PUBLIC TRANSPORT SERVICES BY RAIL AND
ROAD (11508/05)
Letter from Derek Twigg MP, Parliamentary
Under Secretary of State, Department for Transport to the Chairman
I am writing further to my letter of 24 November
2005[38]
on the above European Commission proposal.
Sub-Committee B considered the EM on 17 October,
and the letter on 12 December 2005. Your letters of 19 October
and 14 December commented that the Sub-Committee should like to
see the results of the public consultation and the full Regulatory
Impact Assessment (RIA).
The Department launched a full public consultation
exercise on 21 October 2005, accompanied by a partial RIA, to
gauge the views of key stakeholders on the impact of the revised
proposal (which I copied to you for your early consideration).
The consultation period ended on 13 January 2006, the results
of which have been amalgamated into a Summary document and used
to help my officials to update and revise the RIA. Both these
documents are attached for your further consideration.
The headline message from the consultation is
that stakeholders appear to be realistic that the draft proposal
would provide some increase in legal certainty and would not require
drastic changes to existing operations. Whilst the proposal would
not require competitive tendering of services, stakeholders appear
to be content that it might make a modest contribution to market
opening in some Member States where the public transport market
is currently closed.
Overall, respondents strongly reinforced the
Department's position set out in the partial RIA. A number
of respondents expressed concern at the potentially significant
public sector costs, particularly if the early termination of
light rail schemes proved necessary which could lead to compensatory
claims. We continue to believe there are reasonable prospects
of success in securing acceptable changes to the proposal, particularly
following the recent Transport Council Working Group discussion
on this dossier where a number of Member States expressed similar
concerns on this issue.
Respondents also supported the Department's
concern that the emergency provisions (allowing a one year extension
to a contract or direct award) maybe insufficient for heavy rail
services. There was some concern that the need to put in place
a contract between a competent authority and a transport operator
should not be overly prescriptive or burdensome. And some doubt
was raised as to whether GB commercial (deregulated) bus services
would be compatible with the regulation as proposed. We have reflected
these concerns in the summary and RIA and also taken them into
consideration when forming our negotiating position for discussions
on this dossier.
It is expected that the proposal will be the
subject of a policy debate at the Transport Council on 27 March,
and that following this the Presidency will reflect on whether
to attempt to achieve a political agreement at the June Council.
I shall, of course, continue to keep you informed of the progress
of negotiations.
16 March 2006
Letter from the Chairman to Derek Twigg
MP
Thank you for your letter of 16 March 2006,
which Sub-Committee B considered at its meeting on 27 March 2006.
We note that your consultation uncovered a number
of concerns amongst UK stakeholders, notably over the potential
public sector costs; over the emergency provisions being insufficient
for heavy rail services; over the potential for unnecessary red
tape as well as doubts over the compatibility of commercial bus
services in the UK with the Regulation. Please inform us whether
a full Regulatory Impact Assessment will be produced.
We hope that you will be able to resolve these
matters in forthcoming negotiations, and would be grateful if
you could keep us informed of any progress on this dossier. We
will maintain the scrutiny reserve at this stage.
29 March 2006
Letter from Rt Hon Douglas Alexander MP,
Secretary of State, Department for Transport to the Chairman
Derek Twigg wrote to you about the above European
Commission proposal on 16 March reporting on the outcome of our
consultation exercise and enclosing an updated and revised Regulatory
Impact Assessment (RIA). Sub-Committee B considered the letter
on 27 March and you wrote on 29 March, noting that there were
remaining concerns to be addressed in negotiations, asking to
be kept informed of progress and whether a full Regulatory Impact
Assessment will be produced.
There have been a number of Working Group discussions
on this proposal since March, most recently on 4 and 12 May, and
although some issues remain to be resolved at the Transport Council
on 9 June, a great deal of progress has been made. I am writing
to update you on these developments and to let you know that the
Austrian Presidency has now confirmed that it will seek a political
agreement at the Council.
Following the publication of the Commission's
proposals in July 2005 and in the light of responses to our consultation,
we established a UK negotiating strategy which had two main objectives:
— first, and foremost, to secure changes
to the proposal to ameliorate potentially significant adverse
effects on UK public transport arrangements; and
— second, 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.
In official-level negotiations in the EU Transport
Council Working Group since January, we have largely secured the
first objective. In particular, the latest text would:
— allow all existing UK light rail
contracts to remain in place and would provide a satisfactory
framework for taking forward 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 GB
commercial (deregulated) bus services outside London; and
— offer a satisfactory period of time
for a new contract to be put in place following an emergency.
We have also had some success in securing changes
towards the second objective; which has been increasingly important
since ministers agreed at the December 2005 Transport Council
that Member States should be free directly to award long-distance
and regional rail contracts. In particular, the latest text would:
— strengthen the rules designed to
ensure that operators which benefit from contracts awarded directly
without competition are not over-compensated;
— require authorities which directly
award rail contracts to publish detailed information about those
contracts to allow proper public scrutiny; and, to tell operators
which unsuccessfully challenge a direct award why they failed;
and
— require the Commission to publish
a post-implementation report which, among other things, would
contain an assessment of the effects of direct awards.
We have also been pursuing a provision which
would allow authorities that award contracts competitively to
exclude from tendering exercises any operator which obtains more
than 50 per cent of its overall revenues from directly awarded
contracts (a so-called "reciprocity" clause). Only four
other Member States support this, so it cannot be secured. But
we have been using it as a lever to try to limit further extension
of the scope in the. regulation for directly awarding contracts
and to further strengthen safeguards to limit the potential for
beneficiaries of direct awards to compete unfairly in the market.
On the degree of direct award allowed, three
major issues remain to be resolved:
— first, whether the possibility of
direct award for long-distance and regional heavy rail contracts
which ministers agreed to in December 2005 should be extended
to suburban and urban services;
— second, the de minimis value of contracts
which may be directly awarded. Here, the Commission proposed an
annual financial value of less than €1 million or, alternatively,
the provision annually of less than 300,000 km of services. But
a small group of Member States is insisting on a single value
of 1 million km ostensibly to protect small and medium sized enterprises
(SMEs); and
— third, the extent to which provisions
relating to awards to "in-house" operators should be
relaxed.
While we have largely met our key negotiating
objectives, it is important we maintain pressure to limit the
further extension of the potential for direct award. It seems
we would not have sufficient support to block direct award for
all rail services and this point was effectively lost at the March
Council (although it might well be opened-up again when the regulation
goes to the European Parliament for Second Reading). But we are
in a much stronger position to fight a significant increase in
the de minimis direct award level, because the group lobbying
for a value of 1 million km appears to have very little support.
We have had discussions with representatives of UK public transport
operators who have indicated that they could live with the de
minimis level set at about 500,000 km per annum, which would represent
a service operation with an average of six or seven buses. And,
informal contacts suggest this would be acceptable to many Member
States and to the Commission. On the third issue, we will continue
to monitor developments closely and will seek to ensure that the
constraints on in-house operators proposed by the Commission are
not unduly watered down.
Looking forward to the Council, our proposed
strategy is to:
— continue to seek further safeguards
against direct award including shorter maximum lengths for such
contracts vis-a"-vis competitively awarded contracts;
— consider with like-minded Member
States the possibility of seeking to trade (a) conceding of direct
award for all rail contracts and without a reciprocity clause
for (b) a Council declaration which makes clear that agreement
of the PSO dossier does not close the door to further liberalisation
in the rail sector through other mechanisms eg through the 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 km; but be prepared to move to 600,000
km 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.
In my view, this is a pragmatic approach which
recognises that:
— the majority of Member States are
unwilling at this time to open up their public transport markets
to competition;
— the changes to the Commission's proposal
which we have secured 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;
— a new regulation would provide much
greater legal certainty for operators and authorities in the future.
While it has not been possible to secure everything
we might have wished for during the negotiations, I feel that
the proposal, as revised, now goes a long way to reaching a satisfactory
balance although we shall, as outlined, still try to obtain further
improvements at the Council. On this basis, I hope that the Committee
can agree to lift its scrutiny reserve. I will, of course, write
to your Committee again after the Council and will keep you informed
of the progress of this dossier throughout the remainder of the
European legislative process. You will also wish to know that
my officials will update the RIA in the light of any agreement
in the Council and we shall of course let you have sight of this
when it is ready.
You will appreciate the sensitivity of our proposed
negotiating strategy in the run-up to the Council, and I should
therefore be grateful if you would treat it in confidence until
9 June at the earliest.
18 May 2006
Letter from the Chairman to Rt Hon Douglas
Alexander MP
Thank you for your letter of 18 May, which Sub-Committee
B considered at its meeting on 5 June.
We are very grateful to you for the fullness
of your explanation of negotiations ahead of the June Transport
Council, and are satisfied that, with the exception of the proposed
direct awards system, satisfactory progress has been achieved.
We are content to lift scrutiny on this proposal
at this stage, and would be grateful for a report on the outcome
of negotiations in the Transport Council.
6 June 2006
Letter from Stephen Ladyman MP, Minister
of State for Transport, Department for Transport to the Chairman
Douglas Alexander wrote to you about the above
proposal on 18 May 2006 outlining our proposed negotiating strategy
for the Transport Council on 9 June. I am now writing to inform
you of the outcome of the Council, at which I represented the
UK.
As set out in Douglas Alexander's letter, the
key issues that remained to be settled were:
— the proposal to extend the possibility
of direct award for long-distance and regional heavy rail services
to suburban and urban services, which we opposed but with very
little support;
— the maximum size of small contracts
that could be directly awarded. The UK preferred a maximum of
500,000 vehicle-kilometre. Others were arguing for 1,000,000 vehicle-kilometres;
— the extent to which provisions relating
to awards to "in-house" operators should be relaxed.
We also proposed to:
— continue to press for further "reciprocity"
arrangements (eg any operator receiving more than 50 per cent
of its revenues from directly awarded contracts to be excluded
from competitive tenders). The aim was to limit demands for further
extension of the scope for direct award, as we did not expect
that additional reciprocity provisions could be agreed;
— seek safeguards against abuse of
directly awarded contracts, such as shorter contract lengths compared
with competitively tendered contracts;
— consider with like-minded states
the possibility of seeking a Council declaration making it clear
that the PSO regulation does not close the door to rail liberalisation
through other mechanisms.
After initial negotiations in the morning, the
Presidency proposed a compromise text which:
— provided for direct award for all
rail contracts;
— set a 500,000 vehicle-kilometre limit
for directly awarding small contracts;
— included satisfactory provisions
relating to awards to "in-house" operators;
— retained unchanged the measures on
transparency that the UK had supported;
— reduced the contract length for directly
awarded rail contracts to 10 years, compared to 15 years for competitively
tendered contracts;
— included reciprocity provisions only
for operators for whom 50 per cent of their business is not compliant
with the regulation;
— extended the period before the Regulation
would come fully into force from 2 years for the first provisions
and an additional 8 years for the provisions concerning direct
award, to 3 years and 12 years respectively.
It was also clear that there was insufficient
support for anything other than a very weak Council Statement
on rail liberalisation. We are therefore considering with some
other Member States the potential for a more strongly-worded minutes
statement.
This compromise was a long way short of the
demands of some other Member States, which wanted significantly
greater scope for direct awards. From a UK perspective the compromise
met nearly all of our objectives. Although direct award was extended
to suburban rail, this was counterbalanced by transparency measures
introduced during earlier negotiations, and by reducing the maximum
length of directly awarded rail contracts to 10 years—which
will ensure that such contracts come under regular scrutiny and
increase the likelihood that the benefits of competition are recognised
in such cases. And the maximum size of small contracts for which
direct award would be permitted was kept down to 500,000km. In
addition, in earlier negotiations we had secured a strengthening
of the rules designed to ensure that operators are not over-compensated
for directly awarded contracts. This contrasts with the existing
situation where Member States are effectively permitted to award
any contract directly, regardless of modality or size, with no
transparency or limit on contract length.
As noted in Douglas Alexander's letter, we had
already succeeded during earlier negotiations in removing most
provisions that could cause problems for the UK. Existing contracts
which would have needed to be renegotiated under the early drafts
of the regulation, potentially triggering large compensation payments,
will now be able to remain in place. Authorities, such as Transport
for London, will be able to continue to operate services extending
outside their geographical jurisdiction. Existing UK commercial
(deregulated) bus arrangements will not have to be changed. Emergency
contracts will be able to have a satisfactory length to enable
a new contract to be put in place.
The compromise package therefore improves upon
the current situation, and avoids negative impact on existing
UK public transport arrangements, while achieving the goal of
increasing legal certainty. Although only very modest market opening
would be likely to be achieved, this recognises the fact that
the majority of Member States are unwilling at this time to open
their public transport markets to competition; and a range of
safeguards and transparency arrangements are included to mitigate
the effects of direct award. In view of this, I supported the
compromise package. A final Council common position is likely
to be agreed under the Finnish Presidency, and will then go to
the European Parliament for their consideration. I will, of course,
keep your Committee informed of the outcome.
29 June 2006
Letter from the Chairman to Stephen Ladyman
MP
Thank you for your letter of 29 June, which
Sub-Committee B considered at its meeting on 10 July.
We were grateful to you for the fullness of
your report on the outcome of the Transport Council negotiations
on this important dossier and welcome the Government's efforts
to secure compromise over the potentially anti-competitive direct
award system.
We regret that "only very modest market
opening" is likely to be achieved, but understand that the
majority of Member States were reluctant to support greater liberalisation
and trust that the Government will continue to press for greater
progress. We would of course be grateful for any further updates
as the Finnish Presidency takes the proposal forward. We are reassured
that the Finnish Presidency appears to have similar priorities
for transport policy to those of the United Kingdom.
12 July 2006
38 Correspondence with Ministers 45th Report of Session
2005-06, HL Paper 243, pp 163-178. Back
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