De Palacio to propose shake-up in funding for public transport

Date: 13/01/2000

By Renée Cordes

TRANSPORT Commissioner Loyola de Palacio will call on EU governments next week to start paying public transport operators the 'market rate' for providing essential services instead of continuing to hand out relatively meagre subsidies.

The controversial proposal, which is due to be discussed by the full Commission next Tuesday (18 January), seeks to ensure that companies are fairly compensated for running buses and trains on routes which may not be profitable but which the government deems essential to provide a basic public service. It would also allow private companies to enter the public transport market, which has traditionally been the sole preserve of the state.

At the same time, the Commission is expected to adopt a related proposal aimed at streamlining 30-year-old rules governing state aid to the sector.

The move to lay down an EU-wide definition of public transport services was initiated by De Palacio's predecessor Neil Kinnock, who floated the idea in a 1996 paper outlining a long-term blueprint for improving local and regional transport across the Union.

"It is difficult to have an opening-up of the market if there is no clear European idea about what could be considered a public service," said a Commission spokesman this week. "This is becoming more and more important."

In many EU member states, public transport operators are currently required to run trains or buses on unprofitable routes in, for example, sparsely-populated areas which are needed to ensure that citizens have access to a basic level of service.

In return for this, the state generally pays a subsidy below the actual market cost. But critics of this system argue that for transport operators to become more efficient and customer-oriented, companies must be properly compensated. "Imposing obligations without financial compensation has side effects because of the lack of incentives to improve the service," warns a study carried out for the Commission.

De Palacio is likely to propose leaving it up to individual member states to decide to what extent private companies should be allowed to compete against state mono-polies for public service contracts, provided there are no barriers to competition.

But like her predecessor, she faces an uphill struggle to convince EU governments to relinquish control of what has been a state monopoly for more than a century. Critics have also voiced concern that the quality of public services could suffer if contracts are awarded solely on the basis of price.

"The Commission will not have an easy road to success here. This is a very sensitive dossier," explained Marc Billiet of the International Road Transport Union (IRU), who pointed out that public transport had not necessarily improved in the UK since it opted for partial deregulation a few years ago. But he added: "If the Commission undertakes a step-by-step approach, it may be successful."

Diplomats say other member states which have not yet followed the UK's example have grave misgivings about the Commission's approach. "On the one hand we are all in favour of efficient and effective public transport," said one. "But when it comes to paying for it, we want it cheap. The Commission is slowly but surely forcing people to realise that you will not get what you do not pay for."

Transport Commissioner Loyola de Palacio is to call on EU governments to start paying public transport operators the 'market rate' for providing essential services instead of continuing to hand out relatively meagre subsidies.