Draft Regulation on Public Transport Services: Meaning, Evaluation, and Legislative Procedure

1. Meaning, evaluation and legislative procedure of new draft regulation on public passenger transport services by rail and by road (COM (2005) 319 final 20.07.2005) Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association

2. Structure • Meaning • Evaluation • Legislative procedure Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association

3. 1. Meaning The draft Regulation basically contents Athe relation between competent local authority for public passenger transport services by street and competent state authority for transport services by rail (by German law) operators of public and private transportation companies and Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 3 by the obligation to conclude public service contracts, only if exclusive rights are granted or compensations paid (Art. 3 Paragraphs 1,2).

4. 1. Meaning Bthe form of public service contract. The character of public service obligations and the agreed return will be defined in a contract between competent authority and choosen operator The form of this contract can vary according to national regulation, e.g. law, public administration regulations or the decision of the competent authority to provide the service itself or to award public service contracts directly. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 4

5. 1. Meaning C thecontent ofpublic serviceobligations. The public serviceobligations such as tariffs, quality standarts of vehicles and so on (Art. 4) must be clearly defined both with regard to the content and the geographical area. D the parameter for compensation payment must be established in an objective and transparent manner.Parameters shall be determined in such a way that no compensation payment may exceed the amount required to cover the net costs incurred in discharging each public service obligations, taking account of the operators revenues and a responsible profit (Art. 4 Paragraph 2). It is comparable to the first three criterias of the Altmark judgment. The limitation of compensation on the base of the costs of a typical well run undertaking (4th Altmark criteria) is missing. Commission transparency in connection with the award procedures of the draft regulation leads to minimisation of costs. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 5

6. 1. Meaning Ethe duration of public service contracts. Maximum duration of contracts: eightyears for transport by bus and fifteenyears for transport by rail (this applies also, if bus and railway services are combined and the proportion of railway is higher than 50%). Both periods could be extended by a maximum of 50% (Art. 4 Paragraph 6) if needed in order to amortise the investments. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 6 F the possibility for the authority to require the selected operator to grant staff the rights provided by Directive 2001/23/EC (Art. 4 Paragraph 7).

7. 1. Meaning G the priority of the general public procurement directives over the new regulation. Two different ways of awarding public service contracts Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 7 Rail transport (railway and suburban train) would be subjected totally to the awarding provisions of the new regulation. Bus, tram and underground would only be covered by the new regulation, if there are no specific awarding provisions (inhouse, service concessions) in the general public procurement directives.

8. 1. Meaning H the possibility of local selfproduction or/and direct award (Art. 5 Paragraphs 2, 4-6). Distinction between: The competent local authority may decide to provide public service itself or to award contracts directly to an internal operator (Art. 5 Paragraph 2) other possibilities of direct award (Art. 5 Paragraphs 4-6). and Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 8 Direct award to an internal operator requires a total control of the owner. The internal operator has to perform all its public passenger transport activities within the territory of the competent authority and must not take part in competitive tenders organised outside the territory concerned.

9. 1. Meaning The regulation falls behind the EC Justice ruling „Stadt Halle“, since it talks merely of a complete control (Art. 2 letter j) instead of a 100% ownership. The regulation aggravates the EC Justice decision „Teckal“, in so far as, instead of a required activity of the operator mainly for the competent authority, the operator now must exclusively discharges all its activities within the territory of the competent authority (Art. 5 Abs. 2). Direct award in form of inhouse-business or service concession will also not be tackled by the regulations of the general public procurement directives – as well as rail transport services. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 9

10. 1. Meaning However, in the case of service concessions, the draft regulation provides for the respect of the general principles of the treaty, such as transparency and non-discrimination. The precondition for service concession is, thatthe economic risk will be borne by operator. Other possibilities of direct award according to the draft regulation: a) Transport service companies with an average annual value less than €1million or an annual transportation provision less than 300.000 km (Art. 5 Abs. 4). b) Emergency measures by disruption of service (max. 1 year) (Art. 5 Abs. 5.). c) Regional or long-distance rail transport (Art. 5 Abs. 6). Thresholds of the general public procurement directive: 200.000 Euro for authorities and 400.000 Euro for entities operating in the water, energy transport and telecommunication sectors. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 10

11. 1. Meaning Icompensation for general rules or public service obligations, isirrespective of how the contract was awarded (Art. 6). Because of the definition of Art. 3 Paragraph 2 student tickets and reduced tickets for severly handicaped people (by German law) belong to this regulation. Jthe rules for compensation of directly awarded public service obligation. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 11 Compensation should be determined by comparison between the situation if the public service obligations are discharged and the situation, if they are not and instead the service has been discharged under market conditions.

12. 1. Meaning Kprovisions for European-wide transparency. Obligation of publicity by Art. 7 Paragraph 2: at least one year before the launch of the tendering procedure or one year before the direct award, the information has to be published in the Official Journal of the European Union. Lthe transition periods. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 12 At least half of the service contracts for transport by bus has to be awarded in accordance with the regulation within four years – allother public service contracts within eightyears. For transport by rail and combined transport (if the proportion of railway is higher than 50%) the deadline is five and tenyears.

13. 1. Meaning Service contracts awarded before entry into force of the regulation continue until they expire (Art. 8 Paragraph 5), but only, if they are restricted in time and comparable with the periods provided for the regulation. In the second half of the transitional periods operators, which will not be financed at least 50% according to the provisions of the regulation, may be banned from competition (Art. 8 Abs. 6). Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 13

14. 2. Evaluation Compared to the draft regulations of 2000 and 2002 the new version contents only half the amount of provisions. → easier to read and clearer to understand. The principle of subsidiarity is stronger accentuated – already visible in the title which is limited to public passenger transport on rail and street (in the past inland waterway had also been included). From a local view point the right of the competent authority to freely decide to provide public service itself or to award contracts directly or to opt for tendering procedures is to be welcomed – but the market-orientated direct awarding procedure provided by the Altmark judgement has been ignored. The provisions for total control of the competent authority over its own operator, as well as the need for exclusive activity of this operator on the temtary of the competent authority, only corresponds in parts to the judgement of the EC Justice for In-house awarding. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 14

15. 2. Evaluation The ban for the internal operator to participate in tendering procedures outside the geographical area of the competent authority is equivalent to the amendements tabled by the European Parliament on its first reading of the orginal draft regulation in the year 2001. Thereby it should be ensured that the operator, who is free of competition on its home market, may not compete on other markets. Need for clarification concerning the geographical range of direct award to internal operator. Direct award within larger conurbations seems possible, if none of the internal operator is operating outside the area of the respective competent authority and all other conditions for direct award (common property) have been fulfilled. Servere problems caused by the priority of the general public procurement directives over the new regulation. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 15

16. 2. Evaluation The factual distinction between rail transport services (draft regulation) and tram and underground services (general public procurement directives) leads to enormous legal uncertainty in respect to the award procedure. Thedefinition of rail transport serviceis inconsistent (Art. 2 m), since traffic inside an urban centre or large agglomeration or connections beween an urban center with its suburbs have been singled out. As a result, a distinction would have to be made between transport services within urban centers and agglomerations and regional rail service outside conurbations. Positivly: the possibility to engage the selected operator to keep certain working conditions for the staff. At the moment, it is hard to estimate how far the lack of detailled quality standards in the draft regulation will lead to a loss of quality in public passenger transport service - no automatic “drop behind”. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 16

17. 2. Evaluation Doubts in terms of practicability as to the specific proceedings for calculation of compensation in the case of direct award. The effects of discharging public service obligations (under market conditions) should be measured by a “with and without”- comparison. The effects of public service obligations as to the general demand of public traffic within a given network should be considered, too. But these effects might be hardly measurable. Compensation payment should lead to cost-cutting and increasing qualityeffects. No need for a cross company comparison of costs anymore– operators get more flexibility. Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 17

18. 3. Legislative procedure presentation of new draft renders previous proposals obsolete COM (2000) 7 final; COM (2002) 107 final a replicated reading is not required, because of the comments of the EP during the first reading (2001) co-decision procedure will be restarted according to Art. 251 EC no acceptance of EP amendments, agreement of a common position this version will be discussed in a second reading by the EP Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 18 differences = conciliation procedure between European Council und EP (Art. 251 EC), the result will be passed in a third reading by qualified majority COM may withdraw proposal or cancel legislative proceeding until the third reading no differences = rapid adoption British presidency will discuss the draft regulation on the transport ministers’ council on 6.10 and 5.12 2005; Austrian Government – EU-presidency in first half of 2006 - will support this regulation

19. Thank you for your attention! Dipl.-Pol. Oliver Mietzsch, Head of transport unit, German Cities Association 19