9 Competition policy: public transport
| (26759)
11508/05
COM(05) 319
| Amended draft Regulation on public passenger transport services by rail and by road
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| Legal base | Articles 71 and 89 EC; co-decision; QMV
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| Department | Transport |
| Basis of consideration | Minister's letter of 31 March 2006
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| Previous Committee Report | HC 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)
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| To be discussed in Council | 9 June 2006
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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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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