Common Position (EC) No 2/2007 of 11 December 2006 adopted by the Council, acting in accordance with the procedure referred to in Article 251 of the Treaty establishing the European Community, with a view to the adoption of a Regulation of the European Parliament and of the Council on public passenger transport services by rail and by road and repealing Council Regulations (EEC) No 1191/69 and (EEC) No 1107/70
Date: 2006-12-11
Institutions: Council of the European Union
Subjects: award of contract, carriage of passengers, public service, rail transport, road transport, services contract, transport regulations

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III

(Preparatory Acts)

COUNCIL

COMMON POSITION (EC) No 2/2007

adopted by the Council on 11 December 2006

with a view to the adoption of Regulation (EC) No …/2007 of the European Parliament and of the
Council of … on public passenger transport services by rail and by road and repealing Council
Regulations (EEC) No 1191/69 and (EEC) No 1107/70

(2007/C 70 E/01)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EURO-
PEAN UNION,

(4)

Having regard to the Treaty establishing the European Com-
munity, and in particular Articles 71 and 89 thereof,

Having regard to the proposal from the Commission,

Having regard to the pinion of the European Economic and
Social Committee (1),

Having regard to the opinion of
Regions (2),

the Committee of

the

Acting in accordance with the procedure
Article 251 of the Treaty (3),

laid down in

(5)

Whereas:

(1)

(2)

(3)

Article 16 of the 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, in law or in fact, of the particular tasks
assigned to them.

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

(6)

(1) OJ C 195, 18.8.2006, p. 20.
(2) OJ C 192, 16.8.2006, p. 1.
(3) Opinion of

the European Parliament of 14 November 2001
(OJ C 140 E, 13.6.2002, p. 262), Council Common Position of
11 December 2006 and Position of the European Parliament of … (not
yet published in the Official Journal).

The main objectives of the Commission's White Paper of
12 September 2001 ‘European transport policy for 2010:
time to decide’ are to guarantee safe, efficient and high-
quality passenger transport services through regulated
competition, guaranteeing also transparency and perfor-
mance of public passenger transport services, having
regard to social, environmental and regional development
factors, or to offer specific tariff conditions to certain
categories of travellers, such as pensioners, and to elimi-
nate the disparities between transport undertakings from
different Member States which may give rise to substan-
tial distortions of competition.

At the present time, many inland passenger transport
services which are required in terms of general economic
interest cannot be operated on a commercial basis. The
competent authorities of the Member States must be able
to act to ensure that such services are provided. The
they can use to ensure that public
mechanisms that
passenger transport services are provided include the
following: the award of exclusive rights to public service
operators, the grant of financial compensation to public
service operators and the definition of general rules for
the operation of public transport which are applicable to
all operators. If Member States, in accordance with this
Regulation, choose to exclude certain general rules from
its scope, the general regime for State aid should apply.

States

introduced

Many Member
legislation
have
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
service operators are now providing public passenger
transport services in more than one Member State.

(7)

(8)

(9)

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However, developments in national legislation have led to
disparities in the procedures applied and have created
legal uncertainty as to the rights of public service opera-
tors and the duties of the competent authorities. Regu-
lation (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 (1), does not deal with
the way public service contracts are to be awarded in the
Community, and in particular the circumstances in which
they should be the subject of competitive tendering. The
Community legal
therefore to be
framework ought
updated.

the introduction of

Studies carried out and the experience of Member States
where competition in the public transport sector has
been in place for a number of years show that, with
regulated
appropriate safeguards,
competition between 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
public
approach has been
endorsed by the European Council under the so-called
Lisbon Process of 28 March 2000 which called 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’.

service operators. This

(11)

(12)

Regulation to that specific sector. The provisions of this
Regulation do not prevent
inland
waterway services into a wider urban, suburban or
regional public passenger transport network.

the integration of

transport services,

Contrary to Regulation (EEC) No 1191/69, the scope of
which extends to freight
is not
considered advisable for this Regulation to cover the
award of public service contracts in that specific sector.
Three years after the entry into force of this Regulation
the organisation of
transport services should
therefore be subject to compliance with the general prin-
ciples of the Treaty.

freight

it

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

Passenger transport markets which are deregulated and in
which there are no exclusive rights should be allowed to
maintain their characteristics and way of
functioning
insofar as these are compatible with Treaty requirements.

(13)

Some services, often linked to specific infrastructure, 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 trans-
port, they need not therefore be governed by the rules
and procedures applicable to public service requirements.

To be able to organise their public passenger transport
services in the manner best suited to the needs of the
public, all competent authorities must be able to choose
their public service operators freely, taking into account
the interests of small and medium sized enterprises,
under the conditions stipulated in this Regulation. To
guarantee application of the principles of transparency,
equal treatment of competing operators and proportion-
ality, when compensation or exclusive rights are granted,
it is essential that a public service contract between the
competent authority and the chosen public service
operator define the nature of the public service obliga-
tions and the agreed reward. The form or designation of
the contract may vary according to the legal systems of
the Member States.

(10)

Contrary to Regulation (EEC) No 1191/69, the scope of
which extends to public passenger transport services by
inland waterway, it is not considered advisable for this
Regulation to cover the award of public service contracts
sector. The organisation of public
in that
passenger transport services by inland waterway is there-
fore subject to compliance with the general principles of
the Treaty, unless Member States choose to apply this

specific

(1) OJ L 156, 28.6.1969, p. 1. Regulation as last amended by Regulation

(EEC) No 1893/91 (OJ L 169, 29.6.1991, p. 1).

(14) Where the competent authorities are responsible for
organising 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 either to carry out
themselves or entrust,
in whole or in part, to a third
party.

(15)

Contracts of long duration can lead to the closing of the
market for a longer period than is necessary, thus dimin-
ishing the benefits of competitive pressure. To minimise
distortions of competition while protecting the quality of
services, public service contracts should be of
limited
duration. It is, however, necessary to make provision for
extending public service contracts by a maximum of half
their initial duration where the public service operator
has to invest in assets for which the depreciation period
is exceptional and, because of their special characteristics
and constraints, in the case of the outermost regions as
specified in Article 299 of the Treaty. In addition, where
a public service operator makes investments in infrastruc-
ture or in rolling stock and vehicles which are exceptional
in the sense that both concern high amounts of funds,
and provided the contract is awarded after a fair competi-
tive tendering procedure, an even longer extension
should be possible.

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(16) Where the conclusion of a public service contract may
entail a change of public service operator, it should be
possible for the competent authorities to ask the chosen
public service operator
to apply the provisions of
Council 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 undertak-
ings or businesses (1). This Directive does not preclude
Member States from safeguarding transfer conditions of
employees' rights other than those covered by Direc-
tive 2001/23/EC and thereby, if appropriate, taking into
account social standards established by national
laws,
regulations or administrative provisions or collective
agreements or agreements concluded between social part-
ners.

(17)

(18)

In keeping with the principle of subsidiarity, competent
authorities are free to establish quality standards for
public service obligations,
for instance with regard to
minimal working conditions, passenger rights, the needs
of persons with reduced mobility or environmental
protection.

group of

competent

to provide

authority or

should be prohibited from taking part

law, any
Subject to the relevant provisions of national
in the absence thereof, any national
local authority or,
authority, may choose
its own public
passenger transport services in the area it administers or
to entrust them to an internal operator without competi-
tive tendering. However, this self-provision option needs
to be strictly controlled to ensure a level playing field.
authorities
The
providing integrated public passenger transport services,
collectively or through its members, should exercise the
In addition, a competent authority
required control.
services or an internal
providing its own transport
in
operator
competitive tendering procedures outside the territory of
that authority. The authority controlling the internal
operator should also be allowed to prohibit this operator
from taking part in competitive tenders organised within
its territory. Restrictions on the activities of an internal
operator do not interfere with the possibility of the direct
award of public service contracts where they concern
transport by rail with the exception of other track-based
the
modes such as metro or tramways. Furthermore,
direct award of public service contracts for heavy rail
does not preclude the possibility for competent authori-
ties to award public service contracts for public passenger
transport services on other track-based modes such as
metro and tramway to an internal operator.

(19)

Subcontracting can contribute to more efficient public
passenger transport and makes it possible for undertak-
ings to participate, other than the public service operator
which was granted the public service contract. However,

(1) OJ L 82, 22.3.2001, p. 16.

with a view to the best use of public funds, competent
authorities should be able to determine the modalities for
subcontracting their public passenger transport services,
in particular in the case of services performed by an
internal operator. Furthermore, a subcontractor should
not be prevented from taking part in competitive tenders
in the territory of any competent authority. The selection
of a subcontractor by the competent authority or its
internal operator needs to be carried out in accordance
with Community law.

(20) Where a public authority chooses to entrust a general
interest service to a third party, it must select the public
service operator in accordance with Community law on
public contracts and concessions, as established by Arti-
cles 43 to 49 of the Treaty, and the principles of trans-
parency and equal treatment. In particular, the provisions
of this Regulation are to be without prejudice to the obli-
gations applicable to public authorities by virtue of the
directives on the award of public contracts, where public
service contracts fall within their scope.

(21)

(22)

Some invitations to tender require the competent autho-
rities to define and describe complex systems. These
authorities
empowered, when
awarding contracts in such cases, to negotiate details with
some or all of the potential public service operators after
tenders have been submitted.

should therefore be

Invitations to tender for the award of public service
contracts should not be mandatory where the contract
relates to modest amounts or distances. In this respect,
greater amounts or distances should enable competent
authorities to take into account the special interests of
small and medium sized enterprises. Competent authori-
ties should not be permitted to split up contracts or
networks in order to avoid tendering.

(23) Where there is a risk of disruption of the provision of
services, the competent authorities should be empowered
to introduce emergency short-term measures pending the
award of a new public service contract which is in line
with all awarding conditions of this Regulation.

(24)

Public passenger transport by rail raises specific issues of
investment burden and infrastructure cost.
In March
2004, the Commission presented a proposal to amend
Council Directive 91/440/EEC of 29 July 1991 on the
development of the Community's railways (2) so as to
guarantee access for all Community railway undertakings
to the infrastructure of all Member States for the purpose
of operating international passenger services. The aim of
this Regulation is to establish a legal
framework for
compensation and/or exclusive rights for public service
contracts and not the further opening of the market for
railway services.

(2) OJ L 237, 24.8.1991, p. 25. Directive as last amended by Directive
2004/51/EC of the European Parliament and of the Council (OJ L 164,
30.4.2004, p. 164).

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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. 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 railway travel.

in the second half of

the transitional period,
refuse,
tenders from undertakings, more than half the value of
the public transport services performed by which are not
granted in accordance with this Regulation, provided that
this is applied without discrimination and decided in
advance of an invitation to tender.

The compensation granted by competent authorities to
cover the costs incurred in discharging public service
obligations should be calculated in a way that prevents
overcompensation. Where a competent authority plans to
award a public service contract without putting it out to
competitive tender, it should also respect detailed rules
ensuring that the amount of compensation is appropriate
and reflecting a desire for efficiency and quality of
service.

(27)

By appropriately considering any effect of complying
with the public service obligations on the demand of
public passenger transport services in the calculation
scheme of the Annex, the competent authority and the
public service operator can prove that overcompensation
has been avoided.

(28) With a view to the award of public service contracts,
with the exception of emergency measures and contracts
relating to modest distances, the competent authorities
should take the necessary measures to advertise, at least
one year in advance, the fact that they intend to award
such contracts, so as to enable potential public service
operators to react.

(32)

(33)

In paragraphs 87 to 95 of its judgment of 24 July 2003
in Case C-280/00 Altmark Trans GmbH (1), the Court of
Justice of the European Communities ruled that compen-
sation for public service does not constitute an advantage
within the meaning of Article 87 of the Treaty, provided
that four cumulative conditions are satisfied. 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 and is
subject to Articles 73, 86, 87 and 88 of the Treaty.

Compensation for public services may prove necessary in
the inland passenger transport sector so that undertak-
ings responsible for public services operate on the basis
of principles and under conditions which allow them to
carry out their tasks. Such compensation may be compa-
tible with the Treaty pursuant to Article 73 under certain
conditions. Firstly, it must be granted to ensure the provi-
sion of services which are 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.

(29) Directly awarded public service contracts

should be

subject to enhanced transparency.

(34)

Compensation granted by the competent authorities in
accordance with the provisions of this Regulation may
exempted from the prior notification
therefore be
requirement of Article 88(3) of the Treaty.

(30) Given that competent authorities and public service
operators will need time to adapt to the provisions of
this Regulation, provision should be made for transitional
arrangements. With a view to the gradual award of
public service contracts in line with this Regulation,
Member States should provide the Commission with a
progress report within six months after the first half of
the transitional period. The Commission may propose
appropriate measures on the basis of these reports.

(35)

(31) During the transitional period, the introduction of the
provisions of this Regulation by the competent authori-
ties may take place at different times. It may therefore be
possible, during this period, that public service operators
from markets not yet affected by the provisions of this
Regulation tender for public service 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 trans-
port market, competent authorities should be able to

This Regulation replaces Regulation (EEC) No 1191/69;
that Regulation should therefore be repealed. For public
freight transport services, a transitional period of three
years will assist the phasing out of compensation not
authorised by the Commission in accordance with Arti-
cles 73, 86, 87 and 88 of the Treaty. Any compensation
granted in relation to the provision of public passenger
transport services other than those covered by this Regu-
lation which risks
involving State aids within the
meaning of Article 87(1) of the Treaty should comply
with the provisions of Articles 73, 86, 87 and 88
thereof,
interpretation by the
Court of Justice of the European Communities and espe-
cially its ruling in Case C-280/00 Altmark Trans GmbH.
the Commission should
When examining such cases,
therefore apply principles similar to those laid down in
this Regulation or, where appropriate, other legislation in
the field of services of general economic interest.

including any relevant

(1) [2003] ECR I-7747.

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(36)

in transport

The scope of Council Regulation (EEC) No 1107/70 of
4 June 1970 on the granting of aids for transport by rail,
road and inland waterway (1) is covered by this Regu-
lation. That Regulation is considered obsolete while
limiting the application of Article 73 of
the Treaty
without granting an appropriate legal basis for author-
ising current investment schemes, in particular in relation
to investment
infrastructure in a public
private partnership.
It should therefore be repealed in
order for Article 73 of the Treaty to be properly applied
to continuing developments in the sector without preju-
dice to this Regulation or Council Regulation (EEC)
No 1192/69 of 26 June 1969 on common rules for the
normalisation of the accounts of railway undertakings (2).
With a view to further facilitating the application of the
relevant Community rules, the Commission will propose
State aid guidelines for railway investment,
including
investment in infrastructure in 2006.

(37) With a view to assessing the implementation of

this
Regulation and the developments in the provision of
public passenger transport in the Community, in particu-
lar the quality of public passenger transport services and
the effects of granting public service contracts by direct
award, the Commission should produce a report. This
report can, if necessary, be accompanied by appropriate
proposals for modifying this Regulation,

HAVE ADOPTED THIS REGULATION:

Article 1

Purpose and scope

The purpose of this Regulation is to define how, in accord-
1.
ance with the rules of Community law, 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 market forces alone would have
allowed.

To this end, this Regulation lays down the conditions under
which competent authorities, when imposing or contracting for
public service obligations, compensate public service operators
for costs incurred and/or grant exclusive rights in return for the
discharge of public service obligations.

value. Member States may apply this Regulation to public
passenger transport by inland waterways.

3.
This Regulation shall not apply to public works conces-
sions within the meaning of Article 1(3)(a) of Directive
2004/17 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 (3) or of Article 1(3) of Directive 2004/18 of the
European Parliament and of the Council of 31 March 2004 on
the coordination of procedures for the award of public works
contracts,
service
contracts (4).

contracts

supply

public

public

and

Article 2

Definitions

For the purpose of this Regulation:

(a) ‘public passenger

transport
services of general economic interest provided to the public
on a non-discriminatory and continuous basis;

transport’ means passenger

(b) ‘competent authority’ means any public authority or group
of public authorities of a Member State or Member States
which has the power to intervene in public passenger trans-
port in a given geographical area or any body vested with
such authority;

(c) ‘competent local authority’ means any competent authority
whose geographical area of competence is not national;

(d) ‘public service operator’ means any public or private under-
taking or group of such undertakings which operates public
transport services or any public body which
passenger
provides public passenger transport services;

(e) ‘public service obligation’ means a requirement defined or
determined by a competent authority in order to assure
interest
public passenger transport services in the general
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 reward;

(f) ‘exclusive right’ means a right entitling a public service
operator
transport
to operate certain public passenger
services on a particular route or network or in a particular
area, to the exclusion of any other such operator;

2.
This Regulation shall apply to the national and interna-
tional operation of public passenger transport 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

(g) ‘public service compensation’ means any benefit, particularly
financial, granted directly or
indirectly by a competent
authority from public funds during the period of implemen-
tation of a public service obligation or in connection with
that period;

(1) OJ L 130, 15.6.1970, p. 1. Regulation last amended by Regulation (EC)

No 543/97 (OJ L 84, 26.3.1997, p. 6).

(3) OJ L 134, 30.4.2004, p. 1. Directive as last amended by Commission

Regulation (EC) No 2083/2005 (OJ L 333, 20.12.2005, p. 28).

(2) OJ L 156, 28.6.1969, p. 8. Regulation as last amended by the 2003 Act

(4) OJ L 134, 30.4.2004, p. 114. Directive as last amended by Commission

of Accession.

Regulation (EC) No 2083/2005.

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(h) ‘direct award’ means the award of a public service contract
to a given public service operator without any prior compe-
titive tendering procedure;

competent authorities to integrate public service obligations
establishing maximum tariffs in public service contracts.

confirming the agreement between a

(i) ‘public service contract’ means one or more legally binding
acts
competent
authority and a public service operator to entrust to that
public service operator the management and operation of
public passenger transport 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:

3. Without prejudice to the provisions of Articles 73, 86, 87
and 88 of the Treaty, Member States may exclude from the
scope of this Regulation general rules on financial compensation
for public service obligations which establish maximum tariffs
for pupils, students, apprentices and persons with reduced
mobility. These general rules shall be notified in accordance
with Article 88 of
the Treaty. Any such notification shall
contain complete information on the measure and, in particular,
details on the calculation method.

— taking the form of an individual legislative or regulatory

act, or

— containing conditions under which the

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

(j) ‘value’ means the value of a service, a route, a public service
contract, or a compensation scheme for public passenger
transport corresponding to the total remuneration, before
VAT, of the public service operator or operators, including
compensation of whatever kind paid by the public authori-
ties and revenue from the sale of tickets which is not repaid
to the competent authority in question;

(k) ‘general rule’ means a measure which applies without discri-
mination to all public passenger transport services of the
same type in a given geographical area for which a compe-
tent authority is responsible;

(l) ‘integrated public passenger transport services’ means inter-
connected transport services within a determined geogra-
ticketing
phical area with a single information service,
scheme and timetable.

Article 3

Public service contracts and general rules

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

to grant

2.
By way of derogation from paragraph 1, public service
obligations which aim at establishing maximum tariffs for all
passengers or for certain categories of passenger may also 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 public service operators for the
net financial effect, positive or negative, on costs incurred and
revenues generated in complying with the tariff obligations
established through general rules in a way that prevents over-
compensation. This shall be so notwithstanding the right of

Article 4

Mandatory content of public service contracts and general
rules

1.

Public service contracts and general rules shall:

(i) clearly define the public service obligations with which the
public service operator is to comply, and the geographical
areas concerned;

(ii) establish in advance,

in an objective and transparent
manner, the parameters on the basis of which the compen-
sation payment is to be calculated in a way that prevents
overcompensation. In the case of public service contracts
awarded in accordance with Article 5(2), (4), (5) and (6),
these parameters shall be determined in such a way that no
compensation payment may exceed the amount required to
cover the net financial effect on costs incurred and revenues
generated in discharging the public service obligations,
taking account of revenue relating thereto kept by the
public service operator and a reasonable profit;

(iii) determine the arrangements for the allocation of costs
connected with the provision of services. These costs may
include in particular the costs of staff, energy, infrastructure
charges, maintenance and repair of public transport vehi-
cles, rolling stock and installations necessary for operating
the passenger transport services, fixed costs and a suitable
return on capital.

2.
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 public service operator, repaid
to the competent authority or shared between the two.

The duration of public service contracts shall be limited
3.
and shall not exceed ten years for coach and bus services and
fifteen years for passenger transport services by rail or other
track-based modes. The duration of public service contracts
relating to several modes of transport shall be limited to fifteen
years if transport by rail or other track-based modes represents
more than 50 % of the value of the services in question.

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If necessary, having regard to the conditions of deprecia-
4.
tion of assets, the duration of the public service contract may be
extended by a maximum of 50 % if the public service operator
provides assets which are both significant in relation to the
overall assets needed to carry out
transport
services covered by the public service contract and linked predo-
minantly to the passenger transport services covered by the
contract.

the passenger

If justified by costs deriving from the particular geographical
situation, the duration of public service contracts specified in
paragraph 3 in the outermost regions may be extended by a
maximum of 50 %.

If justified by the amortisation of capital in relation to excep-
tional infrastructure, rolling stock or vehicular investment and if
the public service contract is awarded in a fair competitive
tendering procedure, a public service contract may have a
longer duration. To ensure transparency in this case, the compe-
tent authority shall transmit to the Commission within one year
after the conclusion of the contract the public service contract
and elements justifying its longer duration.

5. Without prejudice to national and Community law,
including collective agreements between social partners, compe-
tent authorities may require the selected public service operator
to grant staff previously taken on 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. Where
competent authorities
to
require public
comply with certain social standards, tender documents and
public service contracts shall list the staff concerned and give
transparent details of their contractual rights and the conditions
under which employees are deemed to be linked to the services.

service operators

6. Where competent authorities, in accordance with national
law, require public service operators to comply with certain
quality standards, these standards shall be included in the tender
documents and in the public service contracts.

7.
Tender documents and public service contracts shall be
transparent as to whether or not subcontracting may be consid-
in accordance with
ered. The public service contract shall,
national and Community law, determine the conditions applied
to subcontracting.

Article 5

Award of public service contracts

are to be awarded in accordance with Directives 2004/17/EC or
2004/18/EC, the provisions of paragraphs 2 to 6 of this Article
shall not apply.

Unless prohibited by national

2.
law, any competent local
authority, whether or not it is an individual authority or a
group of authorities providing integrated public passenger trans-
port services, may decide to provide public passenger transport
services itself or to award public service contracts directly to a
legally distinct entity over which the competent local authority,
or in the case of a group of authorities at least one competent
local authority, exercises control similar to that exercised over
its own departments (hereinafter referred to as an internal
operator). Where a competent local authority takes such a deci-
sion, the following shall apply:

(a) for the purposes of determining whether the competent
local authority exercises control, factors such as the degree
of representation on administrative, management or supervi-
sory bodies, specifications relating thereto in the articles of
association, ownership, effective influence and control over
strategic decisions and individual management decisions
shall be taken into consideration. In accordance with Com-
munity law, 100 % ownership by the competent public
authority, in particular in the case of public-private partner-
ships,
for establishing
control within the meaning of this paragraph, provided that
there is a dominant public influence and that control can be
established on the basis of other criteria;

is not a mandatory requirement

(b) the condition for applying this paragraph is that the internal
operator and any entity over which this operator exerts even
a minimal influence perform their public passenger trans-
port activity within the territory of
the competent local
authority, notwithstanding any outgoing lines or other ancil-
lary elements of that activity which enter the territory of
neighbouring competent local authorities, and do not take
part
in competitive tenders concerning the provision of
public passenger transport services organised outside the
territory of the competent local authority;

(c) notwithstanding point (b), an internal operator may partici-
pate in fair competitive tenders as from two years before the
end of its directly awarded public service contract under the
condition that a final decision has been taken to submit the
public passenger transport services covered by the internal
operator contract to fair competitive tender and that the
internal operator has not concluded any other directly
awarded public service contract;

1.
Public service contracts shall be awarded in accordance
with the rules laid down in this Regulation. However, service
contracts or public service contracts as defined in Direc-
tive 2004/17/EC or Directive 2004/18/EC for public passenger
transport services by bus or tram shall be awarded in accord-
ance with the procedures provided for under those Directives
where such contracts do not take the form of service conces-
sions contracts as defined in those Directives. Where contracts

(d) in the absence of a competent local authority, points (a), (b)
and (c) shall apply to a national authority for the benefit of
a geographical area which is not national, provided that the
internal operator does not take part in competitive tenders
concerning the provision of public passenger
transport
services organised outside the area for which the public
service contract has been granted.

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Any competent authority which has recourse to a third
3.
party other than an internal operator, shall award public service
contracts on the basis of a competitive tendering procedure,
except in the cases specified in paragraphs 4, 5 and 6. The
procedure adopted for competitive tendering shall be open to all
operators, shall be fair and shall observe the principles of trans-
parency and non-discrimination. Following the submission of
tenders and any preselection, the procedure may involve nego-
tiations in accordance with these principles in order to deter-
mine how best to meet specific or complex requirements.

4.
Unless prohibited by national law, the competent authori-
ties may decide to award public service contracts directly either
less than
where their average annual value is estimated at
EUR 1 million or where they concern the annual provision of
less than 300 000 kilometres of public passenger transport
services.

In the case of a public service contract directly awarded to a
small and medium sized enterprise operating not more than 20
vehicles, these thresholds may be increased to either an average
annual value estimated at less than EUR 1,7 million or when
they concern the annual provision of less than 500 000 kilo-
metres of public passenger transport services.

At the written request of the Commission, Member States
2.
shall communicate, within a period of three months or any
longer period as may be fixed in that request, all the informa-
tion that
the Commission considers necessary to determine
whether
the compensation granted is compatible with this
Regulation.

Article 7

Publication

1.
Each competent authority shall make public once a year
an aggregated report on the public service obligations for which
it is responsible, the selected public service operators and the
compensation payments and exclusive rights granted to the said
public service operators by way of reimbursement. This report
shall allow the performance, quality and financing of the public
transport network to be monitored and assessed.

authority

Each competent

the necessary
2.
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:

shall

take

5.
In the event of a 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 or a formal agreement to extend a public
service contract or a requirement
to provide certain public
service obligations. The public service operator shall have the
right to appeal against the decision to impose the provision of
certain public service obligations. The award or extension of a
public service contract by emergency measure or the imposition
of such a contract shall not exceed two years.

(a) the name and address of the competent authority;

(b) the type of award envisaged;

(c) the services and areas potentially covered by the award.

Competent authorities may decide not to publish this informa-
tion where a public service contract concerns an annual provi-
sion of less than 50 000 kilometres of public passenger trans-
port services.

Unless prohibited by national law, competent authorities
6.
may decide to make direct awards of public service contracts
where they concern transport by rail, with the exception of
other track-based modes such as metro or tramways. In deroga-
tion from Article 4(3), such contracts shall not exceed 10 years,
except where Article 4(4) applies.

Should this information change after its publication, the compe-
tent authority shall publish a rectification accordingly as soon as
possible. This rectification shall be without prejudice to the
launching date of the direct award or of the invitation to tender.

This paragraph shall not apply to Article 5(5).

Article 6

3.
In the case of a direct award of public service contracts for
transport by rail as provided for in Article 5(6), the competent
authority shall make public the following information within
one year after the granting of the award:

(a) name of the contracting entity and its ownership;

Public service compensation

(b) duration of the public service contract;

All compensation connected with a general rule or a
1.
public service contract shall comply with the provisions laid
down in Article 4,
irrespective of how the contract was
awarded. All compensation, of whatever nature, connected with
a public service contract awarded directly in accordance with
Article 5(2), (4), (5) or (6) or connected with a general rule shall
also conform to the provisions laid down in the Annex.

(c) description of
performed;

the passenger

transport

services

to be

(d) description of the parameters of the financial compensation;

(e) quality targets;

(f) conditions relating to essential assets.

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4. When so requested by an interested party, a competent
authority shall forward to it the reasons for its decision for the
direct award of a public service contract.

Public service contracts may continue until they expire where
their termination would entail undue legal or economic conse-
quences and provided that
the Commission has given its
approval.

Article 8

Transition

1.
Public service contracts shall be awarded in accordance
with the rules laid down in this Regulation. However, service
contracts or public service contracts as defined in Direc-
tive 2004/17/EC or 2004/18/EC for public passenger transport
services by bus or tram shall be awarded in accordance with the
procedures provided for under those Directives where such
contracts do not take the form of service concessions contracts
as defined in those Directives. Where contracts are to be
awarded in accordance with Directives 2004/17/EC or
2004/18/EC, the provisions of paragraphs 2 to 4 of this Article
shall not apply.

2. Without prejudice to paragraph 3, the award of public
service contracts by rail and by road shall comply with Article 5
as from … (*). During this transitional period Member States
shall take measures to gradually comply with Article 5 in order
to avoid serious structural problems in particular relating to
transport capacity.

Within six months after the first half of the transitional period,
Member States shall provide the Commission with a progress
report, highlighting the implementation of any gradual award of
public service contracts in line with Article 5. On the basis of
the Member States' progress reports,
the Commission may
propose appropriate measures addressed to Member States.

3.
For the application of paragraph 2, no account shall be
taken of public service contracts awarded in accordance with
Community and national law:

(a) before 26 July 2000 on the basis of a fair competitive

tendering procedure;

(b) before 26 July 2000 on the basis of a procedure other than

a fair competitive tendering procedure;

(c) as from 26 July 2000 and before … (**) on the basis of a

fair competitive tendering procedure;

(d) as from 26 July 2000 and before … (**) on the basis of a
procedure other than a fair competitive tendering proce-
dure.

The contracts referred to in (a) may continue until they expire.
The contracts referred to in (b) and (c) may continue until they
expire, but for no longer than 30 years. The contracts referred
to in (d) may continue until they expire, provided they are of
limited duration comparable to the durations
specified in
Article 4.

(*) 12 years after the date of entry into force of this Regulation.
(**) The date of entry into force of this Regulation.

4. Without prejudice to paragraph 3, the competent authori-
ties may opt, in the second half of the transitional period speci-
fied in paragraph 2, to exclude from participation in the award
of contracts by invitation to tender those public service opera-
tors which cannot provide evidence that the value of the public
transport services for which they are receiving compensation or
enjoy an exclusive right granted in accordance with this Regu-
lation represents at least half the value of all the public transport
services for which they are receiving compensation or enjoy an
exclusive right. Such exclusion shall not apply to public service
operators running the services which are to be tendered. For the
application of this criterion, no account shall be taken of public
service contracts awarded by emergency measure as referred to
in Article 5(5).

Where competent authorities make use of the option referred to
in the first subparagraph, they shall do so without discrimina-
tion, exclude all potential public service operators meeting this
criterion and inform the potential operators of their decision at
the beginning of the procedure for the award of public service
contracts.

The competent authorities concerned shall inform the Commis-
sion 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

1.
Public service compensation for the operation of public
passenger transport services or for complying with tariff obliga-
tions established through general rules 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.

2. Without prejudice to Articles 73, 86, 87 and 88 of the
Treaty, Member States may continue to grant aids for the trans-
port sector pursuant to Article 73 of the Treaty which meet the
needs of coordination of transport or which represent reimbur-
sement for the discharge of certain obligations inherent in the
concept of a public service, other than those covered by this
Regulation, and in particular:

(a) until the entry into force of common rules on the allocation
of infrastructure costs, where aid is granted to undertakings
which have to bear expenditure relating to the infrastructure
used by them, while other undertakings are not subject to a
like burden. In determining the amount of aid thus granted,
account shall be taken of the infrastructure costs which
competing modes of transport do not have to bear;

(b) where the purpose of the aid is to promote either research
into, or development of, transport systems and technologies
which are more economic for the Community in general.

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Such aid shall be restricted to the research and development
stage and may not cover the commercial exploitation of such
transport systems and technologies.

Article 11

Reports

Article 10

Repeal

1.
Regulation (EEC) No 1191/69 shall be repealed. Its provi-
sions shall however continue to apply in relation to freight
transport services for a period of three years after the entry into
force of this Regulation.

After the end of the transitional period specified in Article 8(2),
the Commission shall present a report on the implementation
of this Regulation and on the developments in the provision of
public passenger transport in the Community, assessing in par-
ticular the development of the quality of public passenger trans-
port services and the effects of direct awards, accompanied, if
necessary, by appropriate proposals for modifying this Regu-
lation.

Article 12

Entry into force

2.

Regulation (EEC) No 1107/70 shall be repealed.

This Regulation shall enter into force on … (*).

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

Done at Brussels,

For the European Parliament

The President

…

For the Council

The President

…

(*) Three years following publication of the Regulation in the Official

Journal.

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RULES APPLICABLE TO COMPENSATION IN THE CASES REFERRED TO IN ARTICLE 6(1)

ANNEX

1. The compensation connected with public service 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.

2. 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 public
service operator. The effects shall be assessed by comparing the situation where the public service obligation is met
with the situation which would have existed if the obligation had not been met. In order to calculate the net financial
effect, the competent authority shall be guided by the following scheme:

Costs incurred in relation to a public service obligation or a bundle of public service obligations imposed by the
competent authority/authorities, contained in a public service contract and/or in a general rule,

— minus any positive financial effects generated within the network operated under the public service obligation(s) in

question,

— minus receipts from tariff or any other revenue generated while fulfilling the public service obligation(s) in ques-

tion,

— plus a reasonable profit,

= net financial effect.

3. Compliance with the public service obligation may have an impact on possible transport activities of an operator
beyond the public service obligation(s) in question. In order to avoid overcompensation or lack of compensation, quan-
tifiable financial effects on the operator's networks concerned shall therefore be taken into account when calculating
the net financial effect.

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

5. In order to increase transparency and avoid cross-subsidies, where a public service operator not only operates compen-
sated 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 corre-
sponding assets and the fixed costs must be allocated in accordance with the accounting and tax rules in force,

— all variable costs, an appropriate contribution to the fixed costs and a reasonable profit connected with any other
activity of the public service operator 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 public service operator's activity.

6.

‘Reasonable profit’ must be taken to mean a rate of return on capital that is normal for the sector in a given Member
State and that takes account of the risk, or absence of risk, incurred by the public service 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 public service operator, which can be the subject of an objective assessment, and

— the provision of passenger transport services of a sufficiently high standard.

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STATEMENT OF THE COUNCIL'S REASONS

I. INTRODUCTION

— The Commission submitted the revised proposal for a Regulation of the European Parliament and of
the Council on public passenger transport services by rail and by road, known as the Public Service
Obligations proposal, on 20 July 2005 (1). Before this revised proposal, the Commission put forward
two other proposals: on 27 July 2000, the original proposal (2) and, on 21 February 2002, an
amended proposal (3).

— On 14 November 2001, the European Parliament voted its opinion in first reading on the basis of
the original Commission proposal of July 2000 (4). The European Parliament decided to treat the
proposal of July 2005 as a revised version of the initial proposal of July 2000 and, consequently,
will examine this proposal only at second reading.

— The Council, at its meeting on 9 June 2006, reached a political agreement on the revised proposal,
with the Czech, Greek, Luxembourg and Maltese delegations abstaining from the vote. On
11 December 2006, the Council adopted its Common Position.

— In carrying out its work, the Council took account of the opinions of the European Economic and

Social Committee (5) and of the Committee of the Regions (6).

II. EUROPEAN PARLIAMENT AMENDMENTS

As the first reading in the Parliament was based on the Commission's initial proposal of 2000 and the
Common Position of the Council on the significantly modified proposal of 2005, the Council cannot
make references to individual parliamentary amendments in this statement of its reasons. As an alterna-
tive, the Council will address Parliament's first reading in general terms and in relation to the key
elements of the Common Position.

III. ANALYSIS OF THE COMMON POSITION

1. General

The legislative framework for Public Service Obligations currently in force dates from 1969 and was
last amended in 1991 (7). The Council considers that in today's European market for public passenger
transport services, where operators are no longer exclusively national, regional or local, a new set of
rules is needed. These rules must reduce distortion of competition by establishing non-discriminatory
conditions of competition amongst operators, by enhancing transparency and by guaranteeing legal
certainty for both operators and authorities involved in public passenger transport. The ensuing level
playing field will promote safe, efficient and high-quality public passenger transport services.

The Commission proposals of 2000 and 2002 did not achieve the necessary majority in the Council,
the main reason being the vast differences among Member States on the introduction of further
competition in public passenger transport. Moreover, Member States wanted to await the judgment
pending in the ALTMARK case (8), on how provisions on State aid apply to public services in general,
and to public transport in particular. A more pragmatic approach by both the Commission and the
Member States was needed to pave the way for Council's Common Position. The Commission put
more emphasis on subsidiarity, which led to a proposal that was simpler and more flexible than its
previous proposals, and the Member States, after several years of experience with different models of
organising public transport, were better able to acknowledge their respective benefits and drawbacks.
Finally, the ALTMARK judgment clearly underlined the need to modernise Community legislation on
public passenger transport.

(1) OJ C 49, 28.2.2006, p. 37.
(2) OJ C 365E, 19.12.2000, p. 169.
(3) OJ C 151E, 25.6.2002, p. 146.
(4) OJ C 140E, 13.6.2002, p. 164.
(5) OJ C 195, 18.8.2006, p. 20.
(6) OJ C 192, 16.8.2006, p. 1.
(7) 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).

(8) Judgment of 24 July 2003 in case C-280/00 Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsge-

sellschaft Altmark GmbH ([2003] ECR I-7747).

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In its Common Position, the Council strikes a balance amongst several interests: the ability for autho-
rities to determine the way they organise public transport themselves, the wish to introduce more
competition in the public transport sector by awarding public service contracts through tendering
procedures — also called ‘regulated competition’ — and the need to achieve a new legislative frame-
work that takes account of the specificities of existing public transport systems while providing suffi-
cient time for these systems to adapt to the new rules. The Council has also introduced modifications
to the Commission proposal with a view to facilitating its implementation in practice.

2. Key policy issues

2.1. Scope

The Council specifies the scope of the Regulation as covering those public passenger transport
services by rail and by road for which competent authorities, when imposing or contracting for
public service obligations, compensate operators for the costs incurred and/or grant exclusive
rights in return for the discharge of public service obligations. In the light of the evolving Euro-
pean market for public transport, the Council holds that restricting the scope to local transport,
as proposed by the Parliament, would no longer be appropriate.

Furthermore, unlike the 2000 and the 2002 proposals, which included public passenger trans-
port by inland waterways in its own right, the Commission's 2005 proposal was restricted to
rail and road. The Regulation would only apply to inland waterway services that are part of a
wider public transport system. Now, the Council has returned to the spirit of the preceding
proposals by including in its Common Position a provision allowing Member States, if they so
wish, to apply the Regulation to public passenger transport services by inland waterway.

In the Common Position, the Council clarifies the sort of contracts to which the Regulation
applies. Firstly, it points out that contracts for public passenger transport services by bus or by
tram must be awarded in accordance with the procedures of the Public Procurement Directives
unless such contracts take the form of service concession contracts. In so doing, the Council
clarifies the approach proposed by the Commission, which leaves authorities the choice of the
applicable regime. If a public service contract entails a risk for the operator, the Regulation
applies, and if not, the Public Procurement Directives (1) apply. Because of this freedom of
administrative choice, the Council prefers the Commission's approach to the proposal of the
Parliament, which was that the Regulation should apply to all contracts for public passenger
transport. Secondly, the Common Position explicitly excludes public works concessions from
the scope of the Regulation, stating that the Public Procurement Directives provide the applic-
able regimes for this kind of contract.

Finally, with a view to enhancing flexibility for authorities, in its Common Position, the Council
allows them to exclude from the scope of the Regulation general rules on financial compensa-
tion for public service obligations which set maximum tariffs for pupils, apprentices and
persons with reduced mobility.

2.2. Direct award

The Council considers that a system offering competent authorities the freedom to choose
between competitive tender and direct award is the best guarantee of improved public transport
quality and efficiency. In that light, in its Common Position, the Council maintains the four
derogations whereby authorities may award contracts directly, as proposed by the Commission,
but introduces several modifications as regards the exact modalities.

(1) Directive 2004/18 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) or Directive 2004/17 coordinating the procurement procedures of
entities operating in the water, energy, transport and postal services (OJ L 134, 30.4.2004, p. 1).

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2.2.1. Inter nal operators

The Council welcomes the Commission proposal to allow competent authorities, which
choose not to put their public transport services out to tender, to provide these services
themselves or to award them directly to a third party over which they exercise control
similar to that exercised over their own departments — the so-called ‘internal operator’.
The Council agrees with Parliament's first reading and the Commission's revised proposal
that, in order to avoid the risk of distortion of competition, an internal operator should
in principle not participate in tendering procedures outside the area of the authority
from which it received its direct award.

While supporting the overall concept of an internal operator in its Common Position,
the Council adds several provisions to the Commission proposal in order to take the
specificities of national and local transport systems into account:

— Acknowledging national responsibilities for the organisation of public transport,
Member States retain the power to prohibit local authorities, by law, from making
use of the possibility of awarding public service contracts directly on their territory,

— In addition to the definition of ‘competent authority’, it underlines that a ‘competent
local authority’ covers both an individual authority and a group of authorities offering
interconnected transport services,

— The basis for determining ‘control’ by the authority over the internal operator, as
proposed by the Commission, has been retained, while specifying that full public
ownership is not a mandatory requirement for such control,

— Clarification of the issue of territorial restriction on an internal operator to avoid
having to restrict public transport services which cross the borders of administrative
territories, contrary to the interests of passengers,

— Internal operators whose directly awarded public service contracts are about to expire
are allowed to participate — if certain conditions are fulfilled — in competitive
tenders so that they can prepare for operating in a competitive environment,

— If no local competent authorities exist, national authorities can conclude public

service contracts with an internal operator.

2.2.2. Minor contracts

Council leaves unchanged the thresholds below which public service contracts may be
directly awarded as proposed by the Commission in the light of Parliament's first reading.
Authorities may refrain from a competitive tendering procedure if the average annual
value of the contract remains below EUR 1 million or if the contract concerns the provi-
sion of less than 300 000 kilometres of public passenger transport services per year.
Furthermore, in the spirit of the Parliament's interest in small businesses, the Council
introduces additional thresholds for small and medium sized enterprises operating not
more than 20 vehicles. In this case, direct awards are allowed if the average annual value
of
less than
500 000 kilometres of public passenger transport are provided. Finally, in acknowledge-
ment of national responsibilities for the organisation of public transport, the Common
Position gives Member States the ability to choose to prohibit authorities on their terri-
tory from making use of the possibility of granting direct awards in the case of minor
contracts.

the public service contracts remains below EUR 1,7 million or

if

2.2.3. Emergency situations

The Council supports the Commission proposal — which was inspired by Parliament's
first reading — to award contracts directly in the event of a disruption of services or an
immediate risk of such a situation. However, considering the time needed to organise the
award of new public service contracts, the Council has chosen to allow emergency
measures for a period of two years instead one year as proposed by the Commission.
Furthermore, in order to reflect practice, in the Common Position, it is specified that

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emergency measures can take the form of a direct award, a formal agreement to extend a
public service contract or a requirement to discharge certain public service obligations. In
the latter case, the public service operator has the right of appeal.

2.2.4. Heavy rail

In view of the special position of public passenger transport services by rail, the Council
allows authorities to award public service contracts directly in the case of all heavy rail,
unless prohibited by national law. Moreover, by extending the possibility of direct award
from regional and long-distance rail, as proposed by the Commission, to all heavy rail,
including (sub)urban rail and integrated networks, the Council avoids the difficulties
which could arise if a distinction needs to be made between long-distance and regional,
on the one hand, and (sub)urban rail, on the other hand. As regards this extension of
direct award to all heavy rail, the Swedish delegation, joined by the Italian delegation,
made a statement for the minutes (Annex I) when the TTE Council reached its political
agreement on 9 June 2006.

2.3. Duration of contracts

As regards the duration of public service contracts for coaches and buses and for rail and other
track-based services, the Council balances, on the one hand, the need for an amortisation period
that is financially sound, and, on the other hand, contract durations providing incentives for
new operators. For rail and other track-based modes the Council has kept the proposed duration
of 15 years. For coach and bus services, the Council has extended the contract duration
proposed by the Commission from eight to 10 years. In so doing, the Council follows the
Commission proposal as amended in the light of the first reading in the Parliament, with the
exception of an additional contract duration of two years for bus transport. As a way of counter-
balancing the extension of direct award to all heavy rail, the initial duration of directly awarded
heavy rail contracts is not allowed to exceed 10 years.

Furthermore, the Council has kept, with some changes, the Commission proposal to allow the
duration of public service contracts to be extended by a maximum of 50 % where necessary for
investment. In addition, the Council allows a 50 % extension for contracts in the outermost
regions if justified by the costs deriving from a particular geographical situation.

Finally,
in exceptional cases, the Common Position allows the duration of a contract to be
extended by even more than 50 %. Such extension must be justified by the amortisation of
capital in relation to exceptional infrastructure, rolling stock or vehicular investment. Moreover,
the public service contract must be awarded in a fair competitive tendering procedure and the
authority allowing the longer duration must forward the contract and the elements justifying its
longer duration to the Commission within one year of conclusion of the contract.

2.4. Social standards and quality of service

Unlike the 2000 and the 2002 proposals, the Commission's revised proposal of 2005 leaves the
definition of social and quality criteria for public passenger transport services to authorities, in
keeping with the principle of subsidiarity. The Council supports this approach.

Council specifies and extends the provision in the Commission's proposal on the transfer of
social rights. The provision in the Commission proposal allowed authorities to decide whether
the selected public service operators would be obliged to grant staff taken on previously to
provide services the same rights they would have been entitled to if there had been a transfer
within the meaning of Directive 2001/23/EC. Considering this a matter of subsidiarity, the
Council, like the Commission, does not see the need to make this provision on employees'
rights compulsory, as suggested by Parliament in its first reading. However, the Council does

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in setting such requirements, must act
add to this provision the obligation that authorities,
within the constraints set by national and/or Community law. Furthermore, with a view to
increasing transparency, the Council incorporates in its Common Position the obligation that, if
authorities require public service operators to comply with certain social standards, tender docu-
ments and public service contracts must list the staff concerned and give transparent details of
their contractual rights as well as the conditions under which employees are deemed to be
linked to the services.

With a view to simplifying the Regulation and in keeping with the principle of subsidiarity, in
its revised proposal, the Commission chose not to set a list of quality criteria to be used by
authorities when awarding public service contracts. In its Common Position, the Council follows
the Commission's reasoning that authorities should continue to be responsible for setting
quality standards. However, with a view to increasing transparency, the Council introduces the
obligation that, if quality standards are set, authorities must include these standards in their
tender documents and in their public service contracts.

2.5. Transparency

With a view to enhancing transparency, the Council welcomes the proposal of the Commission
requiring competent authorities to conclude a public service contract where exclusive rights
and/or compensation are granted in return for the discharge of public service obligations.
Furthermore, transparency concerning the award and the content of public service contracts is
essential to avoid the risk of distortion of competition, in particular if the contract is awarded
directly. The Parliament acknowledged the importance of improving transparency in the public
passenger transport sector at several junctures during its first reading.

With a view to further increasing transparency in the public transport sector and as a counter-
balancing measure to the extension of the possibility of direct award to all heavy rail, the
Council introduces the following measures in its Common Position:

— An obligation for authorities to forward, at the request of any interested party, their reasoned
decisions relating to a directly awarded public service contract. The Czech delegation stated
in the TTE Council of 9 June 2006 that it rejected this provision and added to the minutes
the statement which appears in Annex II,

— An obligation for authorities to make public, in the case of directly awarded public service
contracts for transport by rail, certain information within one year of granting the award.

While supporting the Commission proposals on publicity, the Council introduces several modifi-
cations with a view to improving their practical applicability and reducing unnecessary bureau-
cracy:

— Authorities are required to submit an aggregated report on their public service contracts

instead of a detailed report as proposed by the Commission,

— Authorities must announce the award of a public service contract at least one year in

advance in the Official Journal. Minor contracts are exempted from this obligation,

— Authorities are required to publish rectifications if there is a change in the information

announced on the award of a public service contract,

— Emergency measures are exempted from advance announcement,

— The initial period within which Member States must communicate to the Commission the
information necessary for determining whether the compensation granted is compatible
with the Regulation is extended from 20 working days, as proposed by the Commission, to
three months.

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2.6. Transition

With a view to providing authorities and operators with sufficient time to adapt to the new
legislative framework, the Council makes several modifications to the transitional arrangements
proposed by the Commission. First of all, the Regulation enters into force three years after the
publication of the Regulation. Twelve years thereafter, public service contracts by rail and by
road need to be awarded in accordance with the Regulation. Secondly, the Council replaces the
distinction made in the Commission proposal between transition periods for transport by road,
on the one hand, and by rail, on the other hand, with one single transitional arrangement. In
the light of the extension of the possibility of direct awards in the case of heavy rail, the Council
considers a longer transition period for public transport by rail than for public transport by
road no longer justified. Thirdly, instead of a two-phased transition period, Council chooses a
gradual approach allowing authorities to determine for themselves, to a certain extent, how to
manage the transition to the new set of rules for awarding contracts. Within six months after
the first half of the transition period, Member States have to provide the Commission with
progress reports. On the basis of these reports, the Commission will assess whether additional
measures are needed to avoid disruptions in the supply of public transport.

As regards contracts concluded before the entry into force of the Regulation, the Common Posi-
tion provides for a transitional arrangement that is very much in line with the proposals the
Parliament put forward in first reading. The Council seeks a balance between, on the one hand,
respecting the principle ‘pacta sunt servanda’ and, on the other hand, avoiding closure of markets
for too long a period. A distinction is made between:

— contracts awarded on the basis of a fair competitive tendering procedure and contracts

awarded on the basis of another awarding procedure,

— contracts awarded before 26 July 2000 — when the Commission submitted its initial

proposal on Public Service Obligations — and contracts awarded after that time.

For the in total four categories of contracts, the Council proposes individual expiry arrange-
ments. For exceptional cases where termination of a public service contract would entail undue
legal or economic consequences, the Common Position provides for continuation until expiry,
provided the Commission has given its approval.

In its Common Position, the Council maintains the provision of the Commission proposal
whereby, in the second half of the transition period, if operators cannot provide evidence that
the value of the public transport services for which they are receiving compensation or enjoy an
exclusive right granted in accordance with the Regulation represents at least half of the value of
all their public transport services, then authorities may refuse to allow them to participate in the
tender procedures they organise. To this provision the Council adds that authorities are not
allowed to prevent operators which are already running the services which are to be put out to
tender from participating in the tender procedure. After intensive discussions, the Council
decided not to take up a clause allowing authorities to deny participation in a tendering proce-
dure to operators which had received all or part of their contracts as a direct award. The
Council does not find such a reciprocity clause appropriate in the light of the jurisprudence of
the Court of Justice. The Court sets strict conditions for applying reciprocity clauses, considering
them only admissible in the context of a gradual liberalisation process and provided they are of
a transitional nature and restricted in time.

2.7. Other significant issues

Other significant issues introduced in the Council's Common Position are:

— Council follows the Commission proposal not to lay down, for the inland public transport
sector, specific rules on subcontracting. However, Council seeks to increase transparency by
incorporating in the Common Position the requirement that tender documents and public
service contracts must clearly show whether subcontracting is possible. Moreover,
the
contract must determine the conditions applied to subcontracting in accordance with
national and Community law,

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— The Commission proposed to repeal Regulation (EEC) No 1191/69 and Regulation (EEC)
No 1107/70 completely. As certain provisions of these two Regulations are still in use, the
Council's Common Position provides for a phasing out of Regulation (EEC) No 1191/69 and
for inclusion of certain specific provisions of Regulation (EEC) No 1107/70 in the new
Regulation on Public Service Obligations,

— Council adapts the provision on reporting by the Commission on developments in the
provision of public passenger transport in Europe in the light of its Common Position
requiring in particular an assessment of the quality of public passenger transport services
and the effects of direct awards,

— Council makes some changes to the Annex to the draft Regulation with a view to improving
the calculation of the compensation allowed in the case of directly awarded contracts to
make it more easily applicable in practice.

IV. CONCLUSION

Unable to find an agreement on the 2000 and 2002 Commission proposals on Public Service Obliga-
tions, the Council has succeeded in achieving a Common Position on the basis of the Commission
proposal of 2005. The Commission drew up this revised proposal
in the light of Parliament's first
reading of its initial 2000 proposal, with a view to reconciling the positions of the three institutions. As
the Common Position broadly follows the approach of this revised proposal, the Council considers it a
good basis for the second reading talks with the Parliament.

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ANNEX I

STATEMENT BY SWEDEN JOINED BY ITALY FOR INCLUSION IN THE MINUTES OF THE COUNCIL OF
9 JUNE 2006

Re: item 9: Revised Proposal for a Regulation of the European Parliament and of the Council on public passenger
transport services by rail and by road

POLITICAL AGREEMENT

In reaching a political agreement on a common position on the Regulation on public passenger transport services by rail
and by road, Sweden wants to put forward the following position:

1. As agreed by the Council at its meeting on 5 December 2005, the main aim of this Regulation is to establish a legal
framework for compensation for public service contracts, rather than the opening of the market for railway services.
This is why the option of direct award for railway services is retained in this Regulation.

2. The Decision by the Council to allow continued direct awards for rail passenger services does not preclude the right of
initiative of the Commission to make any future legislative proposal on the opening of the domestic rail passenger
market that the European Parliament and the Council would then consider.

3. Any future proposal for opening the market for domestic rail passenger services will need to be based on a reasoned
determination of whether this should take the form of open access to the rail network for all operators, or competitive
tender for public service contracts or exclusive rights, or both.

4. In the absence of harmonised legislation on the opening of national markets for rail passenger services, Sweden is of
the opinion that Member States retain the right to apply measures of reciprocity insofar as these measures are in
accordance with Community law.

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ANNEX II

STATEMENT OF THE CZECH REPUBLIC FOR INCLUSION IN THE MINUTES OF THE COUNCIL OF
9 JUNE 2006

Re: item 9: Revised Proposal for a Regulation of the European Parliament and of the Council on public passenger
transport services by rail and by road

POLITICAL AGREEMENT

The Czech Republic is fully aware that optimum transparency in awarding public service contracts is one of the main
objectives of the proposal for a Regulation on public passenger transport services by rail and by road. In that regard the
Czech Republic has no objection to requiring that the competent authority notify any interested party on request of a
decision on its part leading to the direct award of a public service contract, and that it demonstrate that it has acted in
accordance with the relevant articles of the Regulation, including setting compensation levels in line with the rules set out
in the Annex to the Regulation. However, the Czech Republic cannot agree to the current wording of Article 7(4)
(9840/06), since in its opinion it reduces the legal certainty of all parties involved in direct award. The Czech Republic is
worried above all that an aggrieved interested party might contest a given reasoned decision in order to force a compar-
ison between the directly awarded contract and its own alternative bid. In some cases this might subsequently prevent a
public service contract from being awarded directly; the Czech Republic finds this wholly unacceptable.

Because of this reservation the Czech Republic cannot endorse political agreement on this proposal in Council and is
therefore abstaining from the vote.