EUROPEAN COMMISSION
Brussels, 21.III.2007 C (2007) 133 final
Subject: State aid No NN 53/2006 - Malta State aid (public service compensations) to bus operators in Malta
Sir,
I. PROCEDURE
1. By e-mail of 26 April 2005, the Commission received a complaint submitted by the Unscheduled Bus Service (hereafter USB), a Maltese association of bus owners active in unscheduled bus services, concerning alleged illegal State aid granted by the Maltese government to the Public Transport Association (hereafter PTA), a Maltese association regrouping the 508 owners of buses used for scheduled bus services in Malta. By e-mail of 17 June 2005, USB submitted further information concerning this complaint.
2. Prior to filing a State aid complaint with the Commission, USB had also filed a State aid complaint with the Maltese competition authority. Copies of the correspondence sent by USB to the Maltese Competition authority on 18 May 2004, 25 June 2004, 1 October 2004 and 7 February 2005 have been transmitted by the complainant to the Commission. The Maltese competition authority has informed the complainant by letter of 14 October 2004 that it has transferred the complaint to the Maltese State aid monitoring board.
3. By letter of 28 June 2005, the Commission set out the legal framework applicable to the complainant and informed the complainant that, based on the information submitted, the Commission was not able to establish the existence of illegal State aid.
4. By letter of 21 October 2005, the complainant submitted a legally and factually detailed complaint. The Commission registered this complaint under the number CP 69/2006.
L-Onorevoli Michael FRENDO Ministru ta' l-Affarijiet Barranin Palazzo Parisio Triq il- Merkanti Valletta CMR 02 Malta
Commission européenne, B-1049 Bruxelles – Belgique/Europese Commissie, B-1049 Brussel – België Telephone : 00- 32 (0) 2 299.11.11. 5. By letter of 23 November 2005, the Commission requested additional information concerning the measures reported by the complainant from the Maltese authorities.
6. Answers to those questions were submitted by the Maltese authorities by letter of 6 March 2006.
7. Following an analysis of all the information available, the Commission decided to register the case under the number NN 53/2006.
II Description of the facts
II.1 The complainant
8. USB is an association composed of all private owners of motor coaches licensed to provide unscheduled transport services in Malta. The bus fleet of its members currently amounts to 142 coaches.
9. USB is regulated by statute, i.e. its bylaws, and is recognised as the Central Office for Unscheduled Bus Services. It is an affiliate member of the International Road Transport Union (IRU).
10. The activity of the members of USB consists of the provision of unscheduled transport services in Malta.
II.2 The beneficiary
11. The alleged beneficiaries of the measures are the 508 bus owners belonging to PTA.
12. The members of PTA operate both in the scheduled transport services sector, in which they enjoy exclusivity, and in the unscheduled transport services sector.
II.3 History and Organisation of public transport in Malta
13. The provision of the scheduled bus service in Malta has its origins in the first half of the 20th century, when a number of omnibuses built or imported by individuals and family companies were utilised to carry passengers along fixed routes. In the 1930s, the number of individual operating licences was capped by the Maltese Government. At the same time, the Maltese authorities introduced tariff obligations, imposing the bus operators to give fare concessions to children, students, apprentices and elderly persons (aged over 60 years).
14. In the beginning of the 1970’s, the owner-operators were obliged to join three associations, namely Inner Harbour, Sliema and North. In 1977, the three associations were further amalgamated into a single service provider, which had an elected transport committee that was responsible for the management of the service. This service provider later became established through statute as the PTA and was given the role of a central office for scheduled bus services. The bus services kept on to be provided by individual bus owners, who were members in
2 PTA. Since 1982, the Maltese authorities fixed the fare levels for each type of bus service on each route through legislation.1
15. Until 1995, PTA operated the network of bus services according to the standards of continuity, regularity and capacity established by the Maltese authorities without any compensation being granted by Government.
16. However, during the 1990s, the number of private cars in Malta had increased significantly and the Maltese authorities devised policy measures earmarked to promote public transport in line with its environmental and socio-economic objectives. This entailed the provision of an adequate and affordable public transport and the continued operation of an extensive network of bus services. The implementation of such policy necessarily resulted in a financial burden on PTA, which could no longer be sustained without public subsidies.
17. As a result of this, Malta adopted legislation, namely the Motor Vehicles Regulation (Act. No LN 65/94), which obliges the members of PTA to operate 83 bus routes. These routes are detailed in the act.
18. Following this imposition of public service obligations, PTA applied to the Maltese authorities for compensation for the imposition of the obligations. The Maltese government accepted to compensate PTA for discharging these public service obligations in 1995. Since then, PTA receives the compensation payments and then in turn passes on the payments to its members, who are the individual bus owners.
19. Establishing PTA as the provider of public bus transport was considered to be the most cost effective option by the Maltese government, as PTA has a long standing experience as the sole provider of public transport in Malta and disposes of the resources required to provide such service both with regards to capacity of buses and its already established network around the island.
II.4 Different types of bus services
20. The provision of bus services in Malta is further regulated by “Subsidiary legislation 65.14 on Scheduled and unscheduled public transport services regulations”. This legislation distinguishes three different types of bus services: Scheduled bus services (Regulation2 3 and 4), unscheduled bus services (Regulation 6), and bus services for tourists (Regulation 5).
21. Neither the members of USB, nor the members of PTA are active in the market for bus services for tourists.3 Accordingly, there is no need to further examine this type of services.
1 Motor vehicles (Tariff of Fares) Regulations, Act. No 14/82.
2 A Regulation is the equivalent of an Article in Maltese legislation.
3 See complaint of USB of 21 October 2005 and reply of Maltese government of 6 March 2006.
3 Scheduled bus services
22. Regulation 3 of this legislation foresees that a central office for scheduled bus transport is established in Malta. This central office keeps a register of all licence holders for scheduled bus services. This central office is constituted by PTA.
23. Regulation 4 foresees that the central office prepares a roster, which fixes in a detailed manner which member of PTA has to perform which bus service within the scheduled bus service (sub-regulation 2). This roster is subject to the approval of the Public Transport Authority.
24. Every fifteen days, the central office distributes the income from the sale of tickets and all other income (i.e. the compensation for public services as described below) to the members of PTA (sub-regulation 3 and 4). The distribution takes place in proportion of the number of days worked and/or the number of trips performed by each motor bus on its route and of the number of seats allowed on each motor bus.
Unscheduled bus service
25. Unscheduled bus services are defined by Regulation 6 of the legislation as any bus service other than scheduled bus services and bus services for tourists. They can be provided by the members of USB or by members of the PTA.
26. In case a person requiring unscheduled bus services would like to make use of spare capacity within the fleet of buses used for scheduled bus service, this person has to make a request to the central office, which then allocates among the members of PTA unscheduled bus services requested on a roster system. This allocation needs to ensure a fair distribution of the earningsderived from unscheduled bus services. The person hiring an unscheduled bus service pays the price to the central office, which then passes on the price to the bus owner, withholding a contribution for its administrative services.
II.5 The measures
27. It results from the information the Commission has received that today, the support granted to the members of PTA by the Maltese Government takes several forms, which can be categorised as following:
a) One-off financial assistance in form of the grant of Lm 32,000 for 138 bus owners for the replacement of buses in order to upgrade the scheduled bus fleet in Malta in the period 1995 to 2003;
b) Exemption from registration tax on the importation of new buses and exemption from payment of the importation duty for newly imported vehicles, if they are imported from outside the EU;
c) Purchase and installation of a Bus Ticketing Machine System, which is required and imposed by the Maltese Government since 2003.
d) Compensation of public service obligations imposed upon the members of PTA, which are intended to ensure the provision of a regular, continuous and reliable public transport service; this includes a contribution to the
4 motor vehicle insurance, a reduced annual vehicle circulation tax and the maintenance of the Bus Ticketing Machine System mentioned under c).
28. In addition to these forms of support, USB considers that members of PTA have benefitted and benefit from the following advantages:
e) Exemption from payment of Malta Tourism Authority Contribution;
f) A subsidy on the purchase of two-way radios;
II.5.a One-off financial assistance in form of the grant of Lm 32,000 for 138 bus owners for the replacement of buses in order to upgrade the scheduled bus fleet in Malta
29. The legal basis for the financial assistance for the replacement of buses is the agreement of 1995 between the Public Transport Authority (now Malta Transport Authority; not to be confused with the Public Transport Association, PTA), which is the national authority that regulates the provision of a properly integrated, safe, economical and efficient transport system by road in Malta, and PTA. The Agreement provided for the voluntary replacement of the buses by owners of buses providing public transport on a scheduled basis.
30. The Maltese Government was to pay a share of the purchase price, so that none of the operators that would apply under the scheme would have to spend more than Lm 15,000 (app. € 35,000). The assistance was granted to those bus owners who submitted their applications within 3 years from the signing the Agreement. Together with the appplication, the payment of a deposit in the amount of Lm 500 (app. € 1,200) was necessary. The remaining costs were to be incurred on arrival of the vehicle in Malta. Additionally, a special benefit of Lm 2,000 (app. € 4,700) was granted to those operators who applied to replace their old vehicles with new ones within three months from the signing of the Agreement.
31. The Maltese Government agreed to contribute a maximum of Lm 20,000 (app. € 46,600) per new bus purchased under the scheme. Because of the prevailing market price of buses procured under the scheme, the Maltese Government decided in 1998 to increase its contribution up to Lm 22,000 (app. € 51,300). Later on, the Maltese Government decided to increase its contribution up to Lm 32,000 (app. € 74,500), taking into consideration the fact that the market price of the buses satisfying the established specifications was in the region of Lm 45,000 (app. € 104,800).
32. The replacement of the fleet was finalised in 2003, when 138 old vehicles were replaced with new ones.
33. Despite the fact that some bus owners are lobbying for a revival of the programme, the Maltese government has informed the Commission that it has currently no plans to set up a new programme.
5 II.5.b Exemption from registration tax and importation duty for newly imported vehicles
- Exemption from registration tax
34. According to clause 19 of the Motor Vehicles Registration Tax Act (Cap. 368), second schedule, Malta imposes a registration tax of up to 75% of the value of the vehicle on all imported vehicles.4 Under a Ministerial Exemption Order from 10 April 2003 both the buses used in the Scheduled Bus Service and private coaches used in the Unscheduled Bus Service pay 0% tax on the registration of new vehicles on importation into Malta, if they fulfil the following conditions:
• The new coach is used for the transport of ten or more persons, including the driver, and is used for the carriage of passengers against payment;
• The motor vehicle, benefiting from such registration tax exemption, is in fact being imported in replacement of an old coach, used for the carriage of passengers against payment, which is to be disposed of in accordance with any conditions imposed by the Licencing and Testing Directorate within the Malta Transport Authority.
- Exemption from import duties for imports from non EU countries:
35. Through an agreement of 1994, the Unscheduled Bus Service was exempted from the payment of the duty that is normally due on importation of vehicles into Malta from non EU countries. In 1999 the Maltese Government decided to extend this exemption to all buses. This decision has been taken following the 1995 agreement between the Malta Transport Authority and PTA.
II.5.c Purchase and Installation of Bus Ticketing Machine (BTM)
36. The Bus Ticketing Machine System was introduced in 2003. It consists of floor mounted ticket vending machines installed in different locations and bus-ticketing machines installed on buses. The financial assistance has been offered by the Maltese Government for the purchase and installation of the system.
II.5.d Compensation of public service obligations imposed upon the members of PTA, which are intended to ensure the provision of a regular, continuous and reliable public transport service
37. The Maltese government has imposed the following public service obligations upon the members of PTA, represented by PTA:
• Obligation to operate: the Maltese authorities have established by legislation all the bus routes, 83 routes in total, that PTA is required to operate. The Motor Vehicles Regulations (LN65/94) stipulate in Part IX that the Maltese authorities shall fix the bus routes, frequency of departure from bus termini, the hours of operation and the type of vehicle to be used on the services in order to satisfy fixed standards of continuity, regularity and capacity.
4 See http://www.chetcuticauchi.com/jpc/immigration-services/car-import-tax.htm .
6 • Obligation to carry: the Maltese authorities fix the fare levels for each type of bus service on each route. These fare levels are stipulated and laid down by law, by means of the Motor Vehicles (Tariff of Fares) Regulations (LN14/82). This obligation includes fare concessions to be applied to children, students and apprentices, and elderly persons (over 60 years old). 38. The compensation for these public service obligations is composed of: • A compensation payment, which covers losses due to public service obligations and ensures an annual minimum income for the 538 bus owners; • A contribution of the State to the insurance premium for the buses; • A reduced annual road vehicle circulation tax; • The payment of the maintenance and consumables necessary for the Bus Ticketing Machine The compensation payment
39. The compensation payment is calculated on the basis of Article 10 of Regulation (EEC) 1191/69 as the difference between projected revenue and expenditure, including a guaranteed minimum income. The capped expenditure is in turn calculated on the average cost per bus extrapolated for the whole fleet as follows:
2004 2005 Lm Lm Wages 5,847 5,938 Fuel 3,228 4,006 Maintenance 2,649 2,781 Public Transport Association Expenses 920 966 Other Costs 910 956 Imputed Costs 720 720 Average Cost per Bus 14,274 15,367
Cost used in determining compensation: 13,780 15,255
Total Estimated Costs 7,000,240 7, 749,540 Total Estimated Revenues 5,000,000 6, 500,000 Subsidy 2,000,240 1,249,540
Government subsidy granted: 2,000,000 1,250,000
The partial payment of the insurance premiums
7 40. In order to reduce the costs for the owners of buses providing public service obligations for vehicle insurance, the Maltese Government, through the Malta Transport Authority, pays an amount agreed upon each year to the Motor Insurance Pool.
41. The Motor Insurance Pool, in turn, reduces the price of insurance polices for the owners of buses. In 2004, these reductions were as follows: Lm 320 for insurance polices costing Lm 363 or less; Lm 350 for insurance polices costing more than Lm 363. In 2005, these reductions were as follows: Lm 360 for insurance polices costing Lm 417.50 or less; Lm 400 for insurance polices costing more than Lm 417.50.
The reduced annual circulation tax
42. In Malta, the annual vehicle road circulation taxes are divided into three categories: a Lm 10 fee for owners of buses used for scheduled bus services; a Lm 35 fee for the the buses used for unscheduled Services; and a fee of Lm 200 for the specific provision of transport service to tourists. This differentiation takes into consideration the public service obligation, and reduces the costs for providing public service obligations.
43. The members of PTA only operate on the scheduled bus service and specific unscheduled services, like for example that provided for the carriage of school children. A special permission is required from the Malta Transport Authority in order to provide service to tourists. The Authority has not, in the past five years, issued such permits to buses on the scheduled bus service and therefore, the circulation tax of Lm 200 due for the provision of services to tourists does not apply and does not have to be paid.
The payment of the maintenance and consumables necessary for the Bus Ticketing Machine
44. The Maltese government pays for the maintenance and the consumables necessary for the Bus Ticketing Machine System.
Monitoring of the efficiency of PTA
45. The Malta Transport Authority monitors the operation of the scheduled bus service in order to ensure that the public service obligations that have been imposed on PTA are being carried out to a high standard. The monitoring comprises roadside vehicle/driver inspections combined with the analysis of all electronic bus ticketing data. Strict financial penalties are imposed on PTA members in case of infringements. These penalties are excluded from the costs used to determine the level of compensation.
II.5.e Exemption from payment of Malta Tourism Authority Contribution
46. Regarding this point, the Maltese authorities explain that the buses used to provide scheduled bus services do not fall within the scope of the Malta Tourism Authority, as they do not provide tourist transport services. Permission to provide such services can be granted to buses that operate on scheduled bus routes only following the written consent from the Malta Transport Authority. According to the information provided by the Maltese authorities, no such permission has been
8 granted in the last five years. The Maltese authorities have therefore explained the buses that provide scheduled bus services are not required to pay the Malta Tourism Contribution.
II.5.f Aid for the purchase of two-way radios
47. As far as aid for the purchase of two-way radios is concerned, the Maltese authorities have informed the Commission that PTA requested this aid, but that the Maltese authorities never granted it. In this respect, the Maltese authorities have assured the Commission that PTA has neither received a direct grant for the purchase of the radios, nor has it receveid an indirect reimbursement of the costs through the inclusion of the purchase price of the radios in the expenses covered by the Maltese Government under the public service compensation.
III. Appraisal of the measures
48. By virtue of Article 87(1) of the EC Treaty, any aid granted by a Member State or through State resources in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, shall, in so far as it affects trade between the Member States, be incompatible with the common market.
49. The concept of State aid applies to any advantage granted directly or indirectly, financed out of State resources, granted by the State itself or by any intermediary body acting by virtue of powers conferred on it.
50. The measures can further only constitute State aid if the beneficiary performs an activity which is to be considered an economic activity, and thus the beneficiary performing it can be regarded an undertaking within the meaning of Art. 87(1) of the EC Treaty.
51. According to the ECJ an economic activity is “any activity consisting in offering goods and services on a given market”.5
52. The bus owners belonging to PTA provide public transport services and thus perform an economic activity. Therefore, the PTA’s members are to be considered undertakings within the meaning of Art. 87(1) of the EC Treaty.
53. As far as the other conditions of Art. 87(1) EC Treaty, as well as the potential compatibility of the measures with the common market, are concerned, it has to be differentiated between the different forms of support, mentioned in point 8 above, granted to PTA by the Maltese Government.
III.1 Financial assistance for the replacement of the fleet
54. Firstly, it has to be examined whether financial assistance for the replacement of the fleet could be considered State aid within the meaning of Article 87(1) of the Treaty.
5 ECJ Case C 180-184/98, Pavel Pavlov, n° 75 ; Case C-35/96 Commission v Italy, n° 36; Case 118/85, Commission v Italy, n° 7.
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55. According to the information provided by the Maltese authorities, the replacement of the fleet and financing of the new buses by the Maltese Government was completed in 2003, before Malta’s accession in the EU. Thus, the Commission considers that the measure cannot be assessed as State aid under Art. 87 (1) of the EC Treaty as this provision does not apply to measures that expired before the Member State’s accession to the EU. Since then, no other aid scheme regarding replacement of fleet has been introduced.
56. The Commission informs the Maltese authorities that financial assistance for the replacement of rolling stock constitutes in general State aid; accordingly, the Commission invites the Maltese authorities to notify any new programme for financial assistance for the replacement of the fleet according to Article 88 (3) EC reaty prior to its implementation.
III.2 Exemption from registration tax and importation duty
III.2.1 Existence of State aid
57. The exemption from registration tax and importation duty decrease the income the State would normally gain in the absence of the measures, thus satisfying the criterium of being financed through state resources.
58. In order to be qualified as State aid, the measures must furthermore confer an advantage on a recipient undertaking. In this respect, the Commission has to verify whether the measures confer a specific advantage to its beneficiaries, in the form of a relief from charges, which “mitigate the charges which are normally included in the budget of an undertaking”.6 The exemption from the registration tax and importation duty applies both to the owners of buses performing Scheduled and Unscheduled Services, provided that the registered vehicles are new and satisfy conditions set out in the national regulation. Therefore, this exemption does not confer a particular advantage to operators of unscheduled services in comparison to operators of scheduled services.
59. However, the registration tax and the importation duty apply to other sectors of the economy. Therefore, this tax and duty are normally included in the budget of an undertaking. Hence, the measure grants a specific advantage to operators of scheduled and unscheduled bus services in so far as it mitigates the charges which are normally included in the budget of an undertaking.
60. The Commission furthermore needs to verify whether the exemptions from the registration tax and the importation duty are liable to potentially distort competition and affect trade between Member States.
61. Every reduction in charges which are normally included in the budget of an undertaking strengthens the financial position of the undertaking benefiting from the reduction in charges. The undertaking can then, in principle, use its strengthened position in order to compete in other Member States and on other
6 ECJ 30/59, Steenkolenmijnen v. High Authority, ECR 1961, 1 (19).
10 markets, except if its activities are limited, by virtue of national law, to exercising the activity with respect to which it receives the advantage on the territory of the Member State which grants the aid.
62. In the present case, there are no indications that the Maltese bus owners benefiting from the exemptions would have economic activities in other sectors and/or in other Member States. However, Article 87 (1) EC treaty refers only to potential distortions of competition and potential impact on trade. As it cannot be excluded that some of the bus owners will in future engage in such activities, the Commission considers that the exemptions are liable to to potentially distort competition and affect trade between Member States.
63. In the light of this, the Commission considers that the measures do constitute State aid in the sense of Art. 87 (1) EC treaty.
III.2.2 Compatibility of the measure
Registration taxes and Community law
64. Currently, 18 out of the 27 Member States apply a registration tax for new cars. Council Directives 83/182/EEC and 83/183/EEC have established a limited number of Community provisions covering certain areas of taxation of passenger cars. In the absence of any further Community rules, Member States are free to lay down national provisions for passenger car taxation, in particular for registration taxes. These have, however, to be in line with the general principles of the EC Treaty and in particular not give rise to border-crossing formalities in trade between Member States and respect the non discrimination principle.
65. The ECJ has, in several cases, been confronted with these registration taxes. Its jurisprudence can be summarized as follows:
66. In Weigel (C-387/01) and Lindfors (C-365/02), the ECJ held that registration tax can be applied, as car registration taxes fall outside the scope of the exemption from "turnover tax, excise duty and other consumption taxes", provided for in Directive 83/183/EEC, for personal property imported permanently from another Member State by private individuals. As a consequence, each Member State is able to decide whether to apply a registration tax or not.
67. In Commission/Denmark (C-138/2004) and Maciej Brzeziński (C-313/05), the ECJ clarified, however, that registration taxes can amount to an obstacle to free movement of persons and workers, in particular because of their rates and technicalities (C-138/2004), and that it is necessary to assess the compatibility of the excise duty in the light of Article 90 EC treaty (C-313/05).
68. The Commission has proposed in 2005 a new directive, which would require Member States to re-structure their passenger car taxation systems.7 The proposal aims to improve the functioning of the internal market by removing existing tax obstacles to the transfer of passenger cars from one Member State to another. The
7 Commission decision of 5 July 2005, proposal for a Council directive on passenger car related taxes, COM (2005) 261 final. 11 proposal would oblige Member States to abolish registration taxes the latest by 2016.8 The European Parliament has approved this proposal in fall 2006; it is now awaiting its debate in the Council.
69. The compatibility of the present measures has to be assessed in the light of these circumstances.
Compatibility based on Article 87 (3) (c)
70. Article 87 (3) (c) foresees that the Commission can declare compatible with the common market "aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest". In this regard, the Commission needs to assess whether the aid contributes to an objective of common interest, whether it provides an incentive effect, whether it is proportionate to the objective pursued, and whether it does not involve undue distortion of competition.
71. In the present case, the Commission has to take into account the following considerations for this assessment: • The exemptions are conditional upon the replacement of an old bus by a new bus; it hence aims at improving the quality of bus services offered, and at reducing the level of pollution caused by old bus engines, which in Malta have often 40 years and more of age.
• Member States are free to impose registration taxes; hence, the level of registration taxes to be paid differs widely within the Union (according to an estimate of the Commission, between 0% and 180% of the pre-tax price of a vehicle).9
• Bus transport is the only existing form of public transport in Malta, as there are neither railways nor inland waterways. By not applying the registration tax and the import duty to public transport, Malta encourages the shift from individual car transport to public transport.
• The exemption is granted both to operators of scheduled and unscheduled bus services; hence, it does create any distortions of competition within the Maltese market for bus transport.
• The exemptions are only granted to bus owners who replace an old bus by a new bus; hence, the total number of busses on Malta is not affected by the exemption.
72. In the light of these considerations, the Commission considers that the aid in question increases the quality of public transport in Malta. The Commission considers that the promotion of high-qulaity public transport is in the common interest, as it reduces the negative impacts of the extensive use of private cars,
8 See chapter III of the proposal.
9 See explanatory memorandum of the proposal.
12 which comprise in particular atmospheric pollution and traffic accidents.10 The Commission concludes that the aid contributes to an objective of common interest.
73. The aid provides an incentive effect to increase the quality of bus transport in Malta, as it is conditional upon the scrapping of an old bus. The aid is also proportionate to the objective pursued, in particular in the light of the existing differences between registration taxes charged in the different Member States and its nature as an investment aid.
74. The question then arises whether there is a risk of undue distortions of competition and trade..
75. On this point, the Commission notes that PTA and UBS, which are the beneficiaires of the aid, are both active on the market for unscheduled bus services. PTA, in addition to this, is also active on the market for scheduled bus services. The exemption from the import duty and from the registration tax is hence granted to all operators active in these two markets, namely the members of PTA and UBS. Any operator, be it from Malta or another Member State, can benefit from it by joining PTA or UBS. In order to join PTA or UBS, the operator needs to obtain a licence to carry out scheduled bus services (for joining PTA) or to carry out unscheduled bus services (for joining UBS). Once this requirement is fulfilled, there are no further conditions for joining the respective associations.
76. Furthermore, the Commission notes that Malta does not have a railway system, neither inland water ways. Accordingly, the negative impact on competition is likely to be minimal.
77. , The Commission thus concludes that the positive impact on competition outweighs in the present case the potential negative impact and that the measures are therefore not likely to unduly distort competition or affect trade.
III.3 Purchase of Bus Ticketing Machine (BTM)
78. The purchase of the BTM took place in 2003, before Malta joined the EU. For the reasons explained when analysing the financial assistance granted for the replacement of the fleet, the Commission is not competent to assess any potential State aid implication of this measure. III.4 Compensation of public service obligations imposed upon the members of PTA, which are intended to ensure the provision of a regular, continuous and reliable public transport service
Existence of State aid
79. Pursuant to the information provided by the Maltese authorities, the measure is financed by the State. The condition of granting of aid by a Member State or through State resources is therefore satisfied.
10 Cf. livre blanc " La politique européenne des transports à l’horizon 2010 : l’heure des choix , Adopté par la Commission le 12 septembre 2001, COM(2001) 370 final, partie IV, « La rationalisation du transport urbain », p. 93 et 94.
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80. The measure must furthermore confer an economic advantage which the recipient undertaking would not have obtained under normal market conditions.
81. However, the European Court of Justice (ECJ), in the Altmark judgment11, has considered that “where a State measure must be regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations (…) such a measure is not caught by Article 87(1) of the Treaty” provided that the following criteria are fulfilled:
“First, the recipient undertaking is actually required to discharge public service obligations, and those obligations have been clearly defined.
Second, the parameters on the basis of which the compensation is calculated have been established beforehand in an objective and transparent manner.
Third, the compensation does not exceed what is necessary to cover all or part of the costs incurred in discharging public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations.
Fourth, where the undertaking which is to discharge public service obligations, is not chosen in a public procurement procedure, the level of compensation needed has been determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into accout the relevant receipts and a reasonable profit for discharging the obligations.”12
82. With regard to the fourth Altmark criterion, the Maltese authorities have submitted that the imposition of public service obligations on the bus owners belonging to PTA and the compensation for these obligations were contained in the Motor Vehicles Regulation of 1994 and further specified in the 1995 Agreement between the Maltese Government and the PTA. As explained above in point 16, the conclusion of the Agreement has not been preceded by a public tender. Accordingly, the providers of the scheduled bus services in Malta have not been chosen through a public procurement procedure.
83. Therefore, in order to fulfil the fourth Altmark criterion, the Maltese government has to prove that the level of compensation needed has been determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into accout the relevant receipts and a reasonable profit for discharging the obligations. The Commission considers that the Maltese authorities have not provided enough information to draw such a conclusion.
11 Case C-280/00, Altmark Trans GmbH and Regierungspräsidium Magdeburg, [2003] ECR I-7747.
12Ibidem, paragraph 95.
14 84. As at least one of the four Altmark criteria has not been fulfilled in the present case, the measure at issue confers to PTA an advantage in the sense of Art. 87(1) of the EC Treaty.
85. It furthermore needs to be verified whether the economic advantage granted from State resources is liable to distort competition and to affect trade between Member States.
86. In this respect, as the Altmark judgment13 points out:
“It is not impossible that a public subsidy granted to an undertaking which provides only local or regional transport services and does not provide any transport services outside its State of origin may none the less have an effect on trade between Member States”.14
Where a Member State grants a public subsidy to an undertaking, the supply of transport services by that undertaking may for that reason be maintained or increased with the result that undertakings established in other Member States have less chance of providing their transport services in the market in that Member State (see, to that effect, Case 102/87 France v Commission [1988] ECR 4067, paragraph 19; Case C- 305/89 Italy v Commission [1991] ECR I-1603, paragraph 26; and Spain v Commission, paragraph 40).
In the present case, that finding is not merely hypothetical, since, as appears in particular from the observations of the Commission, several Member States have since 1995 started to open certain transport markets to competition from undertakings established in other Member States, so that a number of undertakings are already offering their urban, suburban or regional transport services in Member States other than their State of origin.
Next, the Commission notice of 6 March 1996 on the de minimis rule for State aid (OJ 1996 C 68, p. 9), as its fourth paragraph states, does not concern transport. Similarly, Commission Regulation (EC) No 69/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to de minimis aid (OJ 2001 L 10, p. 30), in accordance with the third recital in the preamble and Article 1(a), does not apply to that sector.
Finally, according to the Court's case-law, there is no threshold or percentage below which it may be considered that trade between Member States is not affected. The relatively small amount of aid or the relatively small size of the undertaking which receives it does not as such exclude the possibility that trade between Member States might be affected (see Tubemeuse, paragraph 43, and Spain v Commission, paragraph 42).
13 Case C-280/00, Altmark, cited above, paragraph 82.
14 ECJ C-280/00 of 24 July 2003, Altmark Trans GmbH/Regierungspräsidium Magdeburg, no. 77 and following.
15 The second condition for the application of Article 92(1) of the Treaty, namely that the aid must be capable of affecting trade between Member States, does not therefore depend on the local or regional character of the transport services supplied or on the scale of the field of activity concerned.
87. The Commission thus considers the measure might affect inter-state trade and distort or threaten to distort competition inside this market.
88. Accordingly, the Commission has come to the conclusion that the measure constitutes State aid in the sense of Art. 87 (1) EC treaty.
Compatibility of the measure
89. Article 73 contains special rules for the compatibility of State aid in the area of coordination of transport and public service obligations in transport. The Commission, in constant practice, has considered that Article 73 constitutes a lex specialis with respect to Article 87 (2) and Article 87 (3), as it contains special rules for the compatibility of State aid.
90. Article 73 cannot be applied directly, but only through the three Council Regulations which have been adopted on its basis (Council Regulations 1191/69/EC, 1192/69/EC and 1107/70/EC). 15
91. As Regulation 1107/70 is applicable only if Regulation 1191/69 is not applicable,16 this decision examines first the compatibility of the aid on the basis of Regulation 1191/69.
Scope of Regulation 1191/69
92. Regulation 1191/69 can be applied only if the beneficiary constitutes an undertaking which operates services in transport by rail, road or inland waterway (Article 1 (1) subparagraph 1 of the Regulation).
93. As PTA members provide scheduled bus services, they are undertakings which operate their services by road. PTA and its members thus fall into the scope of Regulation 1191/69.
94. The Maltese authorities have explained they have not exempted PTA from the scope of Regulation 1191/69 according to Article 1 (1) subparagraph 2 of the Regulation 1191/69.
The choice of the option for compensation according to Regulation 1191/69
95. Article 1 (3) of Regulation 1191/69 stipulates that “The competent authorities of the Member States shall terminate all obligations inherent in the concept of a
15 Case C-280/00, Altmark, cited above, paragraphs 101, 105, 106, 107.
16 See article 3 § 2 of Regulation 1107/70.
16 public service as defined in this Regulation as imposed on transport by rail, road and inland waterway”.
96. However, according to Article 1 (4) of the Regulation, “In order to ensure the adequate transport services which in particular take into account social and environmental factors and town and country planning, or with a view to offering particular fares to certain categories of passenger, the competent authorities of the Member States may conclude public service contracts with a transport undertaking”.
97. The Maltese authorities have declared that they have not concluded a public service contract with PTA and its members. Therefore, Article 1 (4) does not apply in the present case.
98. Article 1 (5) of the Regulation states further that, “however, the competent authorities of the Member States may maintain or impose the public service obligations referred to in Article 2 for urban, suburban and regional passenger transport services. The conditions and details of operation, including methods of compensation are laid down in Sections II, III and IV”.
99. The Maltese government has imposed public service obligation upon the members of PTA by the virtue of law, namely through the Motor Vehicles Regulations (LN65/94) and the Motor Vehicles (Tariff of Fares) Regulations (LN14/82). The public service obligations are clearly defined, and include an obligation to operate, an obligation to carry and a tariff obligation, as explained above in the description.
100. It remains to be verified whether PTA and its members provide urban, suburban and regional passenger transport services. This notion is defined in Article 1 (2) of the Regulation.
101. Article 1 (2) defines urban and suburban services as transport services meeting the needs of an urban centre or conurbation, and transport needs between it and surrounding areas. It defines regional passenger services as ‘regional transport services operated to meet the transport needs of a region’.
102. The Maltese authorities have submitted that the services provided by PTA constitute a network of regular/scheduled services for Malta, which has an area of 246 sq. km and a population of 400,000. According to the Maltese authorities, the network of PTA services is by virtue of its spatial layout and demography of similar character to a medium-sized European city and is therefore considered to be an undertaking whose activities are confined to the operation of urban and suburban public transport services within the meaning of Article 1 (2) of Regulation 1191/69.
103. The Commission considers that it is not necessary to decide whether indeed all of Malta is to be considered as one urban centre or conurbation, or as one region. An examination of the different routes defined in the Maltese legislation has shown that all of the scheduled bus services qualify as urban, suburban or regional and are thus covered by Article 1 (2) of the Regulation.
17 104. The Commission concludes that the Maltese authorities have opted for the possibility foreseen in Article 1 (5) of the Regulation, which is to unilaterally impose public service obligations on transport undertakings. Accordingly, the State aid granted in order to compensate these public service obligations needs to be assessed based on section III and IV of the Regulation, which comprises articles 9 to 13. It is also necessary to verify whether Malta complies with the other relevant provisions of Regulation 1191/69, contained in its sections II and V.
Compliance with section II of Regulation 1191/69
105. Section II of Regulation 1191/69 contains the common principles for the termination or maintenance of public service obligations. As Malta decided to maintain public service obligations, it needs to be verified whether it did so in conformity with the Regulation.
106. Article 3 stipulates the conditions to be fulfilled by Member State authorities when maintaining public service obligations:
1. Where the competent authorities of the Member States decide to maintain, in whole or in part, a public service obligation, and where this can be done in more than one way, each capable of ensuring, while satisfying similar conditions, the provision of adequate transport services, the competent authorities shall select the way least costly to the Community.
2. The adequacy of transport services shall be assessed havingreg ard to: (a) the public interest; (b) the possibility of havingrecourse to other forms of transport and the ability of such forms to meet the transport needs under consideration; (c) the transport rates and conditions which can be quoted to users.
107. Malta has informed the Commission that in 1994, when it decided to maintain the public service obligations, it considered that imposing these obligations on the existing and functioning association PTA was the most cost- effective solution, for the following reasons:
• PTA had a long-standing experience in providing public transport in Malta, as it had been, for decades, the sole provider of public transport on the island;
• PTA had the necessary resources, both with regards to its capacity and with regard to its existing network in Malta.
108. The Commission observes that Malta made this choice ten years prior to its accession to the EU, and hence independently of the requirements of applicable Community law during that time.
109. During the enlargement negotiations, the Commission found that the Maltese system of imposed public service obligations was in line with the applicable provisions of Community law, and in particular with Regulation 1191/69.
18 110. In addition, the Commission considers that, given the particularities of Malta (small size, geographic location, absence of a railway system or transport on inland waterways, left-driving), the choice of the Maltese government to impose public service obligations on PTA respects the criteria set out in Article 3.
111. Article 4 and 5 set out the obligation for transport undertakings to apply to the competent authorities for compensation payments, and provide an economic justification for receiving compensation payments.
112. PTA has applied in 1995 to the Maltese government for receiving compensation payments. The condition of Article 4 is thus satisfied.
113. This application has been backed by a calculation of the economic disadvantage created through the public service obligation. Absent the imposition of the public service obligation, no undertaking would be offering scheduled bus services in Malta, as none of these services is economically viable. The calculation of the economic disadvantage hence deducts the revenues generated by the scheduled bus services through ticketing revenue with the costs generated by the discharge of the public service obligations.
114. The Commission considers that this method of calculation is in line with Article 5.
115. Article 6 foresees that applications for compensation payments need to be filed within one year after the entry into force of the Regulation. This article is not relevant for countries acceding to the EU more than one year after the entry into force of the Regulation.
116. Article 7 (possibility for the authority to link the compensation payment to the fulfilment of certain conditions) and 8 (termination of public service obligation having an impact on intra-community trade) of the Regulation are not relevant for the present case.
Compensation according to Section III of Regulation 1191/69 (tariff obligations)
117. Section III of the Regulation consists of the sole article 9, which reads:
1. The amount of compensation in respect of financial burdens devolving upon undertakings by reason of the application to passenger transport of transport rates and conditions imposed in the interests of one or more particular categories of person shall be determined in accordance with the common procedures laid down in Articles 11 to 13.
2. Compensation shall be payable from 1 January 1971. Should any Member State meet with special difficulties, the Council may, at the request of that State and on a proposal from the Commission, authorise the State concerned to alter that date to 1 January 1972.
3. Applications for compensation shall be lodged with the competent authorities of the Member States.
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118. As Malta has imposed tariff obligations, as well as obligations to operate and to carry, it has calculated the compensation payments for these obligations together, following the methodology set out in Articles 10 to 13.
119. The Commission considers that this is in line with Article 9 of the Regulation.
Compensation according to Section IVof Regulation 1191/69
120. According to Article 10 of Regulation 1191/69 “The amount of the compensation provided for in Article 6 shall, in the case of an obligation to operate or to carry, be equal to the difference between the reduction in financial burden and the reduction in revenue of the undertaking if the whole or the relevant part of the obligation in question were terminated for the period of time under consideration”. In other words, according to Article 10 of Regulation 1191/69, the amount of the compensation needs to be limited to the difference between the costs for discharging the obligation and the revenues generated through the obligation.
121. The following public service obligations have been imposed on PTA:
a) The obligation to operate – according to the Maltese Motor Vehicles Regulation, the Maltese authorities are to fix the bus routes, frequency of departure from bus termini, the hours of operation and the type of vehicle that is to be used on the services in order to satisfy fixed standards of continuity, regularity and capacity;
b) The obligation to carry, combined with tariff obligations – the Maltese authorities have submitted the fare levels for each type of bus service on each route are fixed and laid down in the Motor Vehicles Regulations; this includes obligation for fare concessions to be applied to children, students and apprentices, and elderly persons (over 60 years old) 122. The Commission thus has to verify whether the compensation paid by the Maltese authorities is limited to the difference between the costs PTA incurs for discharging these public service obligations and the revenues PTA generates through the sale of bus tickets.
Expenditures
123. The total projected expenditure of PTA can be seen from the table in point 29. For the years 2004 and 2005, they have been respectively of Lm 7,000,240 and Lm 7, 749,540.
124. It has to be noted that the projected expenditure is reduced by three State measures, also described above in the description, which are the contributions to the motor insurance pool, the reduced annual vehicle tax and the maintenance and consumables of ticketing machines.
125. The contribution to the Motor insurance pool reduces the expenditures of the bus owners. The payment of the motor insurance is part of the normal 20 expenditures for operating a bus, and thus normally would increase the expenditures of the bus owners.
Revenues
126. The projected revenues can also be seen from the table in point 29. They have been of Lm 5,000,000 and Lm 6,500,000 respectively in 2004 and 2005.
Compensation
127. The compensation paid was Lm 2,000,000 and Lm 1,250,000 respectivley in 2004 and 2005, and thus corresponded to the difference between the costs for discharging the public service obligations and the revenues derived from it.
128. The calculation of expenditures and revenues is strictly limited to the expenditures and revenues for the discharge of public service obligations. To the extent that the members of the PTA provide unscheduled bus services, they have to pay for their expenditures on their own, and the central office charges them for the administrative costs (see description above).
129. Accordingly, the Commission considers that this method of calculating the compensation, which includes the reduction of the projected expenditure by payments into the motor insurance pool, the reduced annual vehicle tax, and the maintenance and consumables of ticketing machines, complies with the provisions of Article 10 of Regulation 1191/69.
130. Furthermore, Article 12 of the Regulation requires that “Costs resulting from the maintenance of obligations shall be calculated on the basis of efficient management of the undertaking and the provision of transport services of an adequate quality”.
131. As shown above in the description, the Maltese authorities have put into place a monitoring system in order to ensure compliance with article 12 of the Regulation.
132. Moreover, Article 13 of the Regulation requires that the amount of compensation shall be fixed in advance for a period of at least one year. Article 13 stipulates further that, at the same time, the decisions imposing the public service obligations should determine the factors which might warrant an adjustment of that amount.
133. In Malta, the level of compensation is determined by the Maltese Government at the beginning of the year. The adjustments made to the compensation after the year-end primarily relate to changes in fuel prices. The increases would only consider the change in the price of fuel and would be calculated on the estimated fuel volume consumption.
134. Accordingly, the Commission considers the Maltese authorities have complied with conditions of Article 13 of the Regulation 1191/69. The level of compensation has been fixed in advance for a period of one year. Furthermore, the Maltese authorities have taken into account the factors (in the present case the changes in the fuel prices) that might warrant an adjustment while calculating the 21 compensation. Thus, the provisions of the Article 13 of the Regulation are fulfilled.
Limitation of the compensation to expenditures for discharging public service obligations
135. Members of the PTA can also use their buses for offering unscheduled bus services, if they respect the conditions set out in Regulation 6 of "Subsidiary legislation 65.14 on Scheduled and unscheduled public transport services regulations" (see description of relevant markets above).
136. The Maltese authorities have ensured the Commission that the calculation of costs for discharging public service obligations comprises only costs generated by the public service obligations. Costs for fuel, maintenance and wages which are attributable to unscheduled bus services cannot be compensated. With respect to the administrative costs for the central office, members of PTA have to pay a contribution each time they offer an unscheduled bus service.
137. The Commission concludes that the compensation is limited to expenditure for discharging public service obligations.
Compliance with the final provisions of Regulation 1191/69
138. As foreseen in Article 15 of Regulation, any decisions made by the Maltese Government in relation to the imposition of public service obligations are published.
139. Moreover, the Maltese authorities have submitted they have complied with Article 16 which requires that Member States ensure that transport undertakings, in their capacity as transport undertakings, are given the opportunity to make representations concerning their interests, by appropriate means, with decisions taken pursuant to the Regulation 1191/69.
140. According to the Maltese authorities, the Malta Transport Authority conducts several meetings during the year at which transport undertakings are given the opportunity to make representations on any issue relating to the public passenger transport by road.
141. The Commission regards the above-mentioned measure as sufficient to ensure that the interests of the transport undertakings are represented adequately with regard to the decisions taken pursuant to the Regulation 1191/69.
142. In conclusion, the Commission considers that the compensations for public service obligations paid by the Maltese government to bus owners belonging to the PTA are compatible with the common market based on Section IV of Regulation 1191/69, which constitutes a concretisation of Article 73 EC treaty with regard to compensations for public service obligations.
22 III.5 Contributions to the Maltese tourist authority and alleged payments for two way radios
143. As the provision of public transport services does not constitute a tourist- related activity, the Commission considers the exemption of contributions to the Maltese tourist authority as logic. There are no grounds for assuming that this might constitute an illegal State aid.
144. As the Maltese government has declared to the Commission that there have been no payments for two-way radios, the Commission has no grounds for assuming that there might be illegal State aid with respect to this measure indicated in the complaint.
IV COMPLIANCE WITH THE OBLIGATION NOTIFICATION OF ARTICLE 88 (3) EC TREATY
145. All of the measures analysed in the present decision have been put in place prior to the accession of Malta to the EU. The Accession Treaty lays down the following rules for the notification of such measures in the field of transport:
As regards aid to the transport sector, aid schemes and individual aid put into effect in a new Member State before the date of accession, and still applicable after that date, shall be regarded as existing aid within the meaning of Article 88(1) of the EC Treaty until the end of the third year after the date of accession, provided they are communicated to the Commission within four months of the date of accession. This provision shall be without prejudice to the procedures concerning existing aid provided for in Article 88 of the EC Treaty.
The new Member States shall amend any aid deemed to be existing in accordance with the above subparagraph in order to comply with the guidelines applied by the Commission by the end of the third year after the date of accession at the latest.
Existing aid and plans intended to grant or alter aids, communicated to the Commission prior to the date of accession, shall be deemed to have been communicated or notified on the date of accession.
146. Malta has not communicated any of the measures which are the object of the present decision to the Commission in accordance with these provisions.
147. The Commission considers that such notification was not necessary for the measure "Financial assistance for the replacement of the fleet" and the measure "Purchase of bus ticketing machines", as these measures are not applicable after accession.
148. The Commission considers that such notification was not necessary for the measures "Contributions to the Maltese tourist authority" and "alleged payments for two way radios", as these measures do not constitute an aid.
149. Finally, the Commission considers that the compensation payements pursuant to Articles 10 to 13 of Regulation 1191/69 are exempted from the 23 notification obligation foreseen in Article 88 (3) EC treaty pursuant to Article 17 (2) of Regulation 1191/69. Hence, there notification was not necessary either.
V Decision
The European Commission has therefore decided not to raise any objections to the measure in question on the grounds that it partially does not constitute a State aid, and for the reminder is compatible with the Common Market based on Regulation 1191/69
If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/community_law/state_aids/index.htm. Your request should be sent by registered letter or fax to:
European Commission, Directorate-General for Energy and Transport, Directorate A, Unit A4, DM 28 6/100 B-1049 Brussels Fax No: + 32.2.296.41.04
Yours faithfully,
For the Commission Jacques Barrot Vice-President of the Commission
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