5 COMPETITION POLICY: PUBLIC TRANSPORT
(26759)
11508/05
COM(05) 319
| Amended draft Regulation on public passenger transport services by rail and by road
|
| Legal base | Articles 71 and 89 EC; co-decision; QMV
|
| Department | Transport
|
| Basis of consideration |
Minister's letter of 24 November 2005 |
| Previous Committee Report |
HC 34-vii (2005-06), para 4 (26 October 2005) |
| To be discussed in Council
| Not known |
| Committee's assessment | Politically important
|
| Committee's decision | Not cleared; further information awaited
|
Background
5.1 State aid to transport undertakings may be permissible under
competition policy rules if public service contracts impose public
service obligations requiring compensation. The present legal
framework governing imposition of public service obligations and
possible compensation in the rail, road and inland waterway passenger
transport sector is no longer considered fit for purpose in an
increasingly open public transport market. There are substantial
areas of uncertainty, placing at risk of legal challenge both
private operators and public authorities. Since September 2000
the Commission has put forward three drafts of a Regulation intended
to establish clear rules for competition in the public transport
sector.
5.2 The latest proposal would apply only to rail
and road public transport services (unlike the previous drafts
which applied also to inland waterways). It would not require
authorities to tender services requiring financial support or
exclusive rights. Instead they would have discretion to provide
the services themselves or to award a public service contract
(PSC) to an internal operator (which would then be precluded from
tendering for services elsewhere). In the case of regional or
long-distance rail services an authority would be free to award
a PSC to any operator without competitive tendering. This is a
significant change from the earlier drafts which would have required
competitive tendering in most cases.
5.3 When we considered this document in October 2005
we noted the Government's reservations as to the utility of the
revised draft Regulation in relation to securing more legal certainty
and opening up the public transport sector to competition whilst
promoting high standards of service. We said, that before considering
the document further, we should like to hear the outcome of the
Government's further reflection on the full effect of the draft
Regulation and of its public consultation and to see its Regulatory
Impact Assessment. We particularly wanted to know what the precise
effect of the proposal would be on the use of public services
obligations and public service compensations in the provision
of passenger services in the UK.[13]
The Minister's letter
5.4 The Parliamentary Under-Secretary of State, Department
of Transport (Derek Twigg) tells us the Department's public consultation
will end on 13 January 2006. Meanwhile he sends us the public
consultation document and an accompanying partial Regulatory Impact
Assessment and notes that they draw out some concerns already
identified. First the Minister outlines the Government's "headline
concerns":
- the revised proposal would
give authorities discretion to provide the services themselves
or directly to award a contract to an internal operator[14]
(which would then be precluded from seeking to tender for services
elsewhere), rather than requiring them to tender services requiring
financial support or exclusive rights; and
- in the case of regional or long-distance rail
services, an authority would be free directly to award a PSC to
any operator without competitive tendering.
5.5 The Minister then goes on summarise specific
concerns with regard to each of the UK transport modes affected
by the proposed Regulation:
- the most serious potential
implications appear to be for existing and planned light rail
schemes. Contract lengths for light rail would be limited to 15
years, extendable to 22.5 years where the operator provides assets.
This does not fit well with "design build finance operate"
schemes where long contract lengths — typically thirty years
or more — are seen to make the schemes more viable. It might
be necessary to renegotiate some existing contracts, triggering
significant compensation payments. And there could be impact on
the procurement of planned schemes;
- Transport for London (TfL) and London Underground
Ltd (LUL) would have to formalise their relationship, which could
be a substantial exercise;
- depending on the interpretation of the word "influence"
it could be argued that LUL, which would be an internal operator
directly awarded a contract, has an influence over many organisations,
including the members of the public private partnership and private
finance initiative consortia, thus precluding them from participating
in competitive tenders outside the jurisdiction of the awarding
authority (TfL);
- a provision which would allow an authority directly
to award a contract to an internal operator only if all the services
are within the jurisdiction of the authority would be problematic
in the case of the Underground, which extends beyond the Greater
London Authority (GLA) boundary;
- there should be no significant impact on current
heavy rail franchising arrangements. But a provision limiting
to one year the duration of a directly awarded or extended contract
in an emergency could be problematic were a franchisee to default;
- with one exception the current bus arrangements
would seem to be compatible with the proposal. The only area of
difficulty might be in London where TfL has a subsidiary used
as an "operator of last resort" to respond to emergencies
or tendering failures. TfL's subsidiary sometimes operates services
beyond the GLA boundary so possibly falling foul of the limiting
provision mentioned in relation to the Underground; and
- because tendering would not be compulsory, the
draft Regulation would probably not create major opportunities
for UK firms to tender for contracts in other Member States. However,
it might improve fairness amongst firms with new provisions on
transparency and new defences against hidden subsidies and so
make a modest contribution to market opening.
5.6 The Minister tells us that so far discussion
of this proposal in the Council's Land Transport Working Group
has been limited to those parts relevant to a parallel but more
advanced discussion of the draft Directive on liberalisation of
international passenger services.[15]
But he says also that the Austrian Presidency intends the full
proposal to be discussed in the working group from January 2006.
Conclusion
5.7 We are grateful to the Minister for this report
on the progress of consideration of this proposal by both the
Government and the Council.
5.8 However we note that,
because the public consultation will not end until next month,
he is unable to give us more that a preliminary Government reaction
to the proposal. We note also that this is largely a reiteration
of what he told us in his original Explanatory Memorandum and
that he cannot yet answer our enquiry as to what the precise effect
of the proposal would be on the use of public services obligations
and public service compensations in the provision of passenger
services in the UK. We look forward to having both the Government's
more considered view of the proposal generally and the answer
to our specific enquiry once the consultation is concluded. Meanwhile
the document remains uncleared.
13 See headnote Back
14
An internal operator would be defined as a legally distinct entity
over which the authority concerned exercises control similar to
that over its own departments. Back
15
Part of the Third Rail Package: see (25436) 7170/04 (25437) 7147/04
(25438) 7172/04 (25439) 7149/04 (25455) 7148/04 (25456) 7150/04:
HC 38-iv (2004-05), para 3 (19 January 2005) and Stg Co Deb,
European Standing Committee A, 9 March 2005, cols 3-18.
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