Select Committee on European Scrutiny Thirtieth Report


9 Competition policy: public transport

(26759)

11508/05

COM(05) 319

Amended draft Regulation on public passenger transport services by rail and by road

Legal baseArticles 71 and 89 EC; co-decision; QMV
DepartmentTransport
Basis of considerationMinister's letter of 31 March 2006
Previous Committee ReportHC 34-vii (2005-06), para 4 (26 October 2005), HC 34-xiii (2005-06), para 5 (14 December 2005) and HC 34-xxv (2005-06), para 2 (19 April 2006)
To be discussed in Council9 June 2006
Committee's assessmentPolitically important
Committee's decisionCleared

Background

9.1 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.

9.2 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 direct award) a public service contract (PSC) to an internal operator (which would then be precluded from tendering for services elsewhere). Additionally, 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 (also a direct award). This is a significant change from the earlier drafts which would have required competitive tendering in most cases.

9.3 When we last considered this document, in April 2006, we noted the Government's cautious expectation that the draft Regulation, as it effects the use of public services obligations and public service compensations in the provision of passenger services in the UK, would provide some increase in legal certainty and would not require drastic changes to existing operations. But we also noted that the draft Regulation was unsatisfactory in terms of improving market access and that there were a number of provisions which needed to be improved or clarified in order to better meet UK interests. We said that before considering the proposal further we should like to hear about progress in resolving these issues. We asked also to see any further revised version of the Regulatory Impact Assessment.[28]

The Minister's letter

9.4 The Secretary of State Transport (Mr Douglas Alexander) now gives us an account of where matters stand and the Government's expectations for the Council's consideration of the proposal at the Transport Council on 9 June 2006. He says that a great deal of progress has been made in discussion of the draft Regulation, but some issues remain to be resolved at the Transport Council, at which the Austrian Presidency has confirmed it will seek a political agreement.

9.5 The Minister summarises the Government's main objectives in negotiations on the proposal as:

  • securing changes to ameliorate potentially significant adverse effects on UK public transport arrangements; and
  • seeking to seek to amend the proposal in such a way as to create a more level playing field for public passenger transport operators and to create an environment for further opening of the passenger transport market.

9.6 The Minister says that the first objective is largely secured, noting that the latest text would:

  • allow all existing UK light rail contracts to remain in place and would provide a satisfactory framework for any new light rail schemes;
  • allow authorities, such as Transport for London, to operate services outside the jurisdiction of their authority;
  • safeguard the continuation of commercial, deregulated, bus services in Great Britain outside London; and
  • give a satisfactory period of time for a new contract to be put in place following an emergency.

9.7 As for the second objective, which the Minister says has been increasingly important since in was agreed Member States should be free directly to award long-distance and regional rail contracts without competitive tender, he reports that the latest text would:

  • strengthen the rules to ensure that operators benefiting from contracts awarded directly are not over-compensated;
  • require publication of detail detailed information about directly awarded contracts to allow proper public scrutiny; and
  • require the Commission to publish a post-implementation report which, among other things, would contain an assessment of the effects of direct awards.

9.8 In relation to allowing direct-award contracts the Minister says three major issues remain to be resolved:

  • whether the possibility of direct award for long-distance and regional heavy rail contracts should be extended to suburban and urban services;
  • the limit for minor contracts (the so-called de minimis value) which may be directly awarded, where the Commission proposed an annual financial value of less than €1million or, alternatively, the provision annually of less than 300,000 kilometres of services but where a small group of Member States is insisting on a single value of one million kilometres ostensibly to protect small and medium-sized enterprises; and
  • the extent to which provisions relating to awards to "in-house" operators should be relaxed.

He continues that, although the key negotiating objectives have been largely met, the Government believes it important to maintain pressure to limit the further extension of the potential for direct award — there seems to be insufficient support to block direct award for all rail services (although it might well be opened-up again when the proposal goes to the European Parliament for its second reading). But the Minister says the Government is more hopeful of preventing a significant increase in the de minimis direct award level and notes that representatives of UK public transport operators have indicated they could live with a de minimis level set at about 500,000 kilometres a year, representing a service operation with an average of six or seven buses. On the issue of awards to "in-house" operators the Minister says the Government will continue to monitor developments closely and will seek to ensure that the proposed constraints on such operators proposed are not unduly watered down.

9.9 The Minister says that at the forthcoming Transport Council it is the Government's intention to:

  • continue to seek further safeguards against direct award including shorter maximum lengths for such contracts as compared to competitively awarded contracts;
  • consider with like-minded Member States how it might be possible to ensure that an agreement to allow direct award for all rail contracts does not close the door to further liberalisation in the rail sector through other mechanisms, for instance through opening-up of access to the track as has recently been agreed for international services;
  • seek to limit the de minimis provision to a maximum of 500,000 kilometres, but be prepared to settle for around 500,000 kilometres should that prove impossible; and
  • ultimately, be prepared to support a deal at the Council if the final text on the table appears to offer a satisfactory balance.

The Minister comments that the Government thinks this approach recognises that:

  • the majority of Member States are unwilling at this time to open up their public transport markets to competition;
  • changes to the draft Regulation offer substantial safeguards against beneficiaries of direct awards competing unfairly in open markets;
  • the proposed publicity requirements may well lead to citizens demanding to know why their authorities favour direct award over competitive tendering; and
  • a new Regulation would provide much greater legal certainty for operators and authorities in the future.

9.10 Finally the Minister notes that, although it has not been possible to secure everything the Government wished for during the negotiations, it thinks the revised text now goes a long way to reaching a satisfactory balance. And he asks that, on the basis that the Government will still try to obtain the further improvements he describes, we now clear the document from scrutiny.

Conclusion

9.11 We are grateful to the Minister for this detailed account of where matters stand on this draft Regulation and the assessment of what might be achieved in the final stages of Council negotiation. We note the degree of useful change the Government has been able to secure so far and, in order not to inhibit its negotiating stance at the Transport Council, now clear the document.





28   See headnote. Back


 
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