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Public service obligations on Transport

MOBILITY & TRANSPORT

The overarching aim of European public transport policy is to ensure the provision of passenger transport services that are safe, efficient, and of high quality, facilitated through regulated competition. This policy is mindful of social, environmental, and regional development considerations, emphasizing transparency and performance in public transport services.

Given that numerous public passenger transport services essential for the general interest are not viable commercially, it's crucial for national, regional, or local EU authorities to ensure their availability.

They can achieve this through:
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1. Awarding Exclusive Rights and Financial Compensation: Authorities may grant exclusive rights to entities to operate public services, providing financial compensation to offset the costs of services that are not commercially viable but are essential for the general interest.
2. Establishing Operational Rules: Defining the framework and regulations under which public transport services operate, ensuring they meet the necessary standards of quality, safety, and efficiency.

Article 14 of the Treaty on the Functioning of the European Union (TFEU), along with Protocol No 26 on services of general interest attached to the TFEU, outlines the fundamental principles for how Member States should define and deliver services of general economic interest.

To prevent discrepancies among Member States regarding the execution of public service obligations, the European Union has developed specific legislation. This legislation acknowledges the unique aspects and operational characteristics of different transport modes, resulting in slight variations in how competition and other factors are managed across different forms of transport. The goal is to create a cohesive yet flexible framework that accommodates the distinct requirements of each mode of transport while maintaining a harmonized approach across the EU.
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Article 106(2) of the Treaty on the Functioning of the European Union (TFEU) mandates that companies providing services of general economic interest must adhere to the Treaty's rules, especially those concerning competition.

However, the application of this article varies across different sectors:
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1. Land Transport: Article 106(2) TFEU does not directly apply to land transport when it comes to compensation for public service obligations. Instead, such compensations are governed by Article 93 TFEU, considered a 'lex specialis' (a law governing a specific subject matter). The specific rules and regulations for this are detailed in Regulation 1370/2007, which focuses on public passenger transport services by rail and road.
2. Maritime and Air Transport: Unlike land transport, maritime and air transport sectors do fall under the purview of Article 106(2) TFEU concerning public service compensation. These sectors are regulated by specific legislations:
   • Maritime Transport:  Regulation (EEC) No 3577/92, which implements the principle of freedom to provide maritime transport services within Member States (maritime cabotage).
   • Air Transport:  Regulation (EC) No 1008/2008, which sets common rules for the operation of air services in the Community.

​While the general framework under Article 106(2) TFEU applies to entities providing services of general economic interest, specific sectors like land transport, maritime transport, and air transport are subject to additional or different regulations reflecting the unique nature and requirements of these services.

Land Transport

Regulation (EC) No 1370/2007  on public passenger transport services by rail and road is of major importance for the organisatiois pivotal in structuring and funding public passenger transport services like buses, trams, metros, and trains within the EU Member States.

It aims to foster an internal market for these services while acknowledging the Member States' authority to tailor public transport services to their population's needs. This Regulation augments the general public procurement rules and sets forth conditions for the compatibility of compensation payments in public service contracts and concessions for public service obligations with the internal market rules of the EU.

Notably, it provides criteria under which these compensations are exempt from the standard requirement of prior State aid notification to the European Commission. Essentially, the regulation is instrumental in balancing the establishment of an efficient internal market for public transport services with the recognition of Member States' rights to manage and finance these services in alignment with local demands.

• Regulation (EU) 2016/2338 concerning the opening of the market for domestic passenger transport services by rail
• Workshop on Tendering of Public Service Contracts for rail passengers transport: Meeting the challenge, on 30 May 2018
• Study on economic and financial effects of the implementation of Regulation 1370/2007 on public passenger transport services
• Communication from the Commission on interpretative guidelines concerning Regulation (EC) No 1370/2007 on public passenger transport services by rail and by road ​
• Impact assessment  (Annexes 1 to 4 , Annex 5 , Annex 6 , Annex 7 , Annex 8 , Annex 9 , Annex 10 )
• Summary document of the conference "The Last Mile towards the 4th Railway Package" (24 September 2012, Brussels)
• Executive summary ​

Maritime and inland waterway transport

To ensure the consistent and adequate provision of maritime transport for passengers and goods to, from, or between islands, Member States have the authority to implement public service obligations or enter into public service contracts for these routes, particularly when the market fails to deliver these services satisfactorily.

​This process is governed by specific conditions and requirements detailed in Article 4 of Regulation No 3577/92 on maritime cabotage. Read the Communication on the interpretation of Council Regulation (EEC) No 3577/92 applying the principle of freedom to provide services to maritime transport within Member States (maritime cabotage) [COM(2014)232] 

Key principles and stipulations of this framework include:

1. Non-Discriminatory Practices: The imposition of public service obligations and the conclusion of public service contracts must be conducted impartially, without discrimination.
2. Compliance with EU State Aid Rules: Any financial compensation provided for fulfilling a public service obligation or contract must align with the EU's State aid regulations, ensuring that the compensation is justifiable and does not distort market competition.
3. Duration and Award Process of Contracts: Public service contracts are bound by a time limit, with a maximum duration of 12 years. These contracts must be awarded through a process that is open, transparent, fair, and non-discriminatory, adhering to Union-wide standards. Furthermore, the call for tender should be publicly announced in the Official Journal of the European Union to ensure wide visibility.
4. Application of Regulation (EC) No 1370/2007: While primarily focused on public passenger transport services by rail and road, Regulation (EC) No 1370/2007 allows Member States the option to extend its application to public passenger transport by inland waterways and national sea waters. This extension does not infringe upon the stipulations of Council Regulation (EEC) No 3577/92. However, for Regulation (EC) No 1370/2007 to apply in this context, a Member State must explicitly declare its applicability.

Air Transport

To ensure the provision of essential air services on routes critical for the economic well-being of certain regions, Member States have the authority to enforce public service obligations (PSO) on these routes. This enforcement must adhere to the specific conditions and requirements outlined in Articles 16-18 of the Air Services Regulation (EC) No 1008/2008. Read the Interpretative guidelines on Regulation (EC) No 1008/2008 of the European Parliament and of the Council — Public Service Obligations (PSO)

Key aspects of this regulatory framework include:
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1. Imposing Public Service Obligations: Member States can impose PSOs on particular air routes to guarantee that vital services are maintained, especially if these routes are considered crucial for the regional economy but are not adequately serviced by the market.
2. Exclusive Rights and Compensation: If no airline shows interest in operating a route under the PSO, the concerned Member State has the option to limit access to that route to a single carrier. This exclusive right is designed to ensure the route's viability and may include compensating the airline for any operational losses incurred due to fulfilling the PSO.
3. Selection through Public Tender: The selection of the airline to operate the PSO route must be transparent and competitive. It is carried out through a public tender process at the Community level to ensure fairness and to find the most suitable operator.
4. Publication Requirements: The imposition, alteration, or revocation of any PSO, as well as the announcements for the corresponding calls for tenders, must be publicly disclosed in the Official Journal of the European Union. This requirement ensures transparency and allows potential operators to be fully informed about available opportunities.

By adhering to these rules, Member States aim to balance the need for essential air services in economically sensitive regions with the principles of fairness, transparency, and market competition.

Read the PSO inventory Table