Revised proposal for a Regulation of the European Parliament and of the Council on public passenger transport services by rail and by road
Date: 2005-07-20
Institutions: European Commission
Subjects: carriage of passengers, provision of services, public service, rail transport, road transport

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.7.2005 
COM(2005) 319 final 

2000/0212 (COD) 

Revised proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on public passenger transport services by rail and by road 

EN 

   EN 

 
 
 
  
EXPLANATORY MEMORANDUM 

Introduction 

Since  the  second  half  of  the  20th  century,  inland  public  carriers  of  passengers  and  freight, 
particularly  the  railways,  have  had  to  maintain  services  which  are  not  commercially  viable 
and have had their tariff policies strictly controlled. 

In  the  1960s,  rail  began  a  sharp  decline  in  the  face  of  competition  from  the  motor  car.  In 
France,  for  example,  use  of  regional  rail  services  fell  from  6.4  to  5.2  billion  passenger 
kilometres  between  1964  and  1969.  At  the  time,  the  State  paid  practically  no  subsidies  to 
SNCF;  ten  years  later,  subsidies  relating  to  public  service  obligations  (PSO)  were  around 
2 billion  francs.  Inland  public  transport  services  have  become  structurally  loss-making 
everywhere in Europe. Carriers in the sector have therefore had to ask States to either abolish 
these obligations or to compensate for the costs on a more systematic basis. 

This question was one of the first to be tackled under the common transport policy. The main 
aim  was  to  establish  whether  the  benefits,  particularly  financial,  granted  by  the  authorities 
constituted  fair  compensation  for  the  public  service  obligations  imposed  on  operators  or 
whether  such  compensation  amounted  to  State  aid.  It  had  therefore  become  essential  to 
establish detailed Community methods to calculate compensation in order to avoid the strict 
application  of  State  aid  procedures.  In  the  absence  of  such  a  framework,  the  European 
Commission  would  have  had  to  examine  each  of  these  compensation  mechanisms,  with  the 
significant  complication  of  procedures  and  risk  of  paralysis  of  the  system  that  that  would 
entail. 

After  an  initial  Council  decision  in  1965,1  a  Regulation  was  adopted  in  1969  which  still 
constitutes  the  Community  framework  applicable  to  inland  public  passenger  transport 
services.2 

This Regulation, which covers the transport of passengers and freight by rail, road and inland 
waterway, allows Member States to impose public service obligations aimed at guaranteeing 
the  provision  of  services  in  accordance  with  certain  conditions  on  tariffs,  continuity, 
regularity  or  capacity,  with  States  providing  compensation  for  the  costs  incurred  by  the 
operator. It sets out the procedures to be followed before such compensation is paid and lays 
down detailed methods of calculation ensuring that the amount is appropriate. Compensation 
granted in accordance with these rules is not subject to the prior notification and authorisation 
obligation under Article 88(3) of the Treaty. 

This legislative framework was last amended in 1991 in order, among other things, to extend 
it to local transport services. 

1 

2 

Decision 65/271/EEC of 13 May 1965 on the harmonisation of certain provisions affecting competition 
in transport by rail, road and inland waterway. 
Regulation (EEC) No 1191/69 of the Council of 26 June 1969 on action by Member States concerning 
the obligations inherent in the concept of a public service in transport by rail, road and inland waterway 
(OJ L 156, 28.6.1969, p. 1), as last amended by Regulation (EEC) No 1893/91 (OJ L 169, 29.6.1991, 
p. 1). 

EN 

2 

   EN 

 
                                                 
Until recently,  it constituted a satisfactory framework in a public transport sector where the 
service providers were exclusively national, regional or local. Today it is inadequate and its 
implementation by the parties concerned is particularly problematical in a constantly evolving 
market. Derogations are the rule, particularly in local public transport,3 where derogations to 
the  contractualisation  obligation  are  scarcely  compatible  with  the  transparency  and  non-
discrimination required by an increasingly open market. Moreover, the Regulation also fails 
to specify the procedures for the award of public service contracts. It has become a source of 
legal  uncertainty  which  is  already  reflected  in  an  increase  in  disputes  and  the  reluctance  of 
operators to commit major investments while the rules of the game are not clearly defined. 

In  2004,  inland  public  passenger  transport  services  (train,  underground  railway,  tram  and 
urban bus) represented around 150 million passengers transported every day, 1.5 million jobs 
and an annual turnover estimated at €100 billion (EU-15 figures). In the last ten years or so, 
this  sector  has  undergone  profound  changes  with  the  emergence  of  operators  providing 
services  in  more  than  one  Member  State  and  public  authorities  determined  to  compare 
different transport service offers. 

Even  though  competition  began  to  revive  passenger  transport,  the  latter’s  market  share  has 
continued to decline in the face of competition from the private car. Thus, between 1970 and 
2001 the share accounted for by cars rose from 73.8% to 78.2% while inland public transport 
fell from 24.7% to 16%.4 This situation has highlighted the need to modernise public transport 
and increase its efficiency in order to maintain or even increase its market share and involve it 
in improvements to the environment and mobility. 

Given the unsuitability of the Community legislative framework together with the clear need 
to improve the efficiency and quality of services, the Commission presented, in July 2000, a 
proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  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.5 This proposal was aimed 
specifically  at  resolving  the  legal  uncertainty  affecting  the  sector  and  establishing  a 
competitive regime which would lead to more efficient and attractive services for passengers. 
To this end, it was based on a number of principles: 

•  contractual  arrangements  between  the  competent  authority  and  the  operator  or  operators 
responsible  for  providing  services  where  financial  compensation  or  exclusive  rights  are 
granted; 

•  need for a periodic review of contract terms, so limits on its duration; 

•  competitive  tendering  for  public  service  contracts,  except  in  certain  cases  where  direct 
award  is  possible  (e.g.  under  certain  conditions  for  railways  or  underground  railways,  or 
below a certain financial threshold). 

After five years, this proposal is still blocked in the Council. It has not been possible to reach 
a compromise with a view to a common position, as the Member States are very divided on 

3 
4 
5 

Article 1(1) and (5) for urban, suburban or regional services. 
Sources: EU energy and transport in figures, 2003. 
COM(2000) 7 final – 2000/0212 (COD), amended by COM(2002) 107 final. 

EN 

3 

   EN 

 
                                                 
the actual extent to which inland transport should be opened up to competition given, among 
other things, their different experiences in this area. 

Moreover, work in the Council was suspended for a long time pending the judgment of the 
Court in the Altmark case. Delivered in July 2003, it put an end to the legal debate on what 
qualifies as State aid by clearly defining the concept of financial benefit which is the essential 
criterion. Its impact is however limited for inland transport owing to the existence of specific 
rules established by Regulation (EEC) No 1191/69. 

Having  regard  to  the  numerous  amendments  adopted  by  the  European  Parliament  at  first 
reading  in  2001  and  the  blocking  of  the  proposal  in  the  Council  (cf.  chapter 4),  the 
Commission is now seeking to reconcile the various positions adopted by revising its proposal 
in  the  light  of  in  particular  the  latest  developments  in  case  law  (Altmark  judgment)  and  its 
recent White Paper on services of general interest. 

The question of how to regulate compensation for public service obligations is not restricted 
to  transport.  It  arises  in  many  other  sectors  and  accordingly  constitutes  one  of  the  main 
elements of a broad horizontal debate in the Commission on the subject of services of general 
interest. 

1. 

SERVICES OF GENERAL INTEREST 

The  term  “services  of  general  interest”  cannot  be  found  in  the  Treaty  itself.  It  is  derived  in 
Community practice from the term “services of general economic interest”, which is used in 
the Treaty.6 It has a broader meaning, covering both market and non-market services which 
the public authorities class as being of general interest and subject to specific public service 
obligations. 

The term “services of general economic interest” is not however defined in the Treaty or in 
secondary  legislation.  In  Community  practice  there  is  broad  agreement  that  it  refers  to 
services  of  an  economic  nature  which  the  Member  States  or  the  Community  subject  to 
specific public service obligations by virtue of a general interest criterion. 

The  Commission  White  Paper  on  services  of  general  interest  published  on  12 May  20047 
drew  conclusions  from  the  current  public  debate  and  launched  discussions  on  how  to 
guarantee services of general interest effectively within the internal market on the basis of a 
set of general principles incorporated in Community policies. 

It underlines that, as regards services of general interest, responsibility is shared between the 
Union and the Member States. 

It  points  out  that  it  is  for  the  “relevant  national,  regional  and  local  authorities  to  define, 
organise, finance and monitor services of general interest”. 

In point 4.3, the Commission further states: 

6 
7 

Article 86(2). 
COM(2004) 374 final. 

EN 

4 

   EN 

 
                                                 
“In  principle,  Member  States  have  a  wide  margin  to  decide  how  to  organise  services  of 
general interest. In the absence of Community harmonisation, the relevant public authorities 
… are in principle free to decide whether to provide a service of general interest themselves 
or  whether  to  entrust  its  provision  to  another  …  entity.  However,  providers  of  services  of 
general  economic  interest,  including  in-house  service  providers,  are  undertakings  and 
therefore subject to the competition rules of the Treaty.” 

The  White  Paper  also  underlines  that  sector-specific  regulations  should  concentrate  on 
“network industries such as telecommunications, postal services, transport and energy, which 
have a clear trans-European dimension”. Transport forms an essential sector in this analysis 
since the Community sectoral rules comprise a highly developed framework for regulating the 
provision of transport services to all citizens. 

In its report,8 the European Parliament calls for the establishment, by way of the co-decision 
procedure  with  the  Council,  of  a  legal  framework  which  sets  out  common  principles  for 
services of general interest in Community law. 

The  draft  Constitutional  Treaty,  too,  provides  a  legal  basis  for  the  adoption  of  laws 
establishing  the  principles  and  conditions,  in  particular  economic  and  financial  conditions, 
which enable services of general economic interest to fulfil their missions (Article III-122). 

This  revised  proposal  for  a  Regulation  adopts  a  sectoral  approach  corresponding  to  the 
general line adopted by the Commission in this White Paper. 

2. 

PUBLIC SERVICE OBLIGATIONS IN THE TRANSPORT SECTOR 

2.1 

Acquis communautaire 

In  the  transport  sector,  Community  rules  allow  Member  States  to  introduce  public  service 
obligations,  i.e.  “obligations  which  the  transport  undertaking  in  question,  if  it  were 
considering its own commercial interests, would not assume or would not assume to the same 
extent or under the same conditions”.9 

In  air10  or  maritime11  transport,  Community  legislation  requires  competitive  tendering  for 
public service contracts. 

In inland transport, it is restricted to imposing strict methods of calculation for the amount of 
public service compensation pursuant to Article 73 of the Treaty. 

This  Article  is  implemented  by  two  texts:  Regulation  (EEC)  No 1107/70  on  aid12  and 
Regulation (EEC) No 1191/69 on public services. 

8 

9 
10 

11 

European Parliament  resolution on  the Green  Paper of 14 January 2004 (T5-0018/2004  of 14.1.2004) 
(Herzog Report). 
For example, Article 2(1) of Regulation (EEC) No 1191/69. 
Council Regulation (EEC) No 2408/92 of 23 July 1992 on access for Community air carriers to intra-
Community air routes (OJ L 240, 24.08.1992, p. 1). 
Council  Regulation  (EEC)  No 3577/92  of  7 December 1992  applying  the  principle  of  freedom  to 
provide  services  to  maritime  transport  within  the  Member  States  (maritime  cabotage)  (JO L 364, 
12.12.1992, p. 7). 

EN 

5 

   EN 

 
                                                 
Regulation 1191/69 establishes the general framework applicable to public service obligations 
in inland transport and lays down methods for calculating the corresponding compensation. It 
allows Member States to impose or maintain specific public service obligations,13 which they 
are  however  required  to  compensate  if  they  entail  costs  for  operators,14  and  fixes  detailed 
methods  of  calculation  to  guarantee  fair  compensation.15  The  compensation  granted  in 
accordance  with  these  methods  is  exempt  from  the  obligation  of  notification  to  the 
Commission  without  prior  verification  of  their  possible  State  aid  characteristics.  The  said 
Regulation did not apply to carriers operating mainly local or regional services.16 

In 1991, the amending Regulation 1893/91 extended the scope to cover urban, suburban and 
regional operators, but allows Member States to derogate from this provision.17 It lays down 
that as a general rule the imposition of public service obligations should be replaced by the 
award  of  public  service  contracts,18  though  the  competent  authorities  may  nevertheless 
continue to impose obligations for urban, suburban and regional services and in the matter of 
tariffs  in  favour  of  specific  social  categories.19  However,  the  amended  Regulation  of  1991 
does not state how public service contracts should be awarded or, in particular, whether they 
should be the subject of competitive tendering. 

Until  recently,  the  EU  had  scarcely  concerned  itself  with  the  method  of  awarding  public 
service contracts in this sector given the absence of international competition. There was no 
reason  to  examine  either  the  arrangements  for  awarding  these  tens  of  thousands  of  local 
contracts or the compensation granted to operators. The situation changed when certain public 
transport  operators  responded  to  invitations  to  tender  in  other  Member  States  and  brought 
complaints  before  national  courts  or  the  Commission20  when  they  did  not  obtain  those 
contracts. Some of these actions have been successfully referred to the Court of Justice.21 

Rather  than  reacting  on  a  case-by-case  basis  to  these  complaints,  the  Commission  –  the 
guardian  of  the  Treaties  –  reaffirms  the  need  to  adopt  regulations  whose  fundamental 
objective is a simple one: regulate competition, including for regions and towns, in order to 
ensure transparency in the way in which public service contracts are awarded and executed. 
The  introduction  of  such  regulations  would  remove  the  suspicion  of  State  aid  surrounding 
compensation granted without competitive tendering. 

12 

13 
14 
15 
16 
17 
18 
19 
20 

21 

Regulation  (EEC)  No 1107/70  of  4 June 1970  on  the  granting  of  aids  for  transport  by  rail,  road  and 
inland waterway. 
The obligation to operate, the obligation to carry and tariff obligations – Article 2 of the Regulation. 
Article 6(2) of Regulation (EEC) No 1191/69. 
Articles 3-13 of Regulation (EEC) No 1191/69. 
Article 19(2) of Regulation (EEC) No 1191/69 (original text from 1969). 
Article 1(1) of Regulation (EEC) No 1191/69. 
Article 1(4) of Regulation (EEC) No 1191/69. 
Article 1(5) and (6) of Regulation (EEC) No 1191/69. 
Infringement 2003/5033  (DE)  –  public  contracts  for  local  and  regional  transport  services  –  Letter  of 
formal notice of 13 October 2004. 
Judgment of the Court of First Instance of 16 March 2004 in Case T-157/01 Danske Busvognmænd v 
Commission  “Combus”  and  judgment  of  24 July  2003  in  Case  C-280/00  Altmark Trans GmbH  and 
Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH. 

EN 

6 

   EN 

 
                                                                                                                                                         
2.2 

Opening up the market 

Since 1969,  the  economic  environment  for  inland  public  passenger  transport  services  has 
changed  a  great  deal.  The  markets  of  certain  Member  States  have  begun  to  open  up  to 
competition, whether in urban transport or the railways. 

The United Kingdom began this trend in 1986 by eliminating the exclusive rights which were 
the rule in the bus transport sector. With the exception of London and Northern Ireland, any 
operator may provide whatever services it wishes. Operating costs have fallen sharply, but so 
have passenger numbers. 

This  attempt  at  deregulation  has  not  been  repeated  within  the  Union.  Those  Member  States 
which  have  opened  up  their  markets  have  instead  developed  the  so-called  “regulated 
competition”  system  in  which  a  competent  authority  grants  an  exclusive  right  for  a  specific 
period following an open and transparent invitation to tender which can set the service level, 
quality standards and/or tariffs. 

This system functions fairly well and has produced good results in urban areas (Stockholm, 
Helsinki,  Copenhagen,  London,  Lille,  etc.),  for  regional  railway  services  (Lisbon, 
Northern Netherlands,  German Länder)  and  for  long-distance  services  (buses  in  Spain, 
railways in Sweden). Usually, regulated competition goes with increased passenger numbers 
and a reduction in costs.22 In 2003, around 25% of the inland public transport market in the 
EU was opened to competition in this way. 

This opening up has led to the de facto emergence of an international market for the provision 
of public transport services. Initially, certain private groups such as Connex (F), Arriva (UK) 
and Concordia (N) were the most active in seeking contracts outside their countries of origin. 
A number of these operators now achieve more than 50% of their turnover in countries other 
than  their  own.  Public  sector  groups,  such  as  DB  (D),  NS  (NL)  and  RATP  (F)  have  since 
joined  them.  The  traditional  national  operators  have  benefited  from  this  development  by 
intervening in the operation or by acquiring participation in new markets, either in their own 
countries  (e.g.  RATP,  the  urban  transport  operator  in  Paris,  in  Mulhouse  and  Clermont-
Ferrand) or in other countries (such as NS, the national railway operator in the Netherlands, 
which has won the contract for urban railway transport in Liverpool).  

3. 

THE COMMISSION PROPOSAL OF 2000, AMENDED IN 2002 

The development of an increasingly competitive market for the inland public transport sector 
requires a regulatory framework for public service obligations which is transparent and which 
can prevent compensation from being classed as State aid. 

On  26 July 2000,  the  Commission  proposed  a  Regulation  based  on  the  principles  of 
contractual  relations  between  the  authority  and  the  operator  and  competitive  tendering  for 
public  service  contracts  to  make  their  award  transparent  and  non-discriminatory.  This 
proposal  initially  provided  for  a  number  of  exceptions  in  which  the  public  authority  could, 

22 

See  Report  on  public 
(http://www.europa.eu.int/comm/energy/en/fa_2_en.html). 

transport  contracting,  Colin Buchanan & partners,  2002,  chapter 2 

EN 

7 

   EN 

 
                                                 
under  certain  conditions,  decide  to  award  public  service  contracts  directly  without  an 
invitation to tender: 

•  in the railway sector, for safety reasons; 

•  in the underground or light transit railway sector, for cost or safety reasons; 

•  in the field of integrated services, i.e. involving several transport modes, for example metro 
and bus services as is the case for the STIB contract in Brussels or that of RATP in Paris, 
for cost or safety reasons; 

•  where the annual value was estimated at less than €800 000. 

In November 2001, the European Parliament adopted a position at first reading which, while 
welcoming the proposal, contained more than 100 amendments. The most significant of these 
is  amendment  61,  the  effect  of  which  is  to  protect  local23  public  transport  services  from 
competition  if  the  competent  authority  decides  to  provide  the  service  itself  on  an  exclusive 
basis.  This  position  was  determined  by  compliance  with  a  reciprocity  clause  which  the 
Commission  accepted  in  its  amended  version  of  2002  by  including  it  for  the  transitional 
period. 

Other amendments aimed to modify the list of exceptions (removal of exception concerning 
integrated services, expansion of base in other cases) or extend contract duration (as contracts 
which  are  too  short  could  cause  problems  concerning  continuity  of  provision  of  services, 
investments and personnel) and the transitional period. 

On the basis of this position, the Commission adopted an amended proposal in February 2002 
incorporating only some of these amendments: 

•  extension of the duration of contracts (8 years for buses, 15 for rail transport); 

•  extension of the transitional period (8 years); 

•  modification  of  the  list  of  exceptions  to  the  competitive  tendering  obligation,  and  in 
particular increase (from 800 000 to 3 million euros) of the threshold below which direct 
award  is  possible  and  removal  of  the  exception  for  integrated  services.  The  mechanisms 
introduced in connection with amendment 61 were not however adopted. 

As stated above, the discussions in the Council quickly showed that a sufficient majority was 
unlikely to emerge and that there was no real political will to see the proposal succeed. Given 
the vast differences between their respective attempts at opening up the market, the Member 
States  soon  expressed  disagreement  as  to  the  actual  extent  of  opening  up  inland  transport. 
Moreover,  on  the  pretext  of  awaiting  the  judgment  of  the  Court  in  the  Altmark  case,  the 
Council suspended its work at the end of the Spanish Presidency (first half of 2002) and has 
not resumed it since. The Member States had profound differences on the key elements of the 
proposal: 

23 

The concept of local was defined as follows: “where the transport service does not exceed a maximum 
catchment area of 50 km”. 

EN 

8 

   EN 

 
                                                 
•  certain  States  engaged  at  various  stages  in  opening-up  all  or  part  of  their  inland  public 
transport sectors were generally in favour of the proposal, although some regretted that it 
did not go far enough and left too many possibilities for the direct award of public service 
contracts; 

•  other States, especially some of those where there are still major public monopolies in the 

sector, were against the proposal and for the status quo; 

•  Member  States  were  also  divided  on  the  scope  of  the  Regulation  and  on  the  modes  of 
transport  that  it  should  cover  (only  buses  or  all  urban  modes  including  trams  and 
undergrounds? Should it apply to railways or not?). 

4. 

THE ALTMARK JUDGMENT 

Following  recent  developments  in  case  law,24  the  question  of  whether  compensation  for 
public services in the various sectors of the economy constitutes State aid within the meaning 
of Article 87(1) of the Treaty has attracted a great deal of attention in recent years. The recent 
judgment of the Court of Justice in the Altmark Trans GmbH case25 has undeniably made a 
fundamental  contribution  to  the  debate.  Moreover,  the  Commission  reacted  quickly  by 
proposing,  as  early  as  February 2004,  a  set  of  measures  clarifying  the  consequences  of  the 
judgment. This legislative “package” was adopted in July 2005; it applies to all sectors of the 
economy except inland transport, which has its own legal basis on  which  this Regulation is 
based. 

Facts of the case 

The  case  concerns  a  dispute  between  two  small  public  transport  operators  in  the  Stendal 
region in Germany. In 1994, one of them was granted licences to operate certain bus routes 
without  a  tendering  procedure.  The  other,  considering  itself  disadvantaged,  contested  the 
award  and  complained  about  the  compensation  that  its  competitor  had  received  from  the 
public authorities. 

As German law permits the granting of certain types of compensation only on the basis of an 
invitation to tender, the national court had to rule whether the compensation in question fell 
into this category. To do this, it had to determine whether the public authorities could pay it 
without taking account of the Community rules on State aid. To this end, in 2000 it referred 
the matter to the Court for a preliminary ruling on the interpretation of Articles 73 and 87 of 
the Treaty and Regulation 1191/69. 

In its judgment, delivered in July 2003, the Court clarifies how the provisions of the Treaty on 
State  aid  apply  to  public  services  in  general  and  public  transport  in  particular.  Contrary  to 

24 

25 

Judgment of 27 February 1997 FFSA T-106/95 (ECR 1997 II-0229) and judgment of 10 May 2000 SIC 
T-46/97 (ECR 2000 II-2125). Judgment of 22 November 2001 Ferring C-53/00 (ECR. I-9067). See also 
the  Opinion  presented  by  Advocate-General  Jacobs  on  30 April 2002  in  Case  GEMO  (C-126/01)  and 
confirmed by judgment of 20 November 2003. 
Judgment  of  24 July  2003  in  Case  C-280/00  Altmark  Trans  GmbH  and  Regierungspräsidium 
Magdeburg v Nahverkehrsgesellschaft Altmark GmbH. 

EN 

9 

   EN 

 
                                                 
certain expectations, the Altmark judgment hardly entailed any fundamental changes for the 
transport sector. 

Consequences of the judgment in the transport sector 

For the inland passenger transport sector, the legal situation resulting from the analysis of the 
Altmark judgment is as follows: 

•  The judgment confirms that, since 1995, a number of Member States have opened up their 
transport  markets  to  competition  from  undertakings  established  in  other  Member  States. 
Accordingly,  the  compensation  granted  to  public  transport  operators  –  even  small  local 
operators  –  can  affect  trade  between  Member  States,26  and  the  question  of  whether  it 
constitutes State aid must in principle be examined by the Commission. 

in 

the  Treaty  and 

•  As regards the inland public transport sector in particular, the Court notes the existence of 
a  specific  set  of  rules  for  the  compensation  of  the  operators  concerned:  those  set  out  in 
Article 73  of 
i.e. 
Regulations 1191/69,  1192/69  and  1107/70.27  The  Altmark  judgment  confirms  that 
Article 73  constitutes  a  lex  specialis  in  relation  to  Article 86(2)  of  the  Treaty  since  it 
establishes  rules  applicable  to  compensation  for  public  services  in  the  public  transport 
sector. As a result, compensation contrary to the provisions of Article 73, which has been 
exhaustively implemented by Regulations 1107/70 and 1191/69, does not constitute State 
aid compatible with the Treaty on the basis of Article 86(2) or any other provision of the 
Treaty.  

the  corresponding  secondary 

legislation, 

•  The judgment confirms therefore that compensation for public transport services is covered 
by Regulation 1191/69 on public services. Member States which do not apply these rules 
are  failing  to  fulfil  their  obligation  to  ensure  that  Community  law  is  correctly  applied. 
Moreover, compensation which is contrary to these provisions may be judged to be State 
aid and declared incompatible with the Treaty. 

•  Lastly, the judgment highlights the situation of Member States which have introduced the 
possibility  of  derogating  from  the  provisions  of  the  Regulation  for  the  local  transport 
sector. In this case, compensation which does not meet the “four Altmark conditions” (see 
below) must be classed as State aid which may be authorised by the Commission.28 

This legal situation poses genuine difficulties insofar as, on the one hand, Regulation 1191/69, 
which  applies  to  most  cases  of  compensation  for  public  transport,  no  longer  corresponds  to 
the economic realities of the sector and, on the other, in the event of derogation from the rules 
for  local  transport  it  is  very  difficult  to  verify  compliance  with  the  “four  Altmark  criteria” 

26 
27 

28 

Altmark judgment, paragraphs 77-82. 
Regulation (EEC) No 1191/69 of the Council of 26 June 1969 on action by Member States concerning 
the obligations inherent in the concept of a public service in transport by rail, road and inland waterway; 
Regulation (EEC) No 1192/69 of the Council of 26 June 1969 on common rules for the normalisation of 
the accounts of railway undertakings; Regulation (EEC) No 1107/70 of the Council of 4 June 1970 on 
the granting of aid for transport by rail, road and inland waterway. 
The  Commission  may  authorise  this  type  of  State  aid  only  on  the  basis  of  Regulation 1107/70  (see 
Article 3(1)). 

EN 

10 

   EN 

 
                                                 
since  the  assessment  of  the  fourth  criterion  is  particularly  unsuited  to  the  specific 
characteristics of the sector. 

In this sector, only the adoption of a new Regulation establishing a transparent framework for 
the granting of and compensation for public service obligations will make it possible to avoid 
legal uncertainty. 

Consequences of the judgment for other sectors 

As regards public services in general, apart from inland transport, the Court clarified the four 
conditions according to which compensation relating to a public service obligation does not 
constitute a financial benefit and cannot therefore be classified as State aid: 

•  the recipient undertaking must actually have public service obligations to discharge and the 

obligations must be clearly defined;  

•  the method of compensation must be established in advance in an objective and transparent 

manner;  

•  the  compensation  must  not  exceed  the  costs  incurred  in  the  discharge  of  public  service 

obligations;  

•  in the absence of a tendering procedure, the compensation must be determined on the basis 
of a comparison with a “typical undertaking, well run and adequately provided with means 
of transport”. 

As already stated, following this judgment the Commission adopted in February 2004 a draft 
decision and a draft framework for the application of Article 86 of the Treaty to compensation 
for  public  services.  However,  as  this  Article  does  not  concern  transport,  which  is  governed 
specifically by Article 73, these drafts will not apply to compensation for public services in 
the inland transport sector.27 

5. 

THE NEW APPROACH PROPOSED BY THE COMMISSION 

On the basis of the above analysis the Commission has decided to present a revised proposal 
which  takes  into  account  the  debate  on  its  White  Paper  on  services  of  general  interest,  the 
Altmark  judgment  and  the  other  legislative  projects  under  way  concerning  the  transport  of 
passengers  by  rail.  It  considers  that  this  new  Regulation  needs  to  be  adopted  as  soon  as 
possible. 

The  revised  proposal  aims  to  establish  a  framework  regulating  those  interventions  by  the 
competent  authorities  –  award  of  exclusive  rights  and  compensation  for  public  service 
obligations  –  which  are  most  likely  to  affect  competition  and  trade  between  the  Member 
States. 

As part of the sharing of responsibilities between the Community and the Member States, the 
Commission  is  proposing  that  its  text  be  made  simpler  and  more  flexible  and  that  greater 
account be taken of the subsidiarity principle. 

EN 

11 

   EN 

 
The  simplification  objective  is  seen  above  all  in  an  attempt  to  clarify  the  proposed 
mechanisms and in a reduction in the number of articles. 

The  simplification  concerns  in  particular  the  mechanisms  for  awarding  public  service 
contracts. One consequence is the disappearance of the formulas proposed in Article 7(a) or 8 
of  the  2002 proposal,  which  allowed  public  service  contracts  to  be  awarded  on  the  basis  of 
complicated mechanisms for comparing quality without a formal invitation to tender. The new 
proposal now provides for only two main methods of awarding contracts: invitations to tender 
and direct award. 

This same desire for simplification guided the drafting of the Annex on the rules applicable to 
compensation  in  the  absence  of  an  invitation  to  tender.  This  Annex  aims  to  establish 
objective,  transparent  and  realistic  methods  based  on  well  established  principles  of 
Community  law  (no  overcompensation  or  cross-subsidisation,  separation  of  accounts, 
verification of costs, promotion of quality and efficiency). 

The  objective  of  greater  flexibility  is  seen  in  particular  in  the  recognition  of  the  competent 
authorities’  option  of  providing  public  transport  services  themselves,  or  via  an  internal 
operator,  without  a  competitive  tendering  procedure.  This  possibility  is  however  strictly 
dependent  on  greater  transparency  and  the  establishment  of  precise  criteria  applicable  to 
compensation  for  public  service  obligations.  It is  also  subject  to  a  condition  concerning  the 
geographical jurisdiction of the activity of the competent authority or its internal operator (cf. 
Article 5(5)). 

Recognition  of  this  option  of  self-provision  (government  operated  system)  of  transport 
services,  which  can  apply  whatever  the  mode  concerned  (bus,  tram,  underground,  railway, 
integrated  services,  etc.),  is  accompanied  by  the  reduction  of  the  list  of  exceptions  to  the 
obligation to put public service contracts out to competitive tendering (removal in particular 
of  exceptions  in  favour  of  direct  award  of  underground  or  light  rail  transit  services).  The 
exception  concerning  integrated  services  had  already  been  abolished  in  the  2002  amended 
proposal  following  the  request  by  the  European  Parliament.  Accordingly,  only  regional  and 
long-distance rail remain exempted from the obligation. 

The  objective  is  also  apparent  in  the  flexibility  proposed  for  the  duration  of  contracts  in 
Article 4(5) and (6) and in the extension of the transitional period for rail transport services. 
Lastly,  greater  recognition  of  the  subsidiarity  principle  is  seen  in  the  approach  to  the 
definition  of  regional  or  long-distance  transport  and  the  maintenance  of  thresholds  below 
which direct award is possible. 

The Commission is also giving the public authorities more freedom to organise competitive 
tendering  in  detail.  For  example,  it  has  not  fixed  the  list  of  selection  criteria  that  the 
competent  authorities  have  to  observe  when  awarding  public  service  contracts.  It  has  also 
decided  not  to  lay  down,  for  the  inland  public  transport  sector  only,  specific  rules  on 
subcontracting  (former  Article 9(1))  or  abuse  of  dominant  position  (former  Article  9(2)), 
which, as the discussions to date have revealed, would have created undue inflexibility. 

Similarly, the Commission has opted in its new proposal not to intervene in the definition of 
an  adequate  standard  of  public  transport  or  passenger  information,  which  explains  the 
disappearance of the former Articles 4 and 4b. Its aim thereby is to give greater recognition to 
the diversity of approaches in this area while establishing a coherent framework. 

EN 

12 

   EN 

 
This  new  proposal,  which  reflects  the  Commission’s  desire  to  strengthen  the  principles  of 
fairness,  transparency  and  access  to  information,  will  guarantee  legal  certainty  while 
preserving  the  specific  characteristics  of  services  in  the  general  interest,  an  essential 
component of the European model. 

COMMENTS ON INDIVIDUAL ARTICLES 

Overview of the proposed Regulation and explanation of the amendments as compared with 
the amended proposal of 21 February 200229 

Article 1 Object and Scope 

Article 1 adopts the scope of the previous legislation. It limits the objectives of the Regulation 
to  the  establishment  of  a  framework  for  those  interventions  by  the  competent  authorities  – 
award of exclusive rights and compensation for public service obligations – which are most 
likely to affect competition and trade between the Member States. The former Articles 4, 4a, 
4b, 7a (apart from paragraph 1), 8, 9 (apart from paragraph 3), 12 (apart from paragraph 1), 14 
and 18 have been removed as a result of this limitation and the need to keep to what is strictly 
necessary. 

Article 2 Definitions 

Article 2 defines key terms. Those of public service operator and public service contract are 
defined in such a way as to cover all legal relationships between the authorities and operators. 
The concepts of internal operator, competent local authority, and regional or long-distance rail 
transport have been defined with the aim of allowing application of the possibilities for direct 
award of contracts specified in Article 5. 

Article 3 Public service contracts and general rules 

This Article incorporates the substance of the former Article 3 on the obligation to conclude a 
public  service  contract  with  the  chosen  operator  and  simplifies  the  former  Article 10  on 
general rules in line with the objective of limiting the framework to the strict essentials. 

29 

COM(2002) 107 final. 

EN 

13 

   EN 

 
                                                 
Article 4 Mandatory content of public service contracts and general rules 

This Article  incorporates the substance of former Articles 6, 6a, 9(3) and 16 on the content 
and duration of contracts, taking account of recent case law (Altmark judgment) concerning 
the  obligation  to  define  public  service  obligations  and  the  methods  of  calculating 
compensation for such obligations. 

Article 5 Award of public service contracts 

Paragraph 1  clarifies  the  link  with  the  acquis  communautaire  on  public  contracts  (former 
Article 2).  Paragraph 2  acknowledges  that  local  authorities  have  the  option  of  providing 
public transport services themselves or of entrusting them to an internal operator over which 
they  exercise  a  control  similar  to  that  which  they  exercise  over  their  own  departments,  on 
condition inter alia that the operator confine its activity to the geographical area over which 
the said authorities have jurisdiction. 

Paragraph 3  adopts  the  principle  of  award  by  invitation  to  tender  as  well  as  the  former 
Article 12(1)  on  the  principles  applicable  to  competitive  tendering  procedures.  It  also 
introduces the possibility of negotiations. 

Paragraphs 4  (minor  contracts30),  5  (emergency  measures)  and  6  (regional  or  long-distance 
railways)  contain  some  of  the  exceptions  to  the  competitive  tendering  obligation  in  former 
Articles 7(4) and (1) and 7b. 

Article 6 Public service compensation 

Paragraph 1 refers to the provisions of Article 4 and the annex as regards the conditions and 
methods of calculating compensation in the event of direct award. 

Paragraph 2  lays  down  the  competent  authorities’  obligations  to  the  Commission  to  ensure 
that the Regulation is properly applied. 

Article 7 Publicity 

This specifies the instruments (annual report and publication in the OJ of the EU) ensuring an 
adequate level of transparency. 

Article 8 Transition 

This Article incorporates the substance of the former Article 17 in a simplified manner. Along 
the lines of the provisions on contract duration, it makes a distinction between the duration of 
the transitional period in the bus transport sector (eight years) and that in the railway sector 
(10 years). 

It provides for a mechanism for the gradual introduction of invitations to tender and regulates 
the question of contracts concluded before the entry into force of the Regulation. 

30 

Source: International Public Transport Union (UITP). 

EN 

14 

   EN 

 
                                                 
It maintains the principle of transitional reciprocity. 

Article 9 Compatibility with the Treaty 

This  Article  incorporates  the  substance  of  the  former  Article 11.  It  lays  down  that  only 
compensation  for  public  service  obligations  paid  in  accordance  with  the  Regulation  is 
compatible with the common market. Moreover, it exempts such cases from the notification 
requirement. 

Article 10 Repeal 

This  Article  incorporates  the  substance  of  the  former  Article 20  and  also  provides  for  the 
complete repeal of Regulation 1107/70, which has become obsolete. Article 73 of the Treaty, 
which applies only to inland transport, provides for two possible exemptions from the rules on 
State  aid:  for  aid  for  the  coordination  of  (inland)  transport  and  for  compensation  for  public 
service obligations which constitutes State aid. Regulation 1107/70 introduces the procedures 
for  exemptions  relating  to  coordination.  Over  the  course  of  time  and  in  the  light  of 
developments  in  the  inland  transport  sector,  the  Commission  has  turned  away  from  the 
exemptions listed in that Regulation, using in their place the horizontal exemption instruments 
which implement Article 87(2) and (3) of the Treaty. The repeal of Regulation 1107/70 will 
remove  the  restrictions  (Article 3(1)  of  the  Regulation)  relating  to  the  application  of  the 
provisions of Article 73 on the coordination of inland transport. 

Article 11 Follow-up 

This Article provides for the Commission to monitor the implementation of the Regulation 
and developments in the provision of public passenger transport in Europe.  

Annex: Rules applicable to compensation in the cases referred to in Article 6(1) 

This annex simplifies the former annex and is limited to what is strictly necessary to define 
the rules applicable in the absence of an invitation to tender. 

EN 

15 

   EN 

 
2000/0212 (COD) 

Revised proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on public passenger transport services by rail and by road 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to the proposal from the Commission, 

Having regard to the opinion of the European Economic and Social Committee, 

Having regard to the opinion of the Committee of the Regions, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

Article 16  of  the  EC  Treaty  confirms  the  place  occupied  by  services  of  general 
economic interest in the shared values of the Union. 

Article 86(2) of the Treaty lays down that undertakings entrusted with the operation of 
services of general economic interest are subject to the rules contained in the Treaty, in 
particular to the rules on competition, insofar as the application of such rules does not 
obstruct the performance of the particular tasks assigned to them. 

Article 73  of  the  Treaty  constitutes  lex  specialis  in  relation  to  Article 86(2).  It 
establishes rules applicable to the compensation of public service obligations in inland 
transport. 

The main objectives of the common transport policy as defined in the White Paper31 
are  to  guarantee  safe,  efficient  and  high-quality  transport  services  through  regulated 
competition  guaranteeing  also  transparency  and  performance  of  public  transport 
services, having regard to social, environmental and regional development factors, or 
to offer specific tariff conditions to certain categories of travellers and to eliminate the 
disparities  between  transport  undertakings  from  different  Member  States  which  may 
give rise to substantial distortion of competition. 

At  the  present  time,  many  inland  transport  services  which  are  required  in  terms  of 
general interest cannot be operated on a commercial basis. The competent authorities 
of the Member States must be able to act to ensure that such services are provided. The 
mechanisms  that  they  can  use  to  ensure  that  public  passenger  transport  services  are 

31 

COM(2001) 370 final. 

EN 

16 

   EN 

 
                                                 
provided include the following: the award of exclusive rights to operators, the granting 
of  financial  compensation  to  operators  and  the  definition  of  general  rules  for  the 
operation of public transport which are applicable to all operators. 

(6)  Many Member States have introduced legislation providing for the award of exclusive 
rights and public service contracts in at least part of their public transport market, on 
the  basis  of  transparent  and  fair  competitive  award  procedures.  As  a  result,  trade 
between  Member  States  has  developed  significantly  and  several  public  transport 
operators  are  now  providing  services  in  more  than  one  Member  State.  However, 
developments in national legislation have led to disparities in the procedures applied 
and  have  created  legal  uncertainty  as  to  the  rights  of  operators  and  the  duties  of  the 
competent  authorities.  Regulation  (EEC)  No 1191/69  does  not  deal  with  the  way 
public  service  contracts  are  to  be  awarded  in  Europe,  and  in  particular  the 
circumstances  in  which  they  should  be  the  subject  of  competitive  tendering.  The 
Community legal framework ought therefore to be updated. 

(7) 

(8) 

(9) 

To be able to organise their public transport service in the manner best suited to the 
needs  of  the  public,  all  competent  authorities  must  be  able  to  choose  their  public 
transport  operators  freely,  under  the  conditions  stipulated  in  this  Regulation.  To 
guarantee application of the principles of transparency, equal treatment of competing 
operators and proportionality, when compensation or exclusive rights are granted, it is 
essential  that  a  contract  between  the  competent  authority  and  the  chosen  operator 
define the nature of the public service obligations and the agreed reimbursement. The 
form  or  designation  of  the  contract  may  vary  according  to  the  legal  systems  of  the 
Member States. 

Contrary to what was laid down in Regulation (EEC) No 1191/69, the scope of which 
extended  to  public  transport  services  by  inland  waterway,  it  is  not  considered 
advisable for this new Regulation to cover the award of public service contracts in that 
specific  sector.  The  organisation  of  public  transport  services  by  inland  waterway  is 
therefore subject to compliance with the general principles of the Treaty.  

It is irrelevant from the viewpoint of Community law whether such transport services 
are  operated  by  public  or  private  undertakings.  This  Regulation  is  based  on  the 
principle  of  neutrality  as  regards  the  system  of  property  ownership  referred  to  in 
Article 295 of the Treaty, on that of the freedom of Member States to define services 
of general interest, referred to in Article 16 of the Treaty, and on those of subsidiarity 
and proportionality referred to in Article 5 of the Treaty. 

(10)  Some services are operated mainly for their historical interest or tourist value. As the 
purpose  of  these  operations  is  manifestly  different  from  the  provision  of  public 
passenger transport, they need not therefore be concerned by the rules and procedures 
applicable to public service requirements. 

(11)  The competent authorities are responsible for the organisation of the public transport 
network.  Apart  from  the  actual  operation  of  the  transport  service,  this  may  cover  a 
whole range of other activities and duties that the competent authorities must be free to 
either carry out themselves or entrust, in whole or in part, to an operator.  

(12)  Contracts  of  long  duration  can  lead  to  the  closing  of  the  market  for  a  longer  period 
than is necessary, thus diminishing the benefits of competitive pressure. To minimise 

EN 

17 

   EN 

 
distortion of competition while protecting quality of services, public service contracts 
should in principle be of limited duration. It is however necessary to make provision 
for  longer  contracts  where  the  operator  has  to  invest  in  assets  for  which  the 
depreciation period is exceptional. 

(13)  Where the conclusion of a public service contract may entail a change of operator, the 
competent  authorities  must  be  able  to  ask  operators  to  apply  the  provisions  of 
Directive  2001/23/EC  of  12 March  2001  on  the  approximation  of  the  laws  of  the 
Member  States  relating  to  the  safeguarding  of  employees'  rights  in  the  event  of 
transfer of undertakings, businesses or parts of undertakings or businesses.32 

(14)  Studies  carried  out  and  the  experience  of  States  where  competition  in  the  public 
transport  sector  has  been  in  place  for  a  number  of  years  show  that,  with  appropriate 
safeguards, introduction of regulated competition between Community operators leads 
to more attractive and innovative services at lower cost and is not likely to obstruct the 
performance of the specific tasks assigned to the operators. This approach is endorsed 
by the European Council under the so-called Lisbon Process of 28 March 2000 calling 
on the Commission, the Council and the Member States, each in accordance with their 
respective powers, to “speed up liberalisation in areas such as … transport”. 

(15)  Any local authority may choose to provide its own public passenger transport services 
in the area it administers or to entrust them to an internal operator without competitive 
tendering. However, this self-provision option needs to be strictly controlled to ensure 
a level playing field. 

(16)  Where,  on  the  other  hand,  a  public  authority  chooses  to  entrust  a  general  interest 
service to a third party, it must select the operator in accordance with Community law 
on  public  contracts  and  concessions,  as  established  by  Articles  43  to  49  of  the  EC 
Treaty,  and  the  principles  of  transparency  and  equal  treatment.  In  particular,  the 
provisions of this Regulation are to be without prejudice to the obligations applicable 
to public authorities by virtue of the directives on the award of public contracts, where 
public service contracts fall within their scope. 

(17)  Some  invitations  to  tender  require  the  competent  authorities  to  define  and  describe 
complex  systems.  Authorities  should  therefore  be  empowered,  when  awarding  such 
contracts, to negotiate details with some or all of the potential operators after tenders 
have been submitted.  

(18) 

Invitations to tender for the award of public service contracts should not be mandatory 
where the contract relates to modest amounts or distances. 

(19)  Where there is a risk of disruption of the provision of services, the authorities must be 
empowered to introduce emergency short-term measures pending the award of a new 
public service contract. 

(20)  Public  passenger  transport  by  rail  raises  specific  issues  of  investment  burden  and 
infrastructure  cost.  In  March  2004  the  Commission  presented  a  proposal  to  amend 
Directive  91/440/EEC  so  as  to  guarantee  access  for  all  Community  railway 

32 

OJ L 82, 22.3.2001, p. 16. 

EN 

18 

   EN 

 
                                                 
undertakings to the infrastructure of all the Member States for the purpose of operating 
international passenger services. 

(21) 

In the case of public services, this Regulation allows each competent authority, within 
the  context  of  a  public  service  contract,  to  select  its  operator  of  public  passenger 
transport  services.  For  these  reasons,  and  given  the  differences  in  the  way  Member 
States organise their territory in this respect, competent authorities may justifiably be 
allowed to award public service contracts directly for regional or long-distance railway 
travel.  The  Commission  will  continue  to  monitor  developments  in  the  provision  of 
public passenger transport closely, especially access to rail infrastructure in Europe; it 
will  produce  a  report  on  this  subject  two  years  after  this  Regulation  is  adopted.  In 
addition, it will present a report on the implementation of this Regulation no later than 
two years after it enters into full application. 

(22)  The  compensation  granted  by  Member  States  may  in  no  case  exceed  the  amounts 
required  to  cover  the  costs  incurred  in  discharging  each  public  service  obligation. 
Where  a  competent  authority  plans  to  award  a  contract  without  putting  it  out  to 
competitive  tender,  it  must  also  respect  detailed  rules  ensuring  that  the  amount  of 
compensation  is  appropriate  and  reflecting  a  desire  for  efficiency  and  quality  of 
services. 

(23)  With a view to the award of public service contracts, the competent authorities must 
take the necessary measures to advertise the fact at least one year in advance, so that 
potential operators are able to react. 

(24)  Given  that  competent  authorities  and  operators  will  need  time  to  adapt  to  the 
provisions of this Regulation, provision should be made for transitional arrangements 
which take account of the specific characteristics of the various modes of transport.  

(25)  During the transitional period, the introduction of the provisions of this Regulation by 
the competent authorities will probably take place at different times. It may therefore 
be  possible,  during  this  period,  that  operators  from  markets  not  yet  affected  by  the 
provisions of this Regulation tender for contracts in markets that have been opened to 
controlled  competition  more  rapidly.  In  order  to  avoid,  by  means  of  proportionate 
action,  any  imbalance  in  the  opening  of  the  public  transport  market,  competent 
authorities should be able to refuse tenders from undertakings performing a majority 
of their activity in markets that will be opened in future but are not yet open, provided 
that this is applied without discrimination and decided in advance of an invitation to 
tender. 

(26) 

In  its  Altmark  Trans  GmbH  judgment,  the  Court  of  Justice  of  the  European 
Communities  ruled  that  compensation  for  public  service  does  not  constitute  an 
advantage  within  the  meaning  of  Article 87  of  the  EC  Treaty,  provided  that  four 
cumulative  conditions  are  satisfied  (judgment  of  24 July  2003  in  Case  C-280/00, 
paragraphs  87  to  95,  ECR  I-7747).  Where  these  conditions  are  not  satisfied  and  the 
general  conditions  for  the  application  of  Article 87(1)  of  the  Treaty  are  met,  public 
service  compensation  constitutes  State  aid  which  is  subject  to  the  provisions  of 
Articles 73, 86, 87 and 88 of the Treaty. 

(27)  Compensation  for  public  service  may  prove  necessary  in  the  inland  passenger 
transport  sector  so  that  undertakings  responsible  for  public  services  operate  on  the 

EN 

19 

   EN 

 
basis of principles and under conditions allowing them to carry out their tasks. Insofar 
as such compensation takes the form of State aid, it may be compatible with the Treaty 
pursuant to Article 73 under certain conditions. Firstly, it must be granted to ensure the 
provision of services which are indeed services of general interest within the meaning 
of  the  Treaty.  Secondly,  to  avoid  unjustified  distortions  of  competition  it  may  not 
exceed what is necessary to cover the net costs incurred through discharging the public 
service obligations, taking account of the revenue generated thereby and a reasonable 
profit.  

(28)  Compensation granted by the Member States in accordance with the provisions of this 
Regulation  may  therefore  be  exempted  from  the  prior  notification  required  by 
Article 88(3) of the Treaty. 

(29)  This  Regulation  replaces  Regulation  (EEC)  No 1191/69  of  the  Council  of  26 June 
1969 on action by Member States concerning the obligations inherent in the concept of 
a  public  service  in  transport  by  rail,  road  and  inland  waterway;33  that  Regulation 
should therefore be repealed. 

(30)  The  scope  of  Regulation  (EEC)  No  1107/70  of  the  Council  of  4  June  1970  on  the 
granting  of  aids  for  transport  by  rail,  road  and  inland  waterway34  is  covered  by  this 
Regulation. As the earlier Regulation is now obsolete, it  should be repealed in order 
that  Article 73  of  the  Treaty  may  be  properly  applied  to  continuing  developments  in 
the sector without prejudice to this Regulation or Regulation (EEC) No 1192/69 of the 
Council  of  26 June  1969  on  common  rules  for  the  normalisation  of  the  accounts  of 
railway undertakings.35 

HAVE ADOPTED THIS REGULATION: 

Article 1 

Purpose and scope 

1. 

The  purpose  of  this  Regulation  is  to  define  how,  in  accordance  with  the  rules  of 
Community law,  the competent authorities may act in the field of public passenger 
transport to guarantee the provision of services of general interest which are among 
other things more numerous, safer, of a higher quality or at a lower cost than those 
that mere market forces would have allowed.  

To this end, this Regulation lays down the conditions under which competent authorities may 
compensate  transport  operators  for  the  costs  incurred  in  meeting  public  service  obligations 
and grant exclusive rights for the operation of public passenger transport services. 

2. 

33 
34 

35 

This  Regulation  shall  apply  to  the  national  and  international  operation  of  public 
passenger transport services by rail and other track-based modes and by road, except 

OJ L 156, 28.6.1969, p. 1, as last amended by Regulation (EC) No 1893/91 (OJ L 169, 29.6.1991, p. 1). 
OJ  L 30,  15.06.1970,  p. 1;  Regulation  last  amended  by  Regulation  (EC)  No 543/97  (OJ  L 84, 
26.3.1997, p. 6). 
OJ L 156, 28.06.1969, pp. 8 to 20. 

EN 

20 

   EN 

 
                                                 
for  services  which  are  operated  mainly  for  their  historical  interest  or  their  tourist 
value. 

Article 2 

Definitions 

For the purpose of this Regulation: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

“public  passenger  transport”  means  transport  services  of  general  economic 
interest organised by the competent authority and provided to the public on a 
non-discriminatory and continuous basis; 

“competent  authority”  means  any  public  authority  or  group  of  public 
authorities of a Member State which is competent to organise public passenger 
transport  and  award  public  service  contracts  in  a  given  geographical  area,  or 
any body vested with such authority; 

“competent 
geographical area of competence is not national;  

local  authority”  means  any  competent  authority  whose 

“public service operator” means any public or private undertaking or group of 
such  undertakings  which  operates  public  passenger  transport  services  or  any 
public body which provides public passenger transport services; 

“public  service  obligation”  means  a  requirement  defined  or  determined  by  a 
competent  authority  in  order  to  assure  passenger  transport  services  in  the 
general  interest  that  an  operator,  if  it  were  considering  its  own  commercial 
interests, would not assume or would not assume to the same extent or under 
the same conditions without reimbursement; 

“exclusive  right”  means  a  right  entitling an  operator  to  operate  certain  public 
passenger transport services on a particular route or network or in a particular 
area, to the exclusion of other operators; 

“public  service  compensation”  means  any  benefit,  particularly  financial, 
granted  directly  or  indirectly  by  a  competent  authority  from  public  funds 
during  the  period  of  implementation  of  the  public  service  obligation  or  in 
connection with that period; 

“direct award” means the award of a contract to a given operator without any 
prior competitive tendering procedure; 

“public  service  contract”  means  one  or  more  legally  binding  acts  confirming 
the agreement between a competent authority and an operator to entrust to that 
operator  the  management  and  operation  of  services  subject  to  public  service 
obligations; depending on the law of the Member States, the contract may also 
consist of a decision adopted by the competent authority: 

– 

taking the form of an individual legislative or regulatory act, or 

EN 

21 

   EN 

 
(j) 

(k) 

– 

containing  conditions  under  which  the  competent  authority  itself 
provides  the  services  or  entrusts  the  provision  of  such  services  to  an 
internal operator; 

“internal  operator”  means  a  legally  distinct  entity  over  which  the  competent 
authority  exercises  complete  control  similar  to  that  exercised  over  its  own 
departments.  For  the  purposes  of  determining  whether  such  control  exists, 
factors such as the degree of representation on administrative, management or 
supervisory bodies, specifications relating thereto in the articles of association, 
ownership,  effective  influence  and  control  over  strategic  decisions  and 
individual management decisions have to be taken into consideration; 

“value”  means  the  value  of  a  service,  a  route,  a  contract,  or  a  compensation 
scheme for public passenger transport corresponding to the total remuneration, 
before VAT, of the operator or operators, including compensation of whatever 
kind paid by the public authorities and revenue from the sale of tickets which is 
not repaid to the competent authority in question; 

(l) 

“general  rule”  means  a  measure  which  applies  without  discrimination  to  all 
transport  services  of  the  same  type  in  a  given  geographical  area  for  which  a 
competent authority is responsible; 

(m)  “regional or long-distance transport” means a transport service which does not 
cater  to  the  transport  needs  of  an  urban  centre  or  conurbation  or  connect  a 
conurbation with its suburbs. 

Article 3 

Public service contracts and general rules 

1. 

2. 

1. 

2. 

Where a competent authority decides to grant the operator of its choice an exclusive 
right  or  compensation,  of  whatever  nature,  in  return  for  the  discharge  of  public 
service obligations, it must do so within the framework of a public service contract. 

By  way  of  derogation  from  paragraph 1,  public  service  obligations  which  aim  to 
establish  maximum  tariffs  for  all  passengers  or  for  certain  categories  of  passenger 
may either be included in a public service contract or be the subject of general rules. 
In  accordance  with  the  principles  set  out  in  Articles 4  and  6  and  in  the  annex,  the 
competent  authority  shall  compensate  the  operators  for  the  net  costs  incurred  in 
complying with the tariff obligations established through general rules. 

Article 4 

Mandatory content of public service contracts and general rules 

Public  service  contracts  and  general  rules  must  clearly  define  the  public  service 
obligations  with  which  the  operator  must  comply,  and  the  geographical  areas 
concerned.  

Public service contracts and general rules must establish in advance, in an objective 
and  transparent  manner,  the  parameters  on  the  basis  of  which  each  compensation 
payment must be calculated. These parameters shall be determined in such a way that 

EN 

22 

   EN 

 
3. 

4. 

5. 

6. 

7. 

no  compensation  payment  may  exceed  the  amount  required  to  cover  the  net  costs 
incurred  in  discharging  each  public  service  obligation,  taking  account  of  revenue 
relating thereto kept by the operator and a reasonable profit. 

Public  service  contracts  and  general  rules  shall  determine  the  arrangements  for  the 
allocation of costs connected with the provision of services. These costs shall include 
the  costs  of  staff,  energy,  maintenance  and  repair  of  rolling  stock  and,  where 
appropriate, fixed costs and a suitable return on capital. 

Public  service  contracts  and  general  rules  shall  determine  the  arrangements  for  the 
allocation  of  revenue  from  the  sale  of  tickets  which  may  be  kept  by  the  operator, 
repaid to the competent authority or shared between the two. 

The duration of contracts shall be limited and shall not exceed eight years for coach 
and bus services and fifteen years for rail transport services. The duration of public 
service  contracts  relating  to  several  modes  of  transport  shall  be  limited  to  fifteen 
years  if  rail  transport  represents  more  than  50%  of  the  value  of  the  services  in 
question.  

If necessary, having regard to the conditions of depreciation of assets, the duration of 
the contract may be extended by a maximum of 50% if the operator provides assets 
which  are  both  significant  in  relation  to  the  overall  assets  needed  to  carry  out  the 
transport services covered by the public service contract and are linked exclusively to 
the transport services covered by the contract. 

Under  the  contract,  the  competent  authority  may  require  the  selected  operator  to 
grant  staff  taken  on  previously  to  provide  services  the  rights  to  which  they  would 
have  been  entitled  if  there  had  been  a  transfer  within  the  meaning  of  Directive 
2001/23/EC.  The  authority  shall  list  the  staff  and  give  details  of  their  contractual 
rights. 

Article 5 

Award of public service contracts 

1. 

Paragraphs 2  to  6  of  this  Article  shall  apply  without  prejudice  to  the  obligations 
applicable to the competent authorities under Directives 92/50/EEC,36 93/36/EEC,37 

36 

37 

Council Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures for the award 
of public service contracts (OJ L 209, 24.7.1992, p. 1). 
Council Directive 93/36/EEC of 14 June 1993 coordinating procedures for the award of public supply 
contracts (OJ L 199, 9.8.1993, p. 1). 

EN 

23 

   EN 

 
                                                 
2. 

3. 

4. 

5. 

93/37/EEC38  and  93/38/EEC39  as  amended  and  Directives  2004/17/EC40  and 
2004/18/EC41 on the award of public contracts.  

Any competent local authority may decide to provide public transport services itself 
or to award public service contracts directly to an internal operator, on condition that 
the  internal  operator  and  any  entity  over  which  the  latter  exerts  even  a  minimal 
influence perform all their public passenger transport activity within the territory of 
the competent authority and do not take part in competitive tenders organised outside 
the territory of the competent authority. 

Any  competent  authority  which  has  recourse  to  a  third  party  must  award  public 
service  contracts  via  an  invitation  to  tender,  except  in  the  cases  specified  in 
paragraphs  4,  5  and  6.  The  procedure  adopted  for  the  invitation  to  tender  shall  be 
open  to  all  operators,  shall  be  fair  and  shall  observe  the  principles  of  transparency 
and  non-discrimination.  Following  the  submission  of  tenders  and  any  preselection, 
the procedure may involve negotiations in accordance with these principles in order 
to determine how best to meet specific or complex requirements.  

The  competent  authorities  may  decide  to  award  public  service  contracts  directly 
where their average annual value is estimated at less than €1 million or where they 
concern the annual provision of fewer than 300 000 kilometres of transport services. 

In the event of the disruption of services or the immediate risk of such a situation, the 
competent authority may take an emergency measure. This emergency measure shall 
take  the  form  of  a  direct  award  of  or  formal  agreement  to  extend  a  public  service 
contract.  The  award  or  extension  of  a  contract  by  emergency  measure  shall  not 
exceed the period needed by the competent authority to organise a new procedure for 
the award of a contract in accordance with the provisions of this Regulation and in 
any event shall not exceed one year. 

6. 

The  competent  authorities  may  decide  to  award  public  service  contracts  directly 
where they concern regional or long-distance transport by rail. 

Article 6 

Public service compensation 

All  compensation  connected  with  a  general  rule  or  a  public  service  contract  must 
conform  to  the  provisions  laid  down  in  Article 4,  irrespective  of  how  the  contract 
was  awarded.  All  compensation,  of  whatever  nature,  connected  with  a  contract 

Council Directive 93/37/EEC of 14 June 1993 concerning the coordination of procedures for the award 
of public works contracts (OJ L 199, 9.8.1993, p. 54). 
Council  Directive  93/38/EEC  of  14 June  1993  coordinating  the  procurement  procedures  of  entities 
operating in the water, energy, transport and telecommunications sectors (OJ L 199, 9.8.1993, p. 84). 
Directive 2004/17/EC of  the European  Parliament  and  of  the  Council  of 31 March 2004  coordinating 
the  procurement  procedures  of  entities  operating  in  the  water,  energy,  transport  and  postal  services 
sectors (OJ L 134, 30.4.2004, p. 1). 
Directive  2004/18/EC  of  the  European  Parliament  and  of  the  Council  of  31 March  2004  on  the 
coordination of procedures for the award of public works contracts, public supply contracts and public 
service contracts (OJ L 134, 30.4.2004, p. 114). 

1. 

38 

39 

40 

41 

EN 

24 

   EN 

 
                                                 
2. 

1. 

2. 

awarded directly in accordance with Article 5(2), (4), (5) or (6) or connected with a 
general rule must also conform to the provisions laid down in the annex.  

At the written request of the Commission, Member States shall communicate, within 
a period of twenty working days or any longer period as may be fixed in that request, 
all  the  information  that  the  Commission  considers  necessary  to  determine  whether 
the compensation granted is compatible with this Regulation. 

Article 7 

Publicity 

Each  competent  authority  shall  publish  once  a  year  a  detailed  report  on  the  public 
service  obligations  for  which  it  is  responsible,  the  selected  operators  and  the 
compensation payments and exclusive rights granted to the said operators by way of 
reimbursement.  This  report  shall  allow  the  performance  and  quality  of  the  public 
transport network to be monitored and assessed from the standpoint of best possible 
use of public funds. 

Each  competent  authority  shall  take  the  necessary  measures  to  ensure  that  at  least 
one  year  before  the  launch  of  the  invitation  to  tender  procedure  or  one  year  before 
the direct award the following information at least is published in the Official Journal 
of the European Union: 

(a) 

The name and address of the competent authority; 

(b) 

The type of award chosen; 

(c) 

The services and areas covered by the award. 

Article 8 

Transition 

1. 

Paragraphs 2  to  6  of  this  Article  shall  apply  without  prejudice  to  the  obligations 
applicable to the competent authorities under Directives 92/50/EEC,42 93/36/EEC,43 
93/37/EEC44  and  93/38/EEC45  as  amended  and  Directives  2004/17/EC46  and 
2004/18/EC47 on the award of public contracts.  

2. 

Each competent authority shall ensure that: 

(a) 

at  least  half  of  its  public  service  contracts  for  transport  by  coach  and  bus,  by 
value, are awarded in accordance with this Regulation within four years of its 
entry into force; and 

42 
43 
44 
45 
46 
47 

See footnote 35. 
See footnote 36. 
See footnote 37. 
See footnote 38. 
See footnote 39. 
See footnote 40. 

EN 

25 

   EN 

 
 
 
 
                                                 
(b) 

all of its public service contracts for transport by coach and bus are awarded in 
accordance with this Regulation within eight years of its entry into force. 

3. 

Each competent authority shall ensure that: 

4. 

5. 

6. 

(a) 

at  least  half  of  its  public  service  contracts  for  transport  by  rail,  by  value,  are 
awarded in accordance with this Regulation within five years of its entry into 
force; and 

(b) 

all  of  its  public  service  contracts  for  transport  by  rail  are  awarded  in 
accordance with this Regulation within ten years of its entry into force. 

In  the  case  of  public  service  contracts  covering  several  modes  of  transport,  the 
transitional  periods  provided  for  in  paragraph 3  shall  apply  where  transport  by  rail 
represents more than 50% of the value of the services in question. 

For  the  application  of  paragraphs 2,  3  and  4,  no  account  shall  be  taken  of  public 
service contracts awarded before the entry into force of this Regulation on the basis 
of a fair competitive tendering procedure, provided that they are of limited duration 
comparable  to  the  durations  specified  in  Article 4(5)  of  this  Regulation.  Such 
contracts may continue until they expire. 

The  competent  authorities  may,  in  the  second  half  of  the  transitional  periods 
specified in paragraphs 2 and 3, exclude from participation in the award of contracts 
by invitation to tender those operators which cannot provide evidence that the value 
of the public transport services for which they are receiving compensation or enjoy 
an exclusive right awarded in accordance with this Regulation represents at least half 
the  value  of  all  the  public  transport  services  for  which  they  are  receiving 
compensation  or  enjoy  an  exclusive  right.  For  the  application  of  this  criterion,  no 
account  shall  be  taken  of  contracts  awarded  by  emergency  measure  as  specified  in 
Article 5(5). 

Where  competent  authorities  make  use  of  this  possibility,  they  shall  do  so  without 
discrimination, exclude all potential operators fulfilling this criterion and inform the 
potential operators of their decision at the beginning of the procedure for the award 
of public service contracts. 

They shall inform the Commission of their intention to apply this provision at least 
two months before the publication of the invitation to tender. 

Article 9 

Compatibility with the Treaty 

Insofar as it constitutes State aid within the meaning of Article 87(1), only compensation paid 
in  accordance  with  this  Regulation  shall  be  compatible  with  the  common  market.  Such 
compensation  shall  be  exempt  from  the  prior  notification  requirement  laid  down  in  Article 
88(3) of the Treaty. 

EN 

26 

   EN 

 
Article 10 

Repeal 

1. 

2. 

Regulation (EEC) No 1191/69 is hereby repealed. 

Regulation (EEC) No 1107/70 is hereby repealed. 

Article 11 

Follow-up 

Two years after this Regulation is adopted, the Commission shall present a report on 

1. 
developments in the provision of public passenger transport in Europe. 

No later than two years after the end of the transitional period specified in Article 8(3), 

2. 
the Commission shall present a report on the implementation of this Regulation. 

Article 12 

Entry into force 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

This Regulation shall enter into force on the XXX day following that of its publication in the 
Official Journal of the European Union. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels,  

For the Parliament 
The President 

For the Council 
The President 

EN 

27 

   EN 

 
1. 

2. 

3. 

4. 

5. 

ANNEX  

Rules applicable to compensation in the cases referred to in Article 6(1) 

The  compensation  connected  with  contracts  awarded  directly  in  accordance  with 
Article 5(2),  (4),  (5)  or  (6)  or  with  a  general  rule  must  be  calculated  in  accordance 
with the rules laid down in this Annex. 

The  compensation  may  not  exceed  an  amount  corresponding  to  the  net  financial 
effect  equivalent  to  the  total  of  the  effects  –  positive  or  negative  –  of  compliance 
with  the  public  service  obligation  on  the  costs  and  revenue  of  the  operator.  The 
effects  are  to  be  calculated  by  comparing  the  situation  where  the  public  service 
obligation  is  met  with  the  situation  which  would  have  existed  if  the  obligation  had 
not been met and if the services covered by the obligation had been operated under 
market conditions.  

The  calculation  of  the  financial  effect  must  take  account  of  the  impact  that 
compliance with the public service obligation has on demand for transport services 
over the entire network concerned.  

Costs  and  revenue  must  be  calculated  in  accordance  with  the  accounting  rules  in 
force.  

In  order  to  increase  transparency  and  avoid  cross-subsidies,  where  an  operator  not 
only  operates  compensated  services  subject  to  public  transport  service  obligations 
but also engages in other activities, the accounts of the said public services must be 
separated so as to meet at least the following conditions: 

•  the operating accounts corresponding to each of these activities must be separate 
and  the  proportion  of  the  corresponding  assets  and  the  fixed  costs  must  be 
allocated in accordance with the accounting rules in force;  

•  the  costs  connected  with  any  other  activities  of  the  operator  must  cover  all 
variable  costs,  an  appropriate  contribution  to  the  fixed  costs  and  a  reasonable 
profit. These costs may under no circumstances be charged to the public service in 
question; 

•  the  costs  of  the  public  service  must  be  balanced  by  operating  revenue  and 
payments from public authorities, without any possibility of transfer of revenue to 
another sector of the operator’s activity.  

6. 

Reasonable profit must be taken to mean a rate of return on capital that is normal for 
the  sector  and  that  takes  account  of  the  risk,  or  absence  of  risk,  incurred  by  the 
operator by virtue of the intervention by the public authority. 

7. 

The method of compensation must promote the maintenance or development of: 

•  effective  management  by  the  operator,  which  can  be  the  subject  of  an  objective 

assessment, and 

•  the provision of transport services of a sufficiently high standard. 

EN 

28 

   EN