Transport operators guided through state aid maze

For many regional and local authorities in Europe, providing public transport services is a significant responsibility. But their public duties have brought them into conflict with EU rules on state aid, which aim to prevent unfair subsidies.

As Transport Commissioner Jacques Barrot has noted, the existing rules were drawn up in 1969 when most public transport operators were still primarily state-owned companies.

The existing rules have not automatically barred authorities from using public funds to compensate operators for providing services, but the rules are complicated to understand and apply. Failing to follow the rules properly might expose authorities to legal challenges and might lead to operators being forced to repay public subsidies.

The problems are now being addressed. Transport ministers from the EU states provisionally agreed at their Council meeting in June a new set of rules setting out the conditions under which authorities can award contracts for rail and road services. Brigitte Ollier, EuroTeam director at UITP, the International Public Transport Union, calls the agreement an "important clarification" as the existing rules were "not very clear".

The new rules follow in part from a 2003 ruling by the European Court of Justice known as the Altmark judgement. The case involved the local government of the city of Magdeburg in eastern Germany and local transport company Altmark. The judgement clarified the conditions which had to be fulfilled if the aid was not to be ruled illegal: that there had to be public service obligations to fulfil and that compensation should be limited to the additional costs incurred by an operator plus a reasonable profit. In addition, if there was no public procurement process used to choose an operator, the level of compensation must be calculated on the basis of an analysis of the costs of a well-run operator.

UITP's Ollier stresses that the Altmark ruling and the current rules did not cover the important issue of 'exclusive rights', ie, where authorities granted rights to a particular operator to provide transport services.

The new rules agreed last month will deal with such rights.

The new rules allow authorities to award contracts directly for rail services (including urban and suburban services) to an operator where the annual value is less than €1.7 million or for less than 500,000 kilometres of passenger transport services. Authorities will also be required to provide information about their decisions to award contracts, making the process

more transparent. Rail contracts can be awarded for durations of up to ten years.

For many regional and local authorities in Europe, providing public transport services is a significant responsibility. But their public duties have brought them into conflict with EU rules on state aid, which aim to prevent unfair subsidies.