Opinion of the Committee of the Regions on the Revised proposal for a Regulation of the European Parliament and of the Council on public passenger transport services by rail and by road
Date: 2006-02-16
Institutions: European Committee of the Regions
Subjects: carriage of passengers, competition policy, drafting of EU law, provision of services, public service, rail transport, road transport

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II

(Preparatory Acts)

COMMITTEE OF THE REGIONS

63RD PLENARY SESSION, HELD ON 15 AND 16 FEBRUARY 2006

Opinion of the Committee of the Regions on the Revised proposal for a Regulation of the Euro-
pean Parliament and of the Council on public passenger transport services by rail and by road

(2006/C 192/01)

THE COMMITTEE OF THE REGIONS,

HAVING REGARD TO the Revised proposal for a Regulation of the European Parliament and of the
Council on public passenger transport services by rail and by road (COM(2005) 319 final) — 2000/0212
(COD);

HAVING REGARD TO the Council's decision of 27 September 2005, under the first paragraph of Article
265 and Article 71 of the Treaty establishing the European Community, to consult it on this matter;

HAVING REGARD TO the decision of its President of 23 March 2005 to instruct the Commission for
Territorial Cohesion Policy to draw up an opinion on this issue;

HAVING REGARD TO Regulation (EEC) No 1191/69 of the Council of 26 June 1969 on action by
Member States concerning the obligations inherent in the concept of a public service in transport by rail,
road and inland waterway, as last amended by Regulation (EEC) No 1893/91;

HAVING REGARD TO the 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, as amended by COM(2002) 107 final);

HAVING REGARD TO its opinion (CdR 292/2000 fin (1)) on the Proposal for a Regulation of the Euro-
pean 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
COM(2000) 7 final — 2000/0212 (COD);

HAVING REGARD TO the judgment of the Court of Justice of 24 July 2003 in Case C-280/00 Altmark
Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH and the judgment of
the Court of Justice of 11 January 2005 in Case C-26/03 Stadt Halle and RPL Recycling Park Lochau GmbH v
Arbeitsgemeinschaft Thermische Restabfall- und Energiverwertungsanlage TREA Leuna;

HAVING REGARD TO the draft opinion on this issue (CdR 255/2005 rev. 1) adopted on 2 December
2005 by the Commission for Territorial Cohesion Policy (rapporteur: Mr Bernard Soulage, First vice-presi-
dent of the Regional Council of Rhône-Alpes (FR/PES));

adopted the following opinion at its 63rd plenary session, held on 15 and 16 February 2006
(meeting of 16 February).

(1) OJ C 253 of 12.9.2001, p. 9.

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I. General comments

The Committee of the Regions:

believes that the creation of a level playing field and the
reduction in legal uncertainty will help to promote public
transport;

thinks that harmonisation and clarification of competition
conditions in the provision of public transport services are
necessary in order to ensure greater transparency with regard
to public service obligations and the remuneration of
services provided.

1. With respect to contractual arrangements for public service obliga-

tions:

endorses the recognition of

the specific nature of
1.1
public aid for the provision of services of general economic
interest and the definition of public service contracts which
clarify the rights and obligations of each party;

1.2 welcomes the neutrality of the regulation with regard
to the social and territorial objectives pursued by each
competent authority;

1.3
supports the principle of contractual arrangements,
which recognises the role of public service obligations in
meeting social and territorial cohesion objectives. Public
service contracts make it possible to specify public service
obligations and the costs they entail in a transparent manner.

2. With respect to the organisation of services:

2.1 welcomes the fact that, with due regard for the subsi-
diarity principle, the proposed regulation provides local and
regional authorities with the necessary flexibility to respond
more effectively to the specific or complex local requirements
of public transport services, in line with their social and terri-
torial cohesion objectives;

reiterates its commitment

to the principle of free
2.2
administration of local and regional authorities, which recog-
nises their right to freely choose how to organise their public
transport services;
this is in line with legislation in most
Member States;

2.3 welcomes the fact that the competent authorities are
free to choose the method of management, which goes
some way towards recognising the diversity of local require-
ments and production conditions;

operate certain transport services which extend beyond its
administrative boundaries;

2.5
reaffirms its favourable position towards opening up
markets in the local public transport sector, in line with the
principles of ‘regulated competition’, which underlines the
requirement to meet the needs of the most vulnerable members
of society and job-seekers in less advantaged neighbourhoods
while at the same time being environmentally sustainable;

2.6 welcomes the fact that the proposed regulation recog-
nises the responsibility of the competent authorities for
organising the provision of services on the basis of contractual
arrangements. The competent authorities will be able to choose
whether to base the operation of transport services on one or
several contracts, and are free to determine how to allocate
risk;

the

2.7 welcomes
flexibility allowed in competitive
tendering: the public service contact procedure may involve
negotiations (Article 5(3)) or be replaced by a direct award in
the event of the disruption of services (Article 5(5));

is surprised that

inland waterway and maritime
2.8
transport in urban areas have been excluded from scope of the
proposed new regulation. Similarly, it regrets that the proposed
regulation does not apply to inland water transport services
where such services are an integral part of the local public
transport network.

3. With respect to public transport providers:

notes that

3.1
the regulation does not restrict private
initiative on passenger transport markets which have been
(without exclusive rights and
deregulated at national
without compensation);

level

3.2
feels that the nature of regulation is such that it will
help to prevent the emergence of new monopoly positions in
local public transport and will not exclude SMEs from the
market;

is satisfied with the proposed balance between the
3.3
relative powers of the competent authorities and large trans-
port companies. In order to ensure good, efficient local trans-
port it is important to have strong regional influence in plan-
ning and organising public transport. With commuter transport
on the increase, a high degree of coordination of national and
regional public transport tenders is also required;

supports the exclusion of long-distance and regional

3.4
rail transport from the scope of Article 5 of the regulation;

2.4
broadly supports the rule concerning the geographical
jurisdiction of internal operators (Article 5(2)), which will help
to remove most of the suspicion surrounding ‘incompatible’
aid, while maintaining the possibility to use an internal
operator; believes that the principle of geographical jurisdic-
tion does not rule out the possibility for a local authority to

3.5
has doubts about the feasibility of implementing the
proposed rules to determine fair compensation for public
service obligations. The difficulty (even impossibility) of deter-
mining fair compensation could become a source of
legal
uncertainty;

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3.6
points out that no provision is made for regulating
direct awards in the regional or long-distance rail transport
sectors. Some companies will be able to operate on the basis of
‘direct awards’ in the regional and long distance sectors and at
the same time take part in invitations to tender. A close eye
needs to be kept on possible distortions of competition.

4. With respect to the form and substance of the text:

4.2
notes that, as situations vary widely across Member
States, the draft regulation proposes definitions which are
quite loose in some cases, but entrusts Member States with
the responsibility of establishing more specific definitions in
their respective territories. This applies particularly to the defi-
nition of urban areas (Article 2(m)), where the requisite trans-
port zones rarely coincide with the authorities' geographical
boundaries.

4.1
is surprised that nowhere in the proposal does the
Commission explain why it has opted for a regulation, the
most binding instrument of Community integration;

II. Recommendations

Amendments

Recommendation 1

Article 1(2)

Text proposed by the Commission

CoR amendment

2. This Regulation shall apply to the national and
international operation of public passenger trans-
port services by rail and other track-based modes
and by road, except for services which are operated
mainly for their historical
interest or their tourist
value.

2. This Regulation shall apply to the national and
international operation of public passenger trans-
port services by rail and other track-based modes
and by road, except for services which are operated
mainly for their historical
interest or their tourist
value.

R e a son

As regards the scope of the regulation, the CoR regrets the modal approach adopted in the proposal,
which underestimates the importance of promoting intermodality in integrated local transport policies.
The CoR would like to see consideration given to intermodality issues in order to encourage authorities to
award public service contracts based on multimodal transport systems (underground railway, trams, buses,
funicular railway, inland waterways, parking services, car and bicycle hire, multimodal stations, information
systems, etc.).

Recommendation 2

Article 2(j): Definitions

Text proposed by the Commission

CoR amendment

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

‘internal operator’ means a legally distinct entity
(j)
over which the
authority exercises
competent
control similar to that exercised over its own depart-
ments. 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 influ-
ence and control over strategic decisions and indivi-
dual management decisions have to be taken into
consideration. The
internal operator
status of
precludes all participation by a private undertaking
in the capital of the service provider of more than
33%. Direct award to an internal operator is also
possible if, by derogation from Article 2 (j), the
internal operator, for the purposes of restructuring,
enters into cooperation with an external operator
over which the authority does not exercise control.
in the case
Once the directly-awarded contract
described above has expired, the internal operator
can no longer be considered for a new direct
award.;

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R e a son

The CoR calls for a more precise definition of internal operator and of the rules governing the control exer-
cised over an internal operator by the competent authority.

The initial recommendation is, in fact, in line with the precedent established by the judgment in the Stadt
Halle case of 11 January 2005 (Case C-26/03), which, in paragraph 49, states that: ‘… the participation,
even as a minority, of a private undertaking in the capital of a company in which the contracting party in
question is also a participant excludes in any event the possibility of that contracting authority exercising
over that company a control similar to that which it exercises over its own departments’.

The Stadt Halle ruling clearly means that participation by any private operator, irrespective of its level of
involvement, in a local or regional public undertaking requires application of Community regulations in
the area of public procurement, where red rape is extremely burdensome. In addition, it effectively calls
into question the neutrality of ownership, as enshrined in Article 295 of the EC Treaty, and restricts the
scope for action of public-private partnerships (PPP). The Stadt Halle judgment creates more problems for
mixed-economy companies than it solves.

Therefore, the CoR asks the European legislative authorities not to accept that Community legislation be
dictated by Community case law and to propose a maximum threshold below which the competent
authority is considered to exercise control similar to that which it exercises over its own departments, in
which case it would be exempt from the requirement for competitive tendering.

The purpose of the draft regulation is to create a regulated competitive market in the European Union.
This cannot happen without functioning operators, whether they are public or private. The aid rules in the
EC Treaty are intended to prevent state authorities from using public funds to distort competition in
favour of certain businesses. However, they are not intended to force public enterprises out of the market.
So that public-sector transport operators are able to prepare for the opening of the market, transitional
provisions are needed. Otherwise, such operators will be at a disadvantage vis-à-vis private businesses due
to ‘burdens’ associated with their public service obligation (such as standard wages and services at off-peak
times and for certain population groups). Therefore, for a pre-defined transition period, public enterprises
should be allowed to achieve competitiveness through private investment without this — during the transi-
tion period — automatically requiring a call for tenders. Otherwise public enterprises would be left with
the choice between forced privatisation or doing without more efficient structures.

Recommendation 3

Article 2 (m): Definitions

Text proposed by the Commission

CoR amendment

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

…
‘regional or long-distance transport’ means a
(m)
transport service which does not cater to the trans-
port needs of an urban centre or conurbation or
connect a conurbation with its suburbs which is not
specifically urban or suburban.

R e a son

It would be regrettable if legal uncertainty were to arise in this area because of diverging interpretations of
the derogation in Article 5(6). To improve the definition of regional or long-distance transport services, the
CoR proposes either making clear in the text that Member States will themselves have to specify which
services fall within the scope of Article 2(m), or choosing a definition which uses terms that have been
tested in law. In the latter case, the CoR proposes that the definition based on geographical needs (‘conur-
bation’, ‘urban centre’, ‘suburbs’) be replaced by one that is service-based and which, inter alia, would be

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consistent with the ‘railway packages’. Directives 2001/13/EC (Article 1(2)(b)) and 2001/14/EC
(Article 1(3)(b)) refer, in this connection, to ‘urban or suburban rail passenger services’. A similar service-
based classification has been used since 1991 in Regulation 1191/69 (Article 1(1), as amended by Regu-
lation No 1893/91).

Recommendation 4

With respect to projects where the public procurement directives are applicable, the Committee of the
Regions:

— calls for a clear priority rule to be set out — based on the principle that the more specific law takes
precedence (lex specialis) — in respect of the provision of the present proposal for a Regulation vis-à-
vis the rules laid down in the general Directives on public procurement;

— would like to see the inclusion in the present regulation of detailed provisions on concession
contracts which clarify the arrangements governing them in relation to public procurement directives
(93/37 and 2004/18);

— calls for more explicit treatment in Articles 5(1) and 8(1) of BOT (Built, Operate and Transfer)
contracts. The regulation must clarify the legal conditions which apply where an exclusive right (and/or
compensation) is associated with the construction of heavy infrastructure.

Recommendation 5

Article 4(6)

Text proposed by the Commission

CoR amendment

6.
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.

6.
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. The duration of
the contract may not be extended on the grounds of
tangible or intangible investment where a secondary
market exists or where the residual value of the
investment on expiry of the contract can easily be
estimated.

R e a son

The derogation in Article 4(6) concerning the depreciation of assets must not be such as to constrain
competition by extending the duration of contracts without economic justification.

Recommendation 6

Article 4 (add a new paragraph)

CoR amendment

4.8
Paragraphs 5 and 6 of this Article shall not apply in cases where the directives on the award of
public contracts are applicable. In these cases, the maximum duration of the public service contract shall
be set at thirty years from the effective date of the commencement of work.

R e a son

The CoR proposes that work and operating concessions be made the subject of a separate article, as the
duration of the operation is a key factor for the economic balance of the project. In such cases, provision
must be made for a derogation from the maximum duration of 22.5 years provided for in the proposed
regulation.

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Recommendation 7

Article 5(4)

Text proposed by the Commission

CoR amendment

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

less

4. The competent authorities may decide to award
public service contracts directly where their average
annual value per undertaking is estimated at less
than EUR 1 1½ million or where they concern the
annual provision of fewer than 300 000 500 000
kilometres of transport services.

R e a son

The CoR proposes that a competent authority be expressly prohibited from making a direct award of
several contracts to the same service provider where the total combined value of the contracts exceeds the
threshold set in Article 5(4). This article must not be used to circumvent the requirement to organise an
invitation to tender, but rather to avoid the transaction costs involved in an invitation to tender where the
service which is contracted out is of a ‘small scale’ or where the competent authority offsets the competi-
tive pressures associated with an invitation to tender by making a comparison between different ‘small
operators’ active within its territory. In addition, the CoR suggests that each Member State fix the threshold
value in line with national economic conditions.

Recommendation 8

Articles 8(2) and 8(3)

Text proposed by the Commission

CoR Amendment

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
(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:
(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.

2. Each competent authority shall ensure that:
(a) the at least half of its public service contracts for
transport by coach and bus, by value, are
awarded in accordance with Article 4 of this
Regulation within four years of its entry into
force; and

(b) all of its public service contracts for transport
by coach and bus are awarded in accordance
with Article 5 of this Regulation within eight
years of its entry into force.

3. Each competent authority shall ensure that:
(a) the at least half of its public service contracts for
transport by rail, by value, are awarded in
accordance with Article 4 of
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 Article 5
of this Regulation within ten years of its entry
into force.

R e a son

As they stand at present, these two paragraphs will cause major difficulties for competent authorities
wishing to entrust the operation of their transport network to a single operator. Within four or five years,
they would be required to establish a public service contract and organise competitive tendering.

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Recommendation 9

Article 8(5)

Text proposed by the Commission

CoR Amendment

5. 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 Regu-
lation on the basis of a fair competitive tendering
procedure, provided that they are of limited dura-
tion comparable to the durations
specified in
Article 4(5) of this Regulation. Such contracts may
continue until they expire.

5. 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 Regu-
lation on the basis of a fair competitive tendering
procedure, provided that they are of limited dura-
tion comparable to the durations
specified in
Article 4(5) of this Regulation. Such contracts may
continue until they expire.

R e a son

Contracts established before the entry into force of the regulation and expiring before the end of the transi-
tion period for application of the regulation should be continued until they expire so as to avoid legal
proceedings relating to compensation for losses.

Recommendation 10

Article 8(6) (delete)

Text proposed by the Commission

CoR Amendment

services

transport

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
for which they are
receiving compensation or enjoy an exclusive right
awarded in accordance with this Regulation repre-
sents at least half the value of all the public trans-
port services for which they are receiving compen-
sation or enjoy an exclusive right. For the applica-
tion of this criterion, no account shall be taken of
contracts awarded by emergency measure as speci-
fied in Article 5(5).
Where competent authorities make use of
this
possibility, they shall do so without discrimination,
exclude
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.

all potential operators

fulfilling

services

transport

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
for which they are
receiving compensation or enjoy an exclusive right
awarded in accordance with this Regulation repre-
sents at least half the value of all the public trans-
port services for which they are receiving compen-
sation or enjoy an exclusive right. For the applica-
tion of this criterion, no account shall be taken of
contracts awarded by emergency measure as speci-
fied in Article 5(5).
Where competent authorities make use of this possi-
they shall do so without discrimination,
bility,
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.

R e a son

The article is particularly ambiguous and could lead to discrimination and disputes.

Brussels, 16 February 2006

The President

of the Committee of the Regions

Michel DELEBARRE