian Government
has not demonstrated that the alleged public service obligations generated extra costs (and failed to quan-
tify any such costs) and that the compensation granted to the express busses under the compensation
scheme in question was limited to these extra costs. Consequently, the Authority did not regard the
requirements laid down in Council Regulation (EEC) No 1191/69 to be fulfilled.

Assuming that the compensation scheme could be assessed directly under Article 49 of the EEA Agree-
ment (59), the Authority considers that the compensation scheme could not be regarded as compatible with
that provision, given that the Norwegian Government has not demonstrated that the compensation was
necessary and proportionate to the provision of a public service.

(58) The difference in conditions under which transport services are provided, is apparent from information provided by
the Norwegian Transport Association with respect to the cost of public service obligations and conditions laid down
in individual licences.

(59) In this respect, the Authority also notes that, according to the recent Opinion delivered by Advocate General Léger
in the ‘Altmark Trans’-case, recourse to the basic provisions of the EC Treaty regarding reimbursement for public
service obligations is not permissible (cf. First Opinion delivered on 19 March 2002, para. 114 — 117, not yet
reported.

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The Authority would like to point out that the above conclusion does not mean that regular passenger
transport provided by express busses may not be compensated for the costs due to public service obliga-
tions that have actually been imposed on them. It would depend on an individual assessment carried out
by the competent authorities of the circumstances regarding the routes in question whether and to what
extent public service obligations are or can be imposed on the operator in question, to determine the extra
costs related to these obligations and to award compensation covering these extra costs. Without such an
individual assessment by the competent national authorities, the Authority cannot see how the compensa-
tion scheme for express bus operators could be regarded as compatible with the EEA State aid rules.

Finally, the Authority is not aware of any European Commission decision which would have approved aid
comparable to the aid granted under the compensation scheme at issue based on Council Regulation (EEC)
No 1191/69. On the contrary, a recent Commission decision concerning grants for long-distance coach
services in the United Kingdom shows that the European Commission, when assessing the compatibility of
compensation payments for public service obligations under Council Regulation (EEC) No 1191/69,
attached great importance to the risk of possible over-compensation. The European Commission consid-
ered that the grant scheme as such, according to which grants were calculated based on the mileage oper-
ated without there being a link to the actual costs incurred due to public service obligations, did not avoid
the risk of over-compensation. Only after the British authorities had introduced mechanisms ensuring that
neither on an overall level nor on the level of each operator benefiting from the scheme payments made
under the grant scheme could lead to overcompensation, the European Commission considered the grant
scheme to be in accordance with the requirements laid down in Council Regulation (EEC) No 1191/69 (60).

2. ARTICLE 61(3)(C) OF THE EEA AGREEMENT, IN COMBINATION WITH THE ENVIRONMENTAL GUIDELINES

The Authority has, on the basis of the additional information furnished by the Norwegian Government,
examined whether the compensation scheme may benefit from an exemption under Article 61(3)(c) of the
EEA Agreement in connection with Chapter 15 of the Authority's State Aid Guidelines regarding aid for
environmental protection.

At the outset, it should be recalled that, after the Authority's decision to open the formal investigation
procedure, new Environmental Guidelines were adopted (61).

Pursuant to point 73 of the new Chapter 15 of the Authority's State Aid Guidelines, the new guidelines
will apply from the date of their adoption (i.e. as from 23 May 2001). Pursuant to point 74 of the new
Chapter 15 of the Authority's State Aid Guidelines on environmental protection, the Authority will apply
the 1994 guidelines (62) in cases of non-notified aid, when aid has been granted before the adoption of the
new guidelines. To the extent, aid is granted after the adoption of the new guidelines, the Authority applies
the new guidelines.

As has been stated above, the compensation scheme constitutes new aid which has not been notified by
the Norwegian Government to the Authority. It is therefore non-notified aid within the meaning of point
74 of the new Environmental Guidelines.

Consequently, the Authority assessed the compensation scheme for the period 1 January 1999 until 22
May 2001 under the 1994 Environmental Guidelines, and for the period starting 23 May 2001 under the
new Environmental Guidelines.

(60) State aid No N 588/2002 — United Kingdom.
(61) Authority's decision of 23 May 2001, Dec. No. 152/01/COL, published in OJ L 237, 6.9.2001, p. 16.
(62) Published in OJ L 231, 3.9.1994.

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(a) Assessment of the compensation scheme under the 1994 Environmental Guidelines

Pursuant to point 15.4.3 of the Authority's 1994 Environmental Guidelines, operating aid may be accep-
table in the fields of waste management and relief from environmental taxes. Application of the conditions
laid down in the Authority's State Aid Guidelines implies that,
in principle, compensation should be
limited to extra production costs and the aid should be temporary and in principle degressive, so as to
provide an incentive for reducing pollution or introducing more efficient uses of resources more quickly.
Such temporary relief from new environmental taxes may be authorised where it is necessary to offset
losses in competitiveness, particularly at international level. A further factor to be taken into account is
what the firms concerned have to do in return to reduce their pollution.

(1) Compensation limited to extra production costs

In the course of the formal investigation procedure, the Norwegian Government provided figures related to
the overall amounts spent under the compensation scheme as compared to the revenues due to the auto-
diesel levy. These figures, which were up-dated based on the Norwegian Government's recent budgetary
proposals, are reproduced in the table below.

Table 3

Compensation payments (revised)

n.a.

64,0 million

71,7 million

40,8 million

29,0 million

1998

1999

2000

2001

2002

Revenues from the autodiesel
(incl. VAT) (1)

levy

n.a.

64,0 million

66,0 million

53,0 million

51,0 million

(1) These figures do not represent the actual amount of revenues due to the collection of the autodiesel levy from ‘non-subsidised’ bus

operators, but are calculated based on the consumption of the most efficient vehicles.

The Norwegian Government claimed that the revenues from the autodiesel levy exceeded the amounts
spent under the compensation scheme. Consequently, the general level of compensation was, according to
the Norwegian Government, always below 100 %.

In this respect, the Norwegian authorities claimed that the revenues from the autodiesel levy would in
reality be higher than the amount stated in the above table. According to the Norwegian authorities, the
amount of revenues as communicated to the Authority was not based on the autodiesel levy actually
collected from the non-subsidised bus operators, but was calculated based on the assumption that the bus
operators concerned would use the most energy efficient vehicles (with a consumption of 0,315 litres per
km). According to the Norwegian authorities, bus operators were not all equipped with these vehicles.
Should operators in reality have higher autodiesel consumption than assumed for the purpose of the calcu-
lation of the revenues, the figure regarding revenues due to the autodiesel levy might be higher. In that
case, the level of compensation and thus the aid intensity would in reality be lower than the one calculated
on the basis of the figures presented by the Norwegian authorities.

However, given the absence of verifiable information concerning the exact amount of revenues from the
autodiesel
levy collected from express bus operators benefiting from the compensation scheme, the
Authority can only base itself on the figures provided by the Norwegian Government as stated in the
above table. Based on these figures, the level of compensation would amount to 100 % in 1999, approxi-
mately 109 % in 2000 and 77 % in 2001. Consequently, the level of compensation, as determined based
on the above figures, would amount on average to 95,3 %, during the period 1999-2001.

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The Authority regrets that the figures provided by the Norwegian Government do not allow the Authority
to establish the exact level of compensation. Despite the remaining uncertainties, the Authority can,
however, conclude that the amount of compensation awarded under the compensation scheme was on
average limited to the extra costs (i.e. those costs resulting from the autodiesel levy, including VAT (63)). In
addition, the Authority takes note of the assurance from the Norwegian Government that any amounts
allocated under the scheme which would exceed the amount necessary to compensate for the consumption
based on the most efficient vehicles, would not be paid out. The Authority takes also note of the statement
from the Norwegian Government that expenses related to assistance and position driving would not be
completely compensated for.

(2) Temporary and degressive relief from new environmental taxes, so as to provide an incentive for reducing pollution

or introducing more efficient uses of resources more quickly

The Authority observes that the compensation scheme, as such, is not limited in time. The continuation of
the compensation scheme depends upon the annual budget proposals from the Norwegian Government
and the annual budgetary decisions taken by the Norwegian Parliament. However, that part of the compen-
sation scheme which is to be assessed under the 1994 Environmental Guidelines is limited in time, i.e.
from 1 January 1999 until 22 May 2001, or approximately 2 ½ years (64).

Based on the figures presented by the Norwegian Government, the Authority observes that the amounts
allocated to the compensation scheme decreased, from 1999 to 2001 (from NOK 64 million in 1999 to
NOK 40.8 million in 2001). Based on the figures presented by the Norwegian Government (65), the level of
compensation was, during the period 1999-2001 reduced from 100 % in 1999 to 77 % in 2001. If the
level of compensation resulting from the application of the compensation scheme in 2002 was to be taken
into account (i.e. 56.9 %), a certain overall downwards trend can be observed. In this respect, it should,
however, be noted that strict compliance with the principle of degressivity has not been required by the
European Commission in its practice (66).

On the other hand, the level of compensation throughout that same period was very high. Based on the
figures presented by the Norwegian Government,
the average level of compensation amounted to
95,3 % (67). As pointed out above, this percentage does not necessarily reflect the actual level of compensa-
tion, given that these figures are estimates based on the assumed consumption of autodiesel of only the
most energy efficient vehicles.

It should be recalled that only where operators would have a fleet consisting entirely of what are regarded
as being the most energy efficient vehicles, the compensation granted would cover a large proportion of
their costs, due to the autodiesel levy. Compared to the situation prior to 1999, where bus operators were
fully exempted from the autodiesel levy, it is reasonable to assume that operators would seem to have an
incentive to minimise additional costs and thus replace existing fleet with new energy efficient vehicles.
The Authority regrets that the Norwegian Government did not furnish information concerning the eligible
operators' behaviour following the abolishment of the tax exemption and the introduction of the compen-
sation scheme, and in particular as to whether these operators invested in less polluting vehicles. However,
the Authority is aware that, under the 1994 Environmental Guidelines, permissible aid was not subject to a
fixed ceiling. Commission practice under the 1994 Environmental Guidelines shows that the conditions
concerning the incentive effect of the tax measure in question were regarded as being fulfilled provided
that the tax relief did not fully compensate for the tax. Under such circumstances, the European Commis-
sion considered that the tax itself gave the beneficiaries an incentive to reduce their polluting beha-
viour (68).

(63) The extra costs resulting from the abolishment of the exemption from the autodiesel levy are both the autodiesel
levy as such and the VAT charged on that levy. It should be stressed that the extra costs do not, however, include
costs due to the VAT charged on the price of the autodiesel as such.

(64) See State aid No NN 75/2002 — Finland, where the Commission considered the requirement regarding the
temporary nature of the aid to be fulfilled given that the duration of the scheme to be assessed under the 1994
Environmental Guidelines was limited to approximately 4 years; see also State aid No NN 3/A/2001 and NN 4/A/
2001 — Sweden, where the European Commission considered that the ‘.. issue of whether the aid was temporary
becomes irrelevant.’

(65) As regards the calculation of the level of compensation, see explanation on page 33.
(66) See Commission decision referred to in footnote 69.
(67) As regards the calculation of the level of compensation, see explanation on page 33.
(68) See e.g. State aids No NN 3/A/2001 and NN/4/2001 — Sweden ‘Prolongation of CO2 tax scheme’, the scheme was
assessed partly under the 1994 and partly under the new environmental guidelines; State aid No N 575/A/1999 —
Germany ‘Continuation of the ecological tax reform’.

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(3) Necessity to offset losses of competitiveness

According to the guidelines, temporary relief from environmental taxes may be authorised where it is
necessary to offset losses of competitiveness.

The abolishment of the exemption from the autodiesel levy for bus operators resulted in an additional
burden for companies providing regular passenger transport services. This cost increase was estimated by
the Norwegian authorities to be in the range of 8 % of the undertakings' overall costs per km. The services
provided by express bus operators are competing for passengers that would otherwise use the private car.
Public transport causes less environmental damage than the use of the private car. Based on studies about
the external costs of transport in Europe (studies including Norway), average external costs resulting from
the use of the car (including externalities such as air pollution, climate change and accidents) are more
than twice the external costs caused by the use of busses (69). There is currently no comprehensive system
which would ensure that these external costs are fully internalised in the various modes of transport and
thus reflected in market prices. According to the Norwegian Government, costs related to the use of the
private car do not at present reflect the external costs caused by this means of transport. The compensation
granted to operators providing regular passenger transport might therefore be interpreted as a compensa-
tion for unpaid external costs caused by the use of private cars. Such a measure constitutes a second best
solution in the absence of a comprehensive system internalising external costs caused by the transport
system. Given the particularities of the market for providing regular passenger transport services, the
Authority considers that it is justified to adopt measures to safeguard the competitive position of regular
passenger transport in relation to the use of the private car as an alternative means of transport.

(4) Compensation scheme not contrary to the common interest

Finally, the Authority points to the fact that the support of local and regional passenger transport lies in
the common interest of the Contracting Parties. In its Communication of 10 July 1998 on ‘Developing the
citizen's network’, the European Commission considered that a ‘well functioning European transport
system needs good, sustainable passenger transport. This contributes to the economic development and
employment and reduces congestion. It helps to clean up the environment by using less energy, making
less noise and producing fewer pollutants. It reduces social exclusion by allowing people without the use
of the car to gain access to jobs, schools, shops, medical facilities and leisure activities, recognizing that
women, the young, the elderly, the unemployed and the disabled people are particularly dependent on
public transport.’

Based on these considerations, the European Commission approved, inter alia, a tax relief for undertakings
providing local passenger transport in Germany (70). As in the present case, the relief from the mineral oil
levy in Germany was granted only to those operators providing scheduled/regular passenger transport
services, while excluding occasional transport services.

The complainant claimed that the compensation scheme would distort competition between companies
providing regular passenger transport and those providing occasional transport services. In this respect, he
referred in particular to certain routes on which both, operators providing regular passenger transport and
those providing occasional transport services would be in direct competition.

As explained above, the Authority shares this view. However, the distortive effects of the compensation
scheme do not, in the Authority's view, exceed what is necessary to achieve the objectives pursued with
the scheme.

(69) These figures are based on a study carried out by INFRAS and IWW in 2000; they are referred to in the recent

White Paper on the European Transport Policy — 2010, Time to decide.

(70) State aid N 575/A/99 — Germany ‘Continuation of the ecological tax reform’ and State aid N 449/2001 —

Germany ‘Continuation of the ecological tax reform after 31 March 2002’, available on the Internet:
http://europa.eu.int/comm/secretariat_general/sgb/state_aids/industrie/n575a-99.pdf.

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In this respect, the Authority notes that operators eligible for support under the compensation scheme
provide regular passenger transport services based on a licence issued by the local authorities. In issuing
the licence, public interests, as regards an adequate offer of transport services, are taken into account.
Express busses can therefore be regarded as forming an integral part of the collective transport system in
Norway. Express busses are often the only collective transport means as well as the only alternative to the
use of the private car. These circumstances justify public support for express busses in relation to the
provision of regular passenger transport services.

The fact that, on some routes, occasional transport services are provided in competition with regular trans-
port services does not affect the overall assessment. The liberalisation of the market for occasional trans-
port services may lead to overlaps in transport offer from regular and occasional transport service opera-
tors. This does, however, not put into question the necessity for compensation for express bus operators
with regard to the use of the private car as predominant means of transport.

As regards the distortion of competition between regular and occasional transport services, the Authority
also refers to the assurance given by the Norwegian authorities that compensation is only granted with
respect to regular passenger transport. Consequently, express bus operators providing occasional transport
services are not entitled to receive payments under the compensation scheme. As regards the alleged distor-
tive effects due to express bus operators rescheduling their routes in order to drive people to tourist sites,
the Authority considers that rescheduling of routes in order to take into account changes on demand, do
not put into question the qualification of the service in question as a ‘regular service’ within the meaning
of Article 2(1) of Council Regulation (EC) No 12/98 (71). In addition, according to the Norwegian authori-
ties, deviations from the original schedule have been approved only as part of public services obligations
specified in the licence of the operator concerned. Consequently, these transport services would still be
part of the regular passenger transport services provided by the operator in question. The fact that the
destination of some of the regular routes may be a tourist site does not change the nature of the transport
service from regular service into occasional service. Furthermore, the alleged distortive effects due to ‘assis-
tance driving’ and ‘position driving’ being used by express bus operators to offer tourist services to groups
of passengers, would not seem to result from the application of the compensation scheme as such. Should
such services, as referred to by the complainant, have to be qualified as ‘occasional services’ within the
meaning of Article 2(3) of Council Regulation (EC) No 12/98, such services would not be eligible for
compensation.

In light of all the above considerations, the Authority considers that the distortive effects resulting from the
compensation scheme are limited to what is necessary to ensure the objective pursued, namely to maintain
the competitive situation of the regular passenger transport vis-à-vis the private car.

(b) Assessment under new Environmental Guidelines

The new Environmental Guidelines lay down specific rules applicable to all operating aid in the form of
tax reductions or exemptions. Pursuant to point 42, ‘When adopting taxes that are to be levied on certain
activities for reasons of environmental protection, EFTA States may deem it necessary to make provision
for temporary exemptions for certain firms notably because of the absence of harmonisation at European
level or because of the temporary risks of a loss of international competitiveness. …When assessing
whether such measures qualify for exemptions from the general State aid prohibition as laid down in
Article 61(1), it has to be ascertained among other things whether the tax in question corresponds to a tax
which is to be levied within the European Community as the result of a Community decision. This aspect
will be essential with regard to whether or not there could be a loss of international competitiveness for
the taxpayer.’

(71) Article 2(1) stipulates, ‘The fact that the operating conditions of the service may be adjusted shall not affect its classi-

fication as a regular service.’

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(1) 10-year derogation from new environmental taxes which correspond to harmonised Community taxes

According to point 46.1.(b) of the Environmental Guidelines, exemptions from new environmental taxes
may be justified covering a 10-year period with no degressivity, if the tax corresponding to a harmonised
Community tax exceeds that provided for in Community legislation, provided that the amount effectively
paid by the firms after the reduction remains higher than the European Community minimum, in order to
provide the firms with an incentive to improve environmental protection.

Against that background, the Authority assessed whether the autodiesel tax rates set under Norwegian law
exceed the applicable rates in the European Community.

Pursuant to Article 5(1) of Directive 92/82/EEC, the minimum rate for diesel (gas oil used as propellant) is
set at EUR 245 per 1 000 litres (or EUR 0,245 per litre). Expressed in NOK, the minimum rate for
mineral oil was as 2,037 NOK per litre in 2001 (72) and 1,96 NOK per litre in 2002 (73).

The applicable rates for the autodiesel levy in Norway amounted to NOK 3,44 per litre in 2001 (weighted
average tax rate applicable during the period covered by the new Environmental Guidelines) and
NOK 3,43 per litre in 2002. These rates are above the applicable rates within the European Community.

Furthermore, the Authority assessed whether bus operators, subject to the autodiesel levy but benefiting
under the compensation scheme at issue, would still pay more than the minimum rate for diesel laid down
in the EC Mineral Oil Directive.

Based on the applicable rates for autodiesel levy (VAT incl.) for the years 2001 and 2002 and the level of
compensation (aid intensity) as referred to in the above table (74), the Authority calculated the rate of auto-
diesel levy actually paid by operators benefiting under the compensation scheme. This calculation gives the
following picture: In 2001, the tax rate actually paid by bus operators was calculated as being 0,79 NOK
per litre (75). This is below the applicable Community minimum rate for mineral oil, which amounted to
In 2002, the tax rate actually paid by bus operators was calculated as being
2,037 NOK per litre.
1,47 NOK per litre (76). This is below the applicable Community minimum rate for mineral oil, which
amounted to 1,96 NOK per litre.

Even though the actual level of compensation may be lower than what the figures provided by the Norwe-
gian Government indicate, the Authority is not, due to the lack of precise information in this respect, in a
position to ascertain that the amounts actually paid by express bus operators remains above the Com-
munity minimum.

Consequently, the Authority does not consider a 10-year derogation to be justified in the present case.

(72) This calculation is based on the conversion rate of 8,3145 NOK = EUR 1, as fixed by the Authority for 2001.
(73) This calculation is based on the conversion rate of 8,0105 NOK = EUR 1, as fixed by the Authority for 2002; cf.

the Authority's homepage:
http://www.eftasurv.int/fieldsofwork/fieldstateaid/dbaFile791.html.

(74) As regards the calculation of the level of compensation, see explanation on page 33.
(75) This results from a level of compensation amounting to 77 % (i.e. tax actually paid being 23 % of the applicable tax
rate). The applicable tax rate was from 1 January 2001 until 30 June 2001 set at NOK 3,77 per litre and as from 1
July 2001 at NOK 3,37 per litre. The weighted average tax rate for the period governed by the new Environmental
Guidelines therefore amounted to approximately NOK 3,44 per litre.

(76) This results from a level of compensation amounting to 57 % (i.e. tax actually paid being 43 % of the applicable tax

rate). The rate was set for 2002 at NOK 3,43 per litre.

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(2) 5-year derogation for new environmental taxes which correspond to Community taxes

Pursuant to point 48 second paragraph of the Environmental Guidelines, ‘… the EFTA State may grant
operating aid in accordance with points 40 and 41 if the reduction granted satisfies the conditions laid
down in these points. If the tax corresponds to a tax subject to harmonisation at European Community
level, an express authorisation to derogate from the Community minimum must then in any event be
provided for in the corresponding Community tax harmonisation provision.’

(a) Temporary nature and aid intensity

According to point 40 of the Guidelines ‘[a]ll…operating aid is subject to a limited duration of five years
where the aid is “degressive”. Its intensity may amount to 100 % of the extra costs in the first year but
must have fallen in a linear fashion to zero by the end of the fifth year.’ Point 41 of the guidelines further
states that ‘[i]n the case of “non-degressive” aid, its duration is limited to five years and its intensity must
not exceed 50 % of the extra costs.’

As regards the requirement that the aid must be temporary, the Authority observes that, as pointed out
above, the compensation scheme, as such, is not limited in time. The Authority also notes that the Norwe-
gian Parliament decided to continue the operation of the compensation scheme for 2003, allocating, for
that purpose, the amount of NOK 30 million.

As regards the permissible aid intensity, the Authority observes that the compensation scheme as such is
not set up such that the aid intensity would fall in a linear fashion from 100 % in the first year to zero by
the end of the fifth year. Hence, the aid is not ‘degressive’ within the meaning of point 40 of the guidelines.
‘Non-degressive’ aid is permissible provided that its duration is limited to five years and that the aid inten-
sity does not exceed 50 % of the extra costs. Based on the figures above, the level of compensation (aid
intensity) in the years 2001 and 2002 was 77 % and 57 %, respectively (on average during the two year
period, the aid intensity amounted to 67 %) (77).

Furthermore, the compensation scheme does not contain any provision which would ensure that the
average level of compensation of the five-year period would be limited to 50 % of the extra costs due to
the autodiesel levy.

(b) Derogation from Community minimum

Point 44(b) of the guidelines stipulates that an exemption which results in the benefiting companies paying
less than the Community minimum would be regarded as incompatible with Article 61 of the EEA Agree-
ment ‘[i]f such an exemption would not have been authorised within the European Community by the
directive in question …’ Where such an exemption would have been authorised, ‘the Authority may take
the view that… [the exemption] is compatible with Article 61 in so far as it is necessary and is not dispro-
portionate in the light of the EEA objectives pursued. The Authority will be especially concerned to ensure
that any such exemption is strictly limited in time.’

Based on the figures presented by the Norwegian Government, operators benefiting from the compensation
scheme would seem to pay less than the Community minimum.

Even if the compensation would be limited to 50 % of the costs resulting from the autodiesel levy, as
required under point 41 of the Environmental Guidelines, the autodiesel levy actually paid by the eligible
bus operators would remain below the harmonised minimum rate: in 2001, the amount to be paid by
operators would have amounted to NOK 1,71 per litre, with the harmonised rate being NOK 2,037 per
litre; in 2002, the amount to be paid by operators would have amounted to NOK 1,72 per litre, with the
harmonised rate being NOK 1,96 per litre.

Given that the Norwegian Government failed to submit information allowing the Authority to determine
the exact level of compensation, the Authority assumes that, based on the aforementioned considerations,
the amount of autodiesel levy actually paid by operators eligible under the compensation scheme, was
below the harmonised rate for mineral oil as laid down in the Mineral Oil Directive.

(77) As regards the calculation of the level of compensation, see explanation on page 33.

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Consequently, and in accordance with point 44 of the Environmental Guidelines, the Authority has to
assess whether the relief from the autodiesel levy could have been authorised within the EC.

Article 8(2) lit. c) of Directive 92/81/EEC allows EC Member States to apply total or partial exemptions or
reductions in the rate of duty to mineral oil used in the field of passenger transport. On 12 March 2001,
the EC Council adopted a decision to authorise for several EC Member States exemptions from the mineral
oil duty, mainly for local public passenger transport vehicles (78).

The compensation scheme at issue is not limited to local transport services but extends to regional and
inter-regional transport services.

As regards the question as to whether a relief from the autodiesel levy could have been authorised within
the European Community, the Authority notes at the outset that Article 8(2) of the Mineral Oil Directive
does not limit the possibility for exemptions to local passenger transport. Therefore, an exemption for
regional and inter-regional passenger transport would not seem to be excluded.

the Authority considers that

Furthermore,
the justification for a compensation scheme for regular
passenger transport is not only valid as regards local transport. The information in the Authority's posses-
sion does not show that the competitive situation of express bus operators as part of the collective trans-
port system vis-à-vis the private car is, significantly better on regional or inter-regional routes as compared
to local routes. The Authority also took into account the special geographical circumstances in Norway
and the fact that, due to a limited railway network, regular bus services are often the only collective means
of transport and only alternative to the use of the private car.

In accordance with point 44(b) of the Environmental Guidelines, the Authority still needs to examine
whether the tax relief in question is necessary, not disproportionate in light of the EEA objectives pursued,
and strictly limited in time. In addition, point 45 of the guidelines states that ‘… the tax measures in ques-
tion should make a significant contribution to protecting the environment. Care should be taken to ensure
that the exemptions do not, by their very nature, undermine the general objectives pursued.’

Given that the operators benefiting from the compensation scheme were previously fully exempted from
the autodiesel levy, the abolishment of this tax exemption together with the partial relief from these extra
costs increases the transport operators' costs and thereby gives them an incentive to reduce pollution, inter
alia, by investing in more energy efficient vehicles. Furthermore, the compensation scheme is intended to
maintain the competitive situation of regular passenger transport vis-à-vis the private car which causes
more external costs than collective means of transport. In light of these considerations, the abolishment of
the exemption from the autodiesel levy, together with the compensation scheme, contribute to the achieve-
ment of environmental objectives. As has been pointed out above, the distortive effects of the compensa-
tion scheme, in particular as concerns the provision of occasional transport services, are regarded as being
limited to what is necessary to achieve the objectives pursued.

However, as already addressed above, the compensation scheme is neither limited in time, nor does the
compensation scheme contain the necessary guarantee that the State support granted under the scheme is
limited to 50 % of the extra production costs. As stated above, the information submitted by the Norwe-
gian authorities does not show that, as regards the application of the compensation scheme in 2001 and
2002, the 50 % ceiling has been respected.

(78) See footnote 37.

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Therefore, in order to ensure compliance with the Environmental Guidelines, the Authority considers it
necessary to request the Norwegian Government to limit the duration of the compensation scheme to five
years starting from the application of the new Environmental Guidelines. This means that the duration of
the compensation scheme must be limited until 22 May 2006 at the latest.

Furthermore, the Authority requests the Norwegian Government to ensure that any compensation granted
under the compensation scheme for express bus operators is limited to 50 % of the extra costs due to the
autodiesel
levy. Any amounts granted to express bus operators which exceeded this ceiling must be
regarded as being incompatible with the functioning of the EEA Agreement and would have to be recov-
ered from the recipient.

(c) Conclusions under Article 61(3)(c) of the EEA Agreement, in combination with the Environmental

Guidelines

The compensation scheme for express bus operators applicable in the period from 1 January 1999 until
22 May 2001 fulfils the conditions laid down in the 1994 Environmental Guidelines. Any aid granted
under the compensation scheme during that period can be regarded as being compatible with the func-
tioning of the EEA Agreement.

The compensation scheme for express bus operators applicable as from 23 May 2001 can be regarded as
being compatible with the functioning of the EEA Agreement, provided that it will be limited in time, i.e.
to five years starting from the entry into force of the new Environmental Guidelines, and that the compen-
sation granted to express busses is limited to 50 % of extra costs due to the autodiesel levy in relation to
the provision of regular passenger transport services. No compensation may be granted for costs resulting
from the autodiesel levy in connection with other transport services (i.e. provision of occasional transport
services within the meaning of Article 2(3) of Regulation (EC) No 12/98 or transport of goods).

Any amounts granted under the compensation scheme as from 23 May 2001 which exceed this ceiling are
regarded as incompatible with the functioning of the EEA Agreement and have to be recovered from the
recipient. As regards the future application of the compensation scheme, the Norwegian Government
needs to adopt measures which guarantee that compensation granted under the scheme will not exceed
50 % of the extra costs due to the autodiesel levy.

3. CONCLUSIONS

The compensation scheme for express bus operators (based on the State Budget, Chapter 1330, post 71)
qualifies as ‘new aid’ within the meaning of Article 1(3) of Protocol 3 to the Surveillance and Court Agree-
ment. It was put into effect without the Authority's approval and is therefore to be regarded as ‘unlawful
on procedural grounds’ pursuant to Chapter 6 of the Authority's State Aid Guidelines.

The Authority does not question the public financing of regular passenger transport in general. However,
any such financing needs to be in accordance with the applicable EEA State aid rules.

In the Authority's view, the Norwegian Government has not demonstrated that the compensation scheme
for express bus operators fulfils the requirements laid down in Council Regulation (EEC) No 1191/69. As
the Authority has pointed out above, this conclusion does not rule out that express bus operators
providing regular passenger transport could be compensated for costs inherent to the public service obliga-
tions imposed on them. Any such compensation would have to be done in accordance with the rules laid
down in Council Regulation (EEC) No 1191/69.

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On the other hand, the Authority considers that the abolishment of the exemption from the autodiesel
levy for busses together with the compensation scheme for regular passenger transport may be regarded as
pursuing environmental objectives. Express bus operators providing regular passenger transport are part of
the collective transport system in Norway. Collective transport causes less external costs than the use of
the private car. In the absence of a comprehensive system of internalising external costs in all modes of
transport, compensation for collective transport can be regarded as justified to maintain the competitive
position vis-à-vis the private car.

Given that the compensation scheme covers the period starting 1 January 1999, the Authority had to
assess the compensation scheme both under the 1994 and the new Environmental Guidelines. Whereas the
compensation scheme can be regarded as compatible with the 1994 Environmental Guidelines, the conti-
nuation of the compensation scheme as from 23 May 2002, can be regarded as compatible only if the
scheme will be limited in time and the amount of compensation granted to express bus operators limited
to 50 % of the extra costs due to the autodiesel levy.

The limitation in time means that the application of the compensation scheme needs to be limited until 23
May 2006 at the latest. Operators should be informed about the limited duration of the compensation
scheme.

The limitation of the compensation to 50 % of extra costs requires from the Norwegian Government to
limit any future compensation to 50 % of the extra costs due to the autodiesel levy, and to examine
whether payments made to individual express bus operators under the compensation scheme in the past
since 23 May 2001 respected the 50 % ceiling. Any compensation which exceeds that ceiling cannot be
regarded as compatible with Article 61(3)(c) of the EEA Agreement in combination with the Environmental
Guidelines. For payments which have already taken place and where the amount of compensation granted
exceeds the permissible 50 % ceiling, the exceeding amount need to be recovered from the aid recipient,
including interest.

Any exceeding amounts would have to be recovered from express bus operators in accordance with the
rules and procedures laid down by national law, provided that those rules and procedures do not have the
effect of making the recovery required by EEA law practically impossible and do not undermine the prin-
ciple of equivalence with procedures for deciding similar, but purely national, disputes (79),

HAS ADOPTED THIS DECISION:

1. The compensation scheme for express bus operators (Chapter 1330, post 71 of the State Budget) consti-
tutes new State aid within the meaning of Article 61(1) of the EEA Agreement. The compensation
scheme has been implemented contrary to the Norwegian Government's obligations under Article 1(3)
of Protocol 3 to the Surveillance and Court Agreement, and therefore constitutes ‘aid unlawful on
procedural grounds’ within the meaning of Chapter 6 of the Authority's State Aid Guidelines.

2. The compensation scheme for express bus operators as applied from 1 January 1999 until 22 May
2001 is compatible with the functioning of the EEA Agreement, and in particular Article 61(3)(c)
thereof, in combination with Chapter 15 of the Authority's State Aid Guidelines as adopted in 1994.

3. The compensation scheme for express bus operators as applied from 23 May 2001 is compatible with
the functioning of the EEA Agreement, and in particular Article 61(3)(c) thereof, in combination with
Chapter 15 of the Authority's State Aid Guidelines as amended in 2001, provided that:

(a) The compensation scheme is limited to five years starting from 23 May 2001;

(79) Judgment of the European Court of Justice of 13 June 2002, Case C-382/99 Kingdom of Netherlands v Commission,

[2002] ECR I-5163, para. 90.

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(b) The compensation granted under the scheme does not exceed 50 % of costs resulting from the auto-

diesel levy in relation to the provision of regular passenger transport services.

4. Any payments made under the compensation scheme as from 23 May 2001 which exceed the permis-
sible aid amount as referred to in point 3 are incompatible with the functioning of the EEA Agreement.

5. Incompatible aid as referred to in point 4 needs to be recovered from the aid recipients. Recovery shall
be effected without delay and in accordance with the procedures of national law, provided that they
allow the immediate and effective execution of the decision. The aid to be recovered shall include
interest from the date on which it was at the disposal of the beneficiaries until the date of its recovery.
Interest shall be calculated on the basis of the reference rate used for calculating the grant-equivalent of
regional aid.

6. The Norwegian Government is requested to take the necessary measures ensuring compliance with
point 3 and 5 with immediate effect. As regards the limitation in time, as referred to under point 3.a.,
the Norwegian Government is requested to inform aid beneficiaries without delay of the limitation of
the current compensation scheme until, at the latest, 23 May 2006. As regards compliance with the
requirements contained in points 3.b. and 5, the Norwegian Government is asked to examine whether
the payments made to individual express bus operators under the compensation scheme since 23 May
2001 respect the 50 % ceiling.

7. The Norwegian Government is requested to inform the Authority within two months from receipt of

this decision of the measures taken to comply with the present decision.

8. This Decision is addressed to the Kingdom of Norway.

Done at Brussels, 16 July 2003.

For the EFTA Surveillance Authority

Einar M. BULL

The President