The Voice of European Railways

Public Service in the : an Overview Public Service Rail Transport in the European Union: an Overview

Table of contents Public Service Rail Transport in the European Union: an Overview The Voice of European Railways

The Community of European Railway and Infrastructure Companies (CER) brings together more than 70 railway undertakings, their national associations as well as infrastructure managers and vehicle leasing companies. The membership is made up of long-established bodies, new entrants and both private and public enterprises, representing 73% of the rail network length, 80% of the rail freight business and Foreword p .4 about 96% of rail passenger operations in EU, EFTA and EU accession countries. CER represents the interests of its members towards EU policy makers and transport stakeholders, advocating rail as the backbone of competitive and sustainable transport system in .

Publisher: Community of European Railway and Infrastructure Companies (CER), Avenue des Arts 53, 1000 - Belgium Author: Miguel Ángel Caramello-Álvarez, CER Chief Legal Officer Special thanks to former CER Legal Stagiaire’s Christina Kechagia and Alberto de Juan Saiz Design and production: Page in Extremis - www.inextremis.be Photos: Kindly provided by CER members & purchased at www.fotolia.com Overview p .6 Published in June 2017

For more information: www.cer.be

DISCLAIMER CER, nor any person acting on its behalf, may be responsible for the use to which information contained in this publication may be put, nor for any errors which may appear despite careful preparation and checking. Reproduction is authorised, provided the source is acknowledged.

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PART 1 Legal, political and 2. State of play and trends PART 2 Country reports economic context 2.1 Introduction p. 18 1. Legal, political and economic context 2.2 General framework for the organisation p. 19 of public service operations 1.1 First steps towards the fair provision of public p.11 2.3 Operators on the market p. 20 service transport: Regulation 1191/69 2.4 Definition of public service requirements p. 22 1.2 The turning point: the Altmark judgement p.12 2.5 Scope of public service transport by rail p. 23 1.3 Overhaul of the legal framework: p.14 2.6 Contract p. 26 Regulation 1370/2007 2.7 Awarding of public service contracts p. 27 Belgium p. 48 p. 96 1.4 Application of Regulation 1370/2007: p.15 a brief overview of the relevant case law 2.8 Contract negotiation p. 31 p. 51 Luxembourg p. 100 1.5 The Fourth Railway Package: amendment of p.16 2.9 General payment conditions p. 32 Croatia p. 55 The p. 102 Regulation 1370/2007 2.10 Duration of public service contracts p. 34 p. 58 p. 105 2.11 Rolling stock p. 36 p. 62 Poland p. 108 2.12 Involvement of the regulatory body p. 37 p. 66 p. 115 or other authorities in public service contract p. 69 Romania p. 118 discussions p. 71 p. 123 Slovenia 3. Public service financing: p. 75 p. 126 the ‘heart of the matter’ p. 82 Spain p. 129 p. 84 p. 132 3.1 Overview of the provisions foreseen in the p. 39 p. 137 amended Regulation 1370/2007 p. 89 p. 94 3.2 Current state of the art: too much p. 42 under-compensation 3.3 The problem of under-compensation p. 43

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Foreword Is there a foreword?

Public service transport plays a crucial role in passenger trans- Over the next six years, the evolution on these two fronts continued and port in the European Union, both from a political and an economic has to a certain extent become even more noticeable today. First, com- point of view. The vast majority of passenger transport services petition has substantially grown, with an increasing number of public in the EU are currently provided within the context of public service contracts being tendered out: approximately 17% of regional service contracts, which in many cases represent substantial rev- services are awarded exclusively through a competitive process, while enue for railway undertakings. Moreover, public service transport the relevant percentage for long-distance services is 12.5%. Apart from is unarguably an important social policy instrument for public the traditionally competitive markets of Germany, , Italy and authorities. Sweden, other national markets, such as Bulgaria, the Czech Republic, Denmark, the Netherlands, Norway and Poland have emulated this exam- The operation and organisation of public service transport ple and achieved discernible progress. In light of the regulatory overhaul differs greatly throughout the EU due to the various needs and brought about by the Fourth Railway Package – the main thrust of which social backgrounds. This is why the Community of European is to fully liberalise the market for passenger railway services – this trend Railway and Infrastructure Companies (CER) decided in 2005 to is likely to become the norm. publish the first edition of a brochure illustrating the different approaches in the European Union. At the time, it was striking On the second front, although there is still vast room for improvement to see that the conditions for operating public service contracts and fuller compliance with EU legislation, some further progress has were divided into two major groups: the EU-15 countries, been made with regards to the financing of public service require- where public service passenger transport was organised in ments. A significant development to that effect can be detected in the compliance with a straightforward legal framework and where overall increase, particularly within the EU-13 Member States, of the du- railway operators were considered as commercial enterprises; ration of public service contracts. These longer agreements provide some and the EU-10 countries, where the situation was much more leeway to railway operators to make more efficient long-term plans for problematic, with operators being forced to provide public their business and allow for the gradual proliferation of leasing markets services while receiving inadequate financial compensation in for rolling stock. Nevertheless, financing levels remain unsatisfactory and return. In other words, the conditions under which public service fail to unlock the sector’s untapped potential in terms of attracting modal transport was provided were multifarious and it was thus clear shift to rail. that homogenous rules could not be applied without taking into account the specific political and economic context in each In this context, CER is publishing the third edition of this brochure Member State. which describes the current rail public service landscape in the - pean Union as well as in Norway and Switzerland. A general commen- Six years later, at the time of our first update of the brochure in tary is also included, guiding the reader through the various elements 2011, there was already a marked evolution of the situation in two to be taken into account when analysing the provision of public service key areas: competition as evidenced by increased tendering of . With this brochure, CER hopes to provide a useful analytical service contracts was growing, and some improvement was being tool to stakeholders in their assessment of the constantly changing legal made with regards to the financing of public service obligations. framework for railway undertakings in Europe.

4 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

Libor Lochman CER Executive Director

Public service transport plays a crucial role in passenger transport in the European Union, both from a political and from an economic point of view. The vast majority of passenger transport services in the EU are currently provided within the context of public service contracts.

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Overview

Overall, passenger railway traffic increased Traditionally, government payments were annual budget discussion on the overall level of their political choices; while on the other, from 2010 to 2015 by 5.6%. In 2014 a provided in the rail transport sector as a means of the operating subsidy. This in turn gave operators had strong incentives to meet the total of 429 billion passenger-kilometres of serving three main objectives. First, the poor incentives for the state-owned railway quantitative targets listed in the contract in a were operated across Europe, out of provision of a transport service of general company, which rather than concentrating on cost-efficient way. which 404 billion passenger-kilometres interest to all citizens, with a view to satisfying generating new sources of revenue, or trying on national railway networks and just 25 the fundamental right to mobility, has been to reduce costs, would focus on the annual In 2000, the European Commission voiced its billion on international routes.1 However, it an essential element of political agendas budget negotiations with the Government. concerns about the fact that this Regulation, should be noted that although the volume throughout the years. Second, securing last modified in 1991, was not reflecting of passenger rail demand has grown, its affordable and continuous rail services has been At the time, the main piece of EU legislation current needs as it did not fit in with the modal share in land transport at EU level an important component of governments’ social on public service obligations (PSOs) for overall Commission policy of opening up the has shifted only a half of a percentage point welfare and regional aid programs, aimed at rail and road was Regulation 1191/69. It rail passenger market. The Commission made from 7.1% in 2009 to 7.5% in 2014. allowing low-income families and those living was designed to improve transparency and several attempts to modify this text,3 but failed in remote areas to be mobile and thus have efficiency, and clarify the conditions under to gain support from the Council of Ministers In the rail transport sector, governments more chance of finding employment within a which public authorities could impose as the successive proposals focused essentially throughout the world usually co-finance larger region. Third, with regard to so-called public service obligations on the incumbent on opening the public service transport market domestic rail passenger transport ‘external costs’ (CO2 emissions, damages to companies in exchange for financing. In to competition. In parallel, heads of state and services as these services are typically not the environment, congestion, noise, accident- other words, the overall aim of the text was government expressed their attachment commercially viable, albeit essential for the related costs), promoting an alternative mode of to set limits to what public authorities could to a broader notion of ‘Services of General society’s welfare. These payments should transport like rail – that generates considerably impose on companies deemed to operate as Economic Interest’ (SGEI), which covers a be distinguished from any financial support lower external costs than road – constitutes an commercial enterprises in the internal market wider range of services than merely public granted to infrastructure managers to imperative. and to determine how such obligations service transport operations. provide and maintain infrastructure. should be financed. This first Regulation was In the 1960s it became clear that the amended in 1991 by Regulation 1893/91. This preference was expressed at several Considering its capital needs, the rail sector traditional form of granting subsidies was European summits ( in December 2000; depends heavily on public funding which, hindering the development of efficient and The original Public Service Regulation 1191/69 Laeken in December 2001 and in in the aftermath of the recent economic effective operation of domestic passenger rail helped railway companies by ensuring that March 2002) and resulted in the publication and financial crisis, is becoming scarce. services for both governments and railways. governments had to specify ex ante what level of of a Green Paper and of a White Paper According to data from 2014, government Governments were defining the level of service they required and then also agree with on Services of General Interest in which payments for public service obligations service requested from the state-owned the selected operator on the associated costs. the European Commission discussed and in the EU-28 amounted to approximately operator, however, they were not paying As a result, on the one hand politicians were reiterated its commitment to the social EUR 20 billion.2 for this service up-front, but waiting for the confronted with the financial consequences dimension of such services, whilst recognising

1 See the Commission Staff Working Document accompanying the Fifth report on monitoring developments of the rail market (RMMS Report), European Commission, 8 December 2016, page 19. 2 See the Commission Staff Working Document accompanying the Fifth report on monitoring developments of the rail market (RMMS Report), European Commission, 8 December 2016, page 78. 3 In 2000 and 2002, the European Commission attempted to review the legal framework, see COM (2000)7 as amended by COM (2002)107.

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that they must be adequately financed.4 To be effectively enforced by the European legislation going beyond the minimum abusive attitude of public authorities who that effect, the Commission adopted its first railway passenger operators. Thus, the new requirements foreseen in the EU legal imposed public service obligations on SGEI Package in 2005, which was superseded Regulation focuses on streamlining, first framework, often aiming at fostering state-owned incumbent companies without by a new SGEI Package in 2011. This line of the process of delineating the specifications competition in the market for the provision properly financing them. Today policymakers thinking is formally confirmed in the of public service obligations in accordance of passenger services, in order to lower concentrate their attention on competition Treaty, which provides a concrete legal basis with the relevant ‘public transport policy costs and ameliorate the quality of the rules with a view to avoiding any financial for the adoption of legislation related to documents’, and second, the way in which services provided. Thus, it is evident that, overcompensation of companies. The economic and financial conditions of Services these services are ultimately awarded. despite the existence of a general definition question is whether this change in focus of General Economic Interest.5 of the notion of public service obligation genuinely reflects the actual conditions for Overall, the vast majority of EU-15 Member for rail and , in practice, providing public service rail transport in the Finally, a new proposal revising the legal States have effectively implemented the EU there is a wide variation of nuanced enlarged European Union. Can the focus on framework of public service obligations was legal framework with regards to the daily conceptual aspects across the EU. To that dealing with the risk of overcompensation put forward by the European Commission operation of public rail services. However, in effect, it would be extremely simplistic to adequately respond to the reality in all in 2005, aimed at outlining the conditions several Member States, particularly amongst strictly associate the existence of public EU countries, or on the contrary, does it under which public financing of passenger those falling under the EU-13 bloc, the service obligations with services that contribute to further deepening the gap rail services could be seen as compatible with Regulation is only applicable de jure, since, in are not profitable or not cost-covering. between EU Member States? EU state aid rules. Regulation 1370/2007 practice, railway undertakings do not receive On the contrary, depending on the was adopted in 2007, repealing Regulation adequate compensation. As a result, railway regional, geographic and socioeconomic This publication, as a merely informative 1191/69. companies are still struggling to finance loss- specificities of each particular case, one document, does not take a position on such making passenger services. Since shutting can come across different types of public issues. Part 1 of the brochure can be used In 2013, the Commission brought the issue down such services is not an option in terms service obligations ranging from purely as a reference tool for the reader, who will of liberalising the domestic market back to of social policy and political action, railways quantitative ones to overwhelmingly find an overview of the legal, political and the fore by announcing the Fourth Railway without adequate funding are often compelled qualitative ones, from under-compensated economic context in which public service Package. Given that Regulation 1370/2007 to use revenue generated from the profitable services to services less reliant on subsidies obligations are currently operated, the and Directive 2012/34 go hand in hand freight sector to cross-finance the (agreed) as a source of income. general content of public service contracts, towards this goal, both legal texts were losses incurred by the discharge of public as well as the manner in which they are amended by Regulation 2016/2338 and services or to resort to short-term borrowing It is interesting to note that there has been awarded. Part 2 contains individual country Directive 2016/2370 accordingly. The new that inevitably leads to mounting debts. a shift in the concerns of the European reports describing in greater detail the Regulation ensures that the open access institutions over the years. In the early particular legal framework surrounding system – now to be more widely applied In parallel, in several Member States, seventies, European leaders aimed at the public services in each of the countries to the entirety of domestic traffic – can governments have introduced domestic protecting railway companies from the examined.

4 European Commission Green Paper on Services of General Interest, COM (2003)270, and Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on a White Paper on services of General Interest, COM (2004)374 5 Article 14 of the Treaty on the functioning of the European Union (TFEU): “Without prejudice to Article 4 of the Treaty on European Union or to Articles 93, 106 and 107 of this Treaty, and given the place occupied by services of general economic interest in the shared values of the Union as well as their role in promoting social and territorial cohesion, the Union and the member states, each within their respective powers and within the scope of application of the Treaties, shall take care that such services operate on the basis of principles and conditions, particularly economic and financial conditions, which enable them to fulfill their missions. The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall establish these principles and set these conditions without prejudice to the competence of member states, in compliance with the Treaties, to provide, to commission and to fund such services.”

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PART 1 Legal, political and economic context

CER - The Voice of European Railways 9 PART 1 1 Legal context: from Regulation 1191/69 to Regulation 1370/2007

1.1 First steps towards the fair provision of public service transport: Regulation 1191/69 1.2 The turning point: the Altmark judgement 1.3 Overhaul of the legal framework: Regulation 1370/2007 1.4 Application of Regulation 1370/2007: a brief overview of the relevant case law 1.5 The Fourth Railway Package: amendment of Regulation 1370/2007

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In order to be able to fully assess the complexity of the political and economic context of public service passenger transport, we must first understand the basic legal framework that governs it and the underlying objectives that it seeks to achieve. The very nature of the railway indus- try as a regulated network industry and the ultimate goal of creating an open and liberalised European market for passenger railway services, have, over the decades, undoubtedly forged the notion of public ser- vice obligations. The regulatory steps evolved over time and need to be examined in their chronological order.

1.1 First steps towards the fair provision of public service transport: Regulation 1191/69

One of Regulation 1191/69’s main compensation in a way that was compliant • First, through the conclusion of a Regulation 1893/91, there was no clear objectives with regards to the railway with the Community state aid norms. It public service contract between public provision as to the awarding process, thus sector was to tackle a situation in which therefore laid down a set of rules to ensure authorities and transport operators, leaving unresolved the thorny question of railway operators were expected to fulfil that competent authorities paid neither for instance when the former wished whether these services should be directly public service obligations without having too much, nor too little compensation.1 to implement social and environmental awarded or tendered. And even though the opportunity to object and without factors as well as town and country the Regulation broadly described the receiving compensation. It constituted an This Regulation defined the conditions planning, or when they wished to offer elements that should be included in the unusual piece of Community legislation under which public authorities could specific fares to certain categories of contract, it did not provide rules for the because it defined situations under which intervene in order to attain a requisite passengers. calculation of the level of compensation. Member States were required to ensure level of public transport. To that effect, it state aid. The rationale was to ensure envisaged two different ways to achieve It should be noted though that in the that operators received a proper level of the objective: initial legal text, as well as in the amending

1 T. Avanzata, Study on the implementation of the European Regulation (EC) Nº 1370/2007 on public passenger transport services by rail and by road of 23 October 2007, Avanzata Consulting, November 2010, p. 9

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1.2 The turning point: the Altmark judgement

• Second, through the imposition of Regulation 1191/69 foresaw a strict The 1969 legal background fit the The issue appeared to have reached a obligations outside of a contractual separation of accounts between services political and economic situation of the deadlock until the European Court of setting. More specifically, for urban, sub- subject to public service obligations – and six members of the Community at the Justice delivered its ruling on the Altmark urban or regional passenger transport as such benefiting from public funding – time. However, the rapidly evolving Case3, which paved the way for the services, public authorities could still and other services operated on a purely political and legal framework, for instance adoption of a new legal framework. unilaterally maintain or impose public commercial basis. the introduction of a proper European service obligations, provided they rail transport policy in 19912 and, later The Altmark Trans Case involved two respected certain conditions laid down in Until recently, given the absence of on, the adoption of successive railway bus companies and examined the the Regulation itself. international competition, the EU had packages, rendered Regulation 1191/69 conditions under which a German scarcely been concerned by how public ill-adapted to the sector as it did not regional authority awarded a regional In that case, the Regulation outlined service contracts for inland public reflect the prevailing market conditions. public service contract to one of them. in great detail the calculation method transport were awarded. In 2003, the The ECJ held that funding the discharge to be applied in order to finance such Court of Justice judgment in the Altmark The European Commission attempted of public service obligations (PSOs) obligations or, to put it in other words, Trans GmbH Case confirmed, among several amendments to the Regulation in would fall outside of the scope of Article to compensate for the ‘economic other things, that an international the early years of the millennium, mainly 107(1) TFEU4, where it merely covered disadvantage’ that the railway market for the provision of local using it as a tool to open up the market to the costs associated with the discharge undertakings concerned would have to transport services was developing. It competition. Indeed, the freight market of the service. For the nature of the endure. In the absence of a negotiated was thus critical that a new Regulation had just been fully opened to competition compensation to be purely compensatory, contract, such a detailed outline was should cover all market segments, and plans to liberalise international four cumulative criteria have to be met: considered a necessary safety valve for including regions and towns, to ensure passenger traffic were ripe for adoption. the status and viability of the operator. transparency in the award and execution As public service transport has, over 1. the recipient undertaking must actually The main points were: of public service contracts. The purpose the years, steadily represented close to have a PSO to discharge, and the of those rules, if complied with, was to 90% of the domestic market, in theory, obligations must be clearly defined; • For each service subject to an obligation exonerate contracts granted without this piece of legislation seemed to be the 2. the parameters on the basis of which to operate, the economic disadvantage competitive tendering from any suspicion appropriate vehicle to facilitate the full the compensation is calculated must be would be the cost of providing the of state aid. opening of the passenger rail market. established in advance in an objective service minus the revenue earned. In practice, however, this idea ended up and transparent manner; • Allocating rules for shared asset costs, being over-ambitious as the relevant 3. the compensation cannot exceed what shared overhead costs and shared legislative proposals never succeeded in is necessary to cover all or part of the revenues would have to be set in gathering sufficient political support from costs incurred for the discharge of the advance. the Council. Member States were not PSO, taking into account a ‘reasonable politically ready at the time to open this profit’; and market to competition. 2 Adoption of Directive 91/440 on the development of the Community’s railways 3 Case C-280/00 Altmark Trans GmbH and Regierungspräsidium Magdeburg v. Nahverkehrsgesellschaft Altmark GmbH [2003] ECR 2003, I-7747 4 Treaty on the Functioning of the European Union (TFEU)

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4. where the undertaking is not chosen interpreted the Altmark criteria in a the Commission’s practice appears under the scope of Regulation 1191/69, pursuant to a public procurement strict manner; and as a consequence of to be based on the premise that this but rather to services not abiding by procedure – which would ensure the the Commission’s approach, the Altmark criterion can only be met in its first those rules, the European Commission selection of the most efficient bidder criteria are regularly considered not to alternative, i.e. if the provider is chosen took the ruling into account while drafting that would be capable of providing be met. The Commission’s point of view on the basis of a competitive tender. its proposal for a new Regulation. those services at the least cost to the is comprehensible: while Altmark allows However, even in those cases where the community – the adequate level of for a self-assessment of PSOs by Member choice of undertaking and the amount compensation must be determined on States, the assessment of whether of compensation are defined by way of the basis of the costs of a typical, well- compensation that qualifies as state aid a procurement procedure, in line with run and adequately equipped operator. meets the requirements of compatibility competition and public procurement under Article 106(2) TFEU falls under rules, the compensation may fail the Where the aforementioned conditions the Commission’s exclusive competence. Commission’s necessity test (or the ‘least are satisfied, the compensation is not In its practice, the Commission has cost’ criterion).5 The consequence of considered to amount to state aid. As had the tendency to find that the state the Altmark test as interpreted by the these are cumulative criteria, if just one financing of public service missions does Commission in these cases is that public condition is not met, the compensation not comply with the Altmark criteria service contracts require notification constitutes state aid and is subject to – thereby bringing it within the ambit whenever they include incentives for the notification requirement to the of Article 107(1) TFEU – and then, the operator to increase its efforts, seek Commission and standstill obligation laid subsequently, to declare it compatible improvements in quality, attract more down in Article 108(3) TFEU. The aid with the common market on the basis of customers and retain additional revenues. measure can still be declared compatible Article 106(2) or Article 107(3) TFEU. The Commission thus compels the parties under Article 107(2), (3) TFEU (or 93 Hence, by its strict interpretation of the to agree on a more or less fixed margin TFEU and secondary legislation where Altmark requirements, the Commission that is not allowed to increase depending applicable) and Article 106 (2) TFEU has seized control over Member States’ on the economic success of the service in further to a favourable assessment by the spending in the context of what they question. Commission. consider to be a public service remit. Even though, from a legalistic point of The analysis of the Commission’s case The main challenge has been the view, the Altmark Case does not apply to law shows that the Commission has fourth Altmark criterion. In essence, compensation of public services falling

5 The nexus between the third criterion, i.e. the necessity criterion, according to which the compensation should only cover the costs related to the service plus a ‘reasonable profit’, and the fourth criterion, i.e. the ‘least cost’ criterion, according to which the PSO must be assigned to the undertaking requesting the lowest level of compensation and thus ensuring that the transaction will have the least cost for the state, is evident. According to the Commission, where a tender is open, transparent and non-discriminatory, there is a presumption that the outcome of the tender is exempt from any state aid elements. However, the ‘least cost criterion’ might not be fulfilled if, for instance, ‘qualitative elements’ define the outcome of the tender, i.e. where the objective is not to assign the discharge of the service for the lowest compensation, but the highest quality of the service at the least cost. In this case, in order for the award of the PSO to be state aid free, the only qualitative standards that can be taken into account during the selection process are the predefined standards set yb the awarding authority. If, for instance, the awarding authority instead of choosing the operator that requests the lowest compensation to fulfill theex ante set qualitative standards, irrespectively of whether they foresee a high or a low quality of services, decides to assign the PSO to the operator requesting higher compensation for offering even higher quality of services, then the third criterion, i.e. the necessity criterion, will not be fulfilled and thus the transaction will have to be notified to the Commission.

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1.3 Overhaul of the legal framework: Regulation 1370/2007

This new Regulation entered into force • the form this compensation can take: must feature, thus safeguarding an essential for the final adoption of the text on 3 December 2009 covering public either a direct financial influx and/or the adequate level of transparency and in 2007. passenger transport by road and rail. It award of exclusive rights.6 non-discrimination. To that effect, differed to that of 1969 in that now the the quantitative and qualitative On a concluding note, the Regulation main focus was the ‘state aid’ nature of The scope of the new Regulation was characteristics of the relevant obligations, tackled possible incompatibilities with the financing of such services and how widened to cover international services as well as the associated costs must state aid rules by ruling on how public such financing must be organised in order as well as domestic and thus ensure be determined in advance and clearly service operations must be compensated to be compatible with EU legislation. The that the emerging market of cross- stipulated in the contract. Moreover, the in order to avoid any overcompensation. purpose of the new Regulation was to border services would also be properly calculation method for the compensation As foreseen in the 1969 framework, if define how competent authorities may regulated. Thus, the award and operation payment forms part of the mandatory the compensation complies with the act in the field of inland public passenger of these services became subject to content of the contract. Regulation it is deemed to be compatible transport in order to ensure that the exactly the same European rules as local with EU law and therefore exempted services are effectively provided. There transport. Moreover, the broad definition The way in which public service contracts from any prior notification to the was a clear shift in the text’s focus from of the term ‘competent authority’ can be awarded, i.e. through competitive European Commission. a transport policy perspective to a more foreseen in the Regulation allowed for tendering or through direct award, competition-related approach. the possibility of creating an authority was a critical and highly debated point formed by two or more authorities of discussion during the decision- The crux of the Regulation lies in established in different Member States, making process. More particularly, Article 1, which outlines the conditions which would be better suited to monitor various conflicting views on the issue of under which competent authorities have cross-border public service obligations. compulsory tendering were expressed. to compensate public service operators In the initial text, the principle of a for the costs incurred for the discharge of While the previous Regulation left open compulsory tendering procedure was public service obligations. In other words, the question of whether a public service introduced, according to which direct Article 1 lays down two fundamental contract must be in place, Article 3 awards could only be granted to ‘internal points: of the new Regulation indicated in an operators’, i.e. within a region. However, unambiguous way that public transport a last-minute change to the text was • the basic rule that any public service services must be discharged within the introduced with regard to transport by obligation must be compensated framework of a ‘public service contract’. rail (Article 5 para. 6), whereby, unless (the level of compensation and the In addition, the Regulation outlined, prohibited by national law, competent calculation method are dealt with in in a detailed manner, the mandatory authorities had the leeway to make direct other parts of the text); and content that all public service contracts awards. This political compromise was

6 Exclusive rights are defined as rights entitling a public service operator to operate certain public passenger transport services on a particular route or network or in a particular area, to the exclusion of any other such operator.

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1.4 Application of Regulation 1370/2007: a brief overview of the relevant case law

The Commission, over the last years, has aid case involving the Czech Republic so as to motivate the beneficiary to The Commission further found that set the standards regarding public service and the relevant compensation granted increase its productivity.10 In this case, the there had been no overcompensation contracts and ‘reasonable profit’ in a clear to Southern Moravia Bus Companies Commission pointed out the following and that the maximum profit set at way, following the principles drawn in a ‘profit’of 7.85 % was also found to be issues of concern: 6% was reasonable for the contracts Regulation 1370/2007. The Regulation reasonable.8 at stake. Despite the fact that the itself explicitly foresees a reasonable • whether the parameters determining relevant compensation was found profit, but delineating the acceptable level It should be highlighted that the notion the financial compensation were to be compatible with EU law, the in practice is not always a simple matter. of profit has to be seen in light of the established in advance in an objective decision was made dependent upon the prevailing macro-economic conditions, and transparent manner; implementation of a refund mechanism One of the leading cases on this aspect notably inflation. Another important • whether the level of compensation was for the remaining duration of the was DB Regio.7 The case involved DB parameter is the appropriate choice limited to the amount necessary to contracts. Regio and two regional authorities, i.e. of the relevant profit ratio (Regulation cover all or part of the costs incurred in the Länder and Brandenburg, 1370/2007 refers to ‘return on discharging public service obligations, An interesting point was that the on the question of how the ‘reasonable capital’) and the level of risk borne by taking into account the relevant Commission based its entire assessment profit’ should be determined. Regulation the operator, which should be firmly revenues and a reasonable profit; on the new Regulation 1370/2007, while 1370/2007 refers to a comparison with determined by the contractual terms.9 • the fact that the contracts at stake were this piece of legislation did not exist at the sector averages, taking into account negotiated contracts, which raised a time when the contested contracts were the risk (or absence thereof) of the Regulation 1370/2007 further specifies general need for clarifications. negotiated and concluded. specific contract. Unfortunately, in that the method of calculating the light of the very diverse profit margins compensation must promote the According to its decision, a return The Commission decision was challenged in a sector historically marked by high maintenance or development of effective on capital of 6%, with the potential before the Court of First Instance by deficits, such comparisons are not always management by the public service to increase in case of productivity one of the previous applicants. It was straightforward. operator and the provision of passenger improvements up to 12% for each registered on 25 November 2009 under transport services of a sufficiently high particular year and 10% over each Case T-87/09 Andersen v Commission In the Landkreis Sachsen-Anhalt Case, standard. This found an interesting period of three years, would be but the Court decided to dismiss the the Commission considered a ‘profit’ application in Case C 41/2008 deemed acceptable under Regulation application as inadmissible. (to be understood as turnover margin) concerning Danish Railways, where the 1370/2007.11 of 5% to be reasonable, while in a state compensation system had been devised

7 Case C 47/2007, DB REGIO AG - Contrat de service public (OJ C 35, 8.2.2008, pp. 13-29) 8 Case C 3/2008, Public service compensations for Southern Moravia Bus Companies (OJ L 97, 14.4.2009) 9 Commission Staff Working Paper The Application of EU state aid rules on Services of General Economic Interest since 2005 and the outcome of the public consultation; Brussels 23.03.2011, p. 11 10 Case C 41/2008, Public service contracts between the Danish Government and Danske Statsbaner (OJ L 7, 11.01.2011, pp. 1-39) 11  This could be interpreted as implying that, contrary to what is foreseen in the New State Aid Rules for Services of General Economic Interest (Commission’s Decision and Framework of 20 December 2011), there is an efficiency requirement for land public passenger transport.

CER - The Voice of European Railways 15 Public Service Rail Transport in the European Union: an Overview

1.5 The Fourth Railway Package: amendment of Regulation 1370/2007

On 30 January 2013, the European share of rail in intra-EU transport has between specific stations was awarded applicable until December 2023. This Commission published its proposal for remained modest.” before the end of the transposition means that public service contracts a Fourth Railway Package, composed of period of the new Directive on the awarded directly on the basis of the two main legislative pillars: a so-called In the last months of 2016, the final basis of a fair competitive tendering general exception for heavy rail transport Technical Pillar aimed at harmonising amendments to the legal texts falling procedure.13 can, in practice, remain valid until technical rules on interoperability and under the Market pillar of the Fourth December 2033. After the transition safety and to reform the European Rail Railway Package were, after lengthy It was also clear, however, that the period, all directly awarded contracts will Agency, and a so-called Market Pillar debate, officially adopted by the objective of opening up the domestic have to comply with the conditions set in aiming to open the domestic passenger European Parliament and then published market could not be achieved without Article 5 (paras 3a, 4 and 4a). market in the years to come, thus in the EU Official Journal. addressing the PSO market. To that effect, completing the process of gradual market Regulation 1370/2007 was amended opening started with the First Railway The new Directive 2016/2370 amending by Regulation 2016/2338. In a nutshell, Package. Already in its Transport White Directive 2012/34 established the right the new Regulation clearly envisages the Paper of 2011,12 the Commission had of every European railway operator idea of facilitating access to the market set out its vision for establishing a Single to provide passenger services, at both for the provision of domestic services European Railway Area (SERA) as well international and domestic level in by establishing compulsory tendering as as the necessary steps for ensuring the every Member State. The only eligible a general rule and limiting the practice competitiveness of EU transport and limitation of this general right of access to of direct awards only to cases where enhancing inter-modal competition in the railway infrastructure is the objective of the contract is awarded to an in-house long term. The main rationale behind the safeguarding the economic equilibrium of operator or where one of the particular new Railway Package was aptly stated in existing public service contracts, as well cases foreseen in the Regulation text is the Commission’s proposal for amending as the indirect limitation stemming from applicable in the given context.14 Directive 2012/34: “In the last decade, exclusivity rights granted to operators three legislative ‘railway packages’ under PSO contracts concluded before The new Regulation on public passenger have progressively opened up national 16 June 2015. Moreover, Member transport services by rail and road will markets and making railways more States may limit access to domestic enter into force in December 2017. competitive and interoperable at the EU lines when an additional right/license to However, a transition period of six years level. However, despite the considerable operate commercial passenger services after the entry into force is foreseen development of the ‘EU acquis’, the modal in competition with another operator in a way that Article 5 para. 6 will be

12 European Commission White Paper Roadmap to a Single European Transport Area - Towards a competitive and resource efficient transport system, COM(2011) 144 13 See Aricle 11 paras 1 and 5 of the amended text of Directive 2012/34/EU. 14 See Article 5 of the amended text of Regulation 1370/2007. With regards to the various exceptions from the general rule of public tendering, see more specifically paras 2, 3a, 4, 4a, 5 and 6.

16 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

PART 1 2 State of play and trends

2.1 Introduction 2.2 General framework for the organisation of public service operations 2.3 Operators on the market 2.4 Definition of public service requirements 2.5 Scope of public service transport by rail 2.6 Contract 2.7 Awarding of public service contracts 2.8 Contract negotiation 2.9 General payment conditions 2.10 Duration of public service contracts 2.11 Rolling stock 2.12 Involvement of the regulatory body or other authorities in public service contract discussions

CER - The Voice of European Railways 17 Public Service Rail Transport in the European Union: an Overview

2.1 Introduction

Over the past few decades, passenger subject to compulsory tendering pursuant transport by rail has been organised to the model of competition for the market. according to two systems: open access Part of the market will still be reserved and regulated access. On the one for direct awards, but only under strictly hand, open access competition involves defined conditions. The current text of competition in the market, i.e. on the tracks; Regulation 1370/2007, the so-called PSO on the other hand, regulated competition Regulation, as amended by Regulation involves competition for the market, i.e. for 2016/2338, also serves the objective of the tracks, through contracted services. opening the domestic market. The concept of regulated competition is applicable to services which require a The degree of competition in such a contractual basis with a public authority regulated market is heavily dependent due to the involvement of public service upon the way in which public service obligations. contracts are ultimately awarded. On a general note, competition has been These two models allow for the effectively developing throughout development of competition between the Union, on the basis of competitive This chapter provides a brief summary of details per country can be found in Part 2 operators. In other words, they are not tendering or negotiated procedures. the scope and functioning of public service of the report. mutually exclusive but complementary. In The further establishment of this trend, obligations in 25 European countries.1 It light of the implementation of the Fourth beyond the relevant regulatory initiatives, was drafted on the basis of information In broad terms, this review portrays Railway Package, the dynamics of the is naturally directly linked to the adequacy gathered through individualised the wide array of differences within interplay between the two systems will of the funding of public service contracts questionnaires addressed to CER member EU countries. There is a diversity of be further enhanced; open access rights in each Member State. A tendering companies in the countries concerned. organisational models reflecting the will be granted to railway undertakings procedure will not be successful if it is objective of serving the demands of a pursuant to the model of competition in widespread knowledge that the awarding The degree of information which was diverse population living in often very the market, while, since a large proportion authority does not respect its financial gathered varies greatly from one Member different geographical contexts with of rail services are provided under public obligations or is not able to provide State to another. The major trends are different needs. service contracts, those contracts will be adequate funding. nevertheless described in this part, while

1 Countries surveyed include most EU Member States as well as Norway and Switzerland. , Ireland and Great Britain have decided not to participate in the latest update of this report.

18 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

2.2 General framework for the organisation of public service operations

We can distinguish three different in public passenger transport in a given they are better placed to understand the When competence is shared between categories for the organisation of public geographical area or any body vested with specific needs of their regional or local national and regional authorities, the service transport: such authority.” Therefore, in application population. However, over the years, the core network is managed centrally while of the subsidiarity principle, Member trend has been for central Governments the decentralised authorities handle the • public service operations organised at States have complete discretion over the to get increasingly involved in public regional traffic. Given that most public national level (at central Government organisation of public service transport. passenger railway services by retaining for service transport obligations are typically level); What should be highlighted is that the themselves powers and competencies in required inside and in the vicinity of • public service operations organised at notion of ‘competent local authority’ may parallel to those assigned to decentralised major cities, regional authorities own a regional or local level; and effectively include an individual authority or authorities. fair share of responsibilities. • public service operations organised by a group of authorities, as long as the latter’s both national (central Government) geographical scope is not nationwide. The When public service contracts and Finally, Germany is the only example and local (decentralised) authorities in determination of which local authorities framework financial conditions for of public service rail transport entirely cooperation with each other. are competent regarding ‘urban the operation of public services are governed by decentralised authorities. It agglomerations’ and ‘rural areas’ remains at exclusively managed at national level, the should be noted that the German state The text of Regulation 1370/2007, the discretion of the Member States. contracts are negotiated and concluded nevertheless intervenes by allocating as recently amended by the Fourth with the national Government, which a global financial envelope to the Railway Package, does not examine the It appears that the level at which public also assumes the associated financial decentralised authorities for passenger level at which public service operations service operations are organised often obligations. In the majority of countries, public service transport. Its role is are dealt with. The Regulation simply depends upon the size of the country. national laws usually outline the general however limited to this financial aspect, indicates that the competent authority In large countries, regional or local principles, allowing for the necessary leaving the Länder entirely competent is: “any public authority or group of public authorities will often be in charge of specifications to be further developed for delineating the scope of the public authorities of a Member State or Member regulating public service operations and within the contract. transport services required. States which has the power to intervene negotiating and concluding contracts, as

Figure 1 Level at which public service transport is organised

National level Regional/local level Mix Belgium, Bulgaria, Croatia, Denmark, Estonia, Greece, Germany Austria, Czech Republic, Finland, France, Great Britain, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Norway, Italy, The Netherlands, Poland, Sweden, Switzerland Portugal, Romania, Slovakia, Slovenia, Spain

CER - The Voice of European Railways 19 Public Service Rail Transport in the European Union: an Overview

2.3 Operators on the market

Operators on the market for international public service Figure 2 Entry of the first competitor in passenger traffic passenger traffic

The rail passenger market went through a Austria — 09.01.98 14.12.03 01.01.02 major overhaul in 2007 with the adoption Bulgaria — Croatia — 08.07.09 of Directive 2007/58, which opened Denmark — 01.01.00 01.01.03 the market for international passenger Estonia — 01.03.03 26.06.06 traffic including cabotage to competition Finland — 01.01.10 as of 1 January 2010. Member States France — 13.12.09 11.12.11 nevertheless maintained the right to Germany — 01.01.94 23.11.97 01.04.94 04.02.96 restrict access to their network where Great Britain — Greece — 01.01.12 the international traffic was likely to Hungary — 01.01.06 06.08.07 distort the economic equilibrium of Italy — 01.01.01 01.01.09 the related public service contracts. Kosovo — 01.09.11 Directive 2007/58 provides that national Latvia — 01.04.98 01.01.01 regulatory bodies are to assess whether Luxembourg — 01.09.10 01.01.95 01.01.98 the economic equilibrium of a public Netherlands — Norway — 01.01.10 service contract would be compromised Poland — 28.03.03 27.02.04 by an international passenger service in Slovakia — 01.01.10 01.03.12 a Member State.2 The specificities of this Slovenia — 01.01.10 process were outlined in more detail in Spain — 01.01.10 10.12.11 the relevant Implementing Regulation on Sweden — 01.01.10 new rail passenger services.3 Moreover, Switzerland — the European Commission adopted an 01.01.90 01.01.94 01.01.98 01.01.02 01.01.06 01.01.10 01.01.14 01.01.18 Interpretative Communication outlining Legal liberalisation (passenger) First new passenger entrant its opinion on the powers of the regulatory bodies regarding this particular aspect.4 Source: European Commission, Fifth report on monitoring developments of the rail market (RMMS Report), 8 December 2016.

2  Directive 2007/58, Article 8 3  See Commission Implementing Regulation (EU) No 869/2014 on new rail passenger services, 11 August 2014. 4 The Interpretative Communication from the Commission to the European Parliament on certain provisions of Directive 2007/58/EC was published in the Official Journal on 28 December 2010. It sets out the Commission’s views on the implementation of Directive 2007/58/EC of 23 October 2007 which regulates opening of the market for international rail passenger transport services, and in particular on the two following points: • how to determine whether the principal purpose of a rail service is to carry passengers travelling on an international journey; • how to assess whether the economic equilibrium of public service contracts is compromised by the new service. According to the Communication, the regulatory bodies may be responsible for determining the principal purpose of a service in specific cases. They should act and take decisions in cooperation with their counterparts in the other Member States, in particular on whether the economic equilibrium of public service contracts is compromised. The assessment should be based on an objective method and predetermined criteria. Approval by the relevant regulatory body is a prerequisite for limitation of the right of access by Member States. Commission Interpretative Communications bind only the Commission itself. They provide guidance on how it will interpret its own legislation when assessing whether Member States have properly transposed EU legislation.

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The amended Regulation 1370/2007 sector: the opening of the domestic Figure 3 Domestic passenger rail traffic formally open to competition for passenger services5 in 2016 – prior explicitly foresees the possibility for rail passenger market to competition, to any European initiative. public service obligations to cover public which will lead to the completion of the transport services at cross-border progressive liberalisation process. The level, including those covering local and right to restrict access to the domestic regional transport needs. network as a means of safeguarding the ‘economic equilibrium’ of the existing International traffic across borders is, in public service obligations is foreseen in the majority of cases, already operated Article 11, and the Commission is also under public service obligations, expected to adopt an Implementing Act in particularly in those regions where there this regard. are many cross-border commuters. For E example, such agreements exist across Prior to the any legislative initiative, which the borders of Luxembourg under was inaugurated in the Commission’s cooperation agreements concluded Transport White Paper in 2011, a number with the Belgian and the French of Member States proactively adopted a EE operators. These contracts have a regime that would allow for the opening complex calculation method whereby of their domestic passenger market to each operator finances the share competition. Some started this process corresponding to the number of national some time ago (chronologically: Sweden E passengers making use of the service. in 1992/1993, Germany in 1994, Great In parallel, other commercial (non- Britain in 1995, Denmark in 2000 and Italy E E C subsidised) international operations exist in 2001), while others emulated this trend on those market segments that are viable more recently (Czech Republic, Bulgaria, R C ( and ). Estonia, Latvia, Lithuania, the Netherlands, R Poland, Romania and Slovakia). R Operators on the market for domestic public service passenger The process of opening up the domestic E traffic passenger market to competition has E proven, however, to be more laborious In December 2016, the amendment of in the newest Member States (EU-13 Domestic market opened to competition the Recast Directive 2012/34 by the block). In these countries, the issue is Domestic market closed to competition Fourth Railway Package marked the often complicated by the fact that public beginning of a new overhaul for the service obligations are inadequately Source: CER member data and data from European Commission’s Fifth RMMS Report

5 Markets opened either through competitive tendering or through open access

CER - The Voice of European Railways 21 Public Service Rail Transport in the European Union: an Overview

2.4 Definition of public service requirements

compensated and thus unattractive to From a legal perspective, the amended As set out in the previous chapter, economic interest” provided to the public new entrants. In practice, the opening Regulation 1370/2007 foresees the PSOs are, to a certain extent, regulated on a “non-discriminatory and continuous of the market in those countries often possibility, before the launch of a tender in a homogenous way throughout the basis”. It falls nevertheless within the produces no economic effect, as only the procedure, for the competent authorities Member States on the basis of Regulation competence of national public authorities historical company responds to the call to limit the number of contracts to be 1370/2007, which provides the very to decide which services should be for tender. The competent authorities awarded to the same railway undertaking, definition of the services that can qualify included in this category. However, it is therefore directly grant the contract in order to increase competition between as ‘public service obligations’. More worth noting that the new Regulation has to the historical company. This is more railway undertakings. particularly, the Regulation states that the artfully managed to limit this absolute specifically the case in Bulgaria, Estonia, objective of establishing such obligations discretion. In the newly introduced Latvia, Lithuania and Slovakia. 6 should be to ensure that public passenger Article 2a, a direct link was drawn transport services are provided in the between the delineation of the PSO In Great Britain, Sweden and Germany, general interest, compelling the provision and public transport policy, indirectly where the regional and local passenger of services that an operator, if it were imposing on the competent authority rail markets were opened up in the first considering its own commercial interests, to demonstrate, first, that such a link half of the 1990s, competition and new would not undertake or would not exists and, second, that it exists in a cost- entrants have progressively spread. undertake to the same extent or under efficient way that ensures the financial In Great Britain in particular, all public the same conditions without reward. It sustainability of the service in the long service transport is currently open should be highlighted that this definition term. Thus, it could be inferred that the to competition (through systematic should not be narrowly interpreted, competent authorities are compelled to tendering of contracts: franchise allowing also for services that are indeed follow a broadly defined pattern. agreements), and approximately 21 cost-covering to fall under its scope. To private operators are well established that effect, the recently amended text of The main public service obligations that on the market. In Germany, almost 33% the Regulation clearly foresees in Article are currently requested from operators in of the total -kilometres were in the 2a the possibility of bundling together, the EU include: hands of competitors of DB Regio AG under a PSO contract, cost-covering and in 2016. In Italy, where the process is non-cost-covering services, which must • tariff obligations covering tariff more recent, , the incumbent have been envisaged by the legislator reductions for certain categories company, competes with approximately as a tool to ameliorate the financial and of passengers. In certain cases the 21 operators on the domestic passenger economic performance of the awarded legislation leaves a certain measure of market. In the Czech Republic, the public service contracts. discretion to the operator to increase incumbent company competes with 7 tariffs. In general, this margin is limited new entrants. More examples can be Regulation 1370/2007 provides a very in the sense that railway companies found in the country reports in Part 2. general definition of public passenger cannot increase prices beyond a level services: they cover “services of general set by the authorities;

6 Other EU Member States face similar problems but to a lesser extent.

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2.4 Definition of public service requirements 2.5 Scope of public service transport by rail

• service frequency including services • service reliability including data on the Public service transport in the rail sector in Germany, only local and regional public between large cities, during peak hours effective circulation of foreseen within the scope of Regulation 1370/2007 transport is financially supported. and stopping patterns; and obligations to ensure a substitute includes all7 passenger rail transport • quality requirements are generally means of transport in case of a rolling agreed with public authorities for which a In smaller countries, such as Belgium, included – whether directly in the stock breakdown. contract is drawn up. In other words, and the Czech Republic, Denmark, Estonia, section relating to public service in application of the subsidiarity principle, Greece, Hungary, Ireland, Latvia, Lithuania, obligations or indirectly through In some cases, the awarding authorities Member States remain free to decide Luxembourg, the Netherlands, Slovakia, ‘bonus-penalty’ systems. This go far beyond what is reasonable by on the type of passenger services to be Slovenia and Switzerland, almost the constitutes an increasingly important drafting extremely detailed terms of enshrined in a public service contract, entirety of internal passenger transport aspect of the economic implications reference, which contain increasingly whether it is for local, regional, long- falls within the category of public service of the contract since quality has a stringent specifications regarding distance or cross-border traffic. transport. This is often due to the size price, and this price needs to be fairly personnel deployment, the quality of the country and the density of the negotiated between the parties. Quality of the provided services, operations A range of different options can be found population, which establishes the need to requirements typically include: management and the quality and features throughout the various European markets. offer widespread services to commuters of the vehicles. Such practices, do not Whilst a number of states perceive the throughout the country. - punctuality performance; allow for lower prices to be established remit of public service transport quite - seat reservation; and do not leave much leeway for the narrowly, covering only local and regional The Regulation applies to both national - services to passengers with reduced tenderers to place competitive offers. services, others also provide public service and international public transport services mobility; transport on long-distance journeys. This for passengers by rail and other - - client information, including the remains a political choice depending on the based modes, as well as by road. Some level of information to be provided in geography, the characteristics of the rail countries are operating public service lines the stations, on board or as general network, the train service and the travel across their borders to important cities communication; market. in neighbouring countries to which their - requirements relating to ticket sales citizens commute on a daily basis. These in train stations and on trains; Public expectations (and the funding contracts can either be exclusively managed - cleanliness of rolling stock; requirement) vary widely: from lightly- by the competent authority in one Member - number of seats available during used but long-distance rural links (in State or be shared between the relevant peak and off-peak hours; Sweden for example) to intensively-used Member States (e.g. contracts along the - presence of staff on the trains; commuter services at peak periods (around French and Luxembourgish borders). It - characteristics of rolling stock; large cities). In Great Britain, for instance, is worth noting that the percentage of franchise awards (and, in most cases, public international traffic covered by PSOs in • marketing of public service transport service funding) apply to local, regional terms of total traffic is marginal (1%), with possibilities/availability at specific tariff and long-distance services. In Finland, Luxembourg having the highest share of levels, which is often imposed by the long-distance public transport services are international lines under PSO. competent authority; provided in less populated areas. While

7 Services which are operated mainly for their historical interest or their touristic value fall out of the scope of this Regulation.

CER - The Voice of European Railways 23 Public Service Rail Transport in the European Union: an Overview

Figure 4 Split of national PSO, international PSO and non-PSO Figure 5 Scope of national and regional PSO in terms of million passenger-kilometres operated in each country services in the EU (in percentage of passenger-kilometres, 2014, concerned (2015/2016) except for IE and NL (2013) and excluding CZ, EL, ES and SE) 1% International 60 760 PSO services 54 346 31% Non-PSO 31 200 services 20 389 18 500 18 000 12 600 12 373 10 887 68% 9 927 7 247 6 300 6 440 5 884

National 4 460 3 868 2 550 2 400 2 980 1 690 1 344 544 882 4.8

PSO services 266.8 662.5 57.2 Italy Spain Latvia France Poland Ireland Austria Greece Finland Estonia Croatia Sweden Norway Belgium Slovakia Bulgaria Slovenia Portugal Hungary Romania Lithuania Germany Denmark Switzerland Great Britain Czech Republic Data not available for Luxembourg The Netherlands Source: European Commission, Fifth RMMS Report, 8 December 2016 Figure 6 Scope of national and regional PSO in terms of trains operated per day in each country concerned (2015/2016)

~ 22 800

7 016 6 500 6 500

5 079 4 000 3 401 3 114 2 640 1 200 988 1 132 1 434 1 000 716 688 592 562 599 254 214 244 193 Italy Spain Latvia Ireland Greece Finland Estonia Croatia Poland* Sweden Norway Belgium Slovakia Bulgaria Slovenia Hungary Romania Lithuania Germany Denmark Luxembourg Czech Republic * Figure for PKP Group only The Netherlands Data not available for Austria, France, Great Britain, Portugal and Switzerland

Source: CER member data and data from the European Commission’s Fifth RMMS Report

24 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

Public service transport has always In Central and Eastern Europe, in many the Netherlands, for instance, the represented a major part of the cases, public authorities continue to combination of train and bus enables the passenger rail market and this share is request heavy public service obligations optimisation of public transport; train and expected to grow in light of the increasing on a large part of the network with bus lines are being rearranged in such a road congestion and environmental the duty to maintain the continuity way that the bus lines function as ‘feeder concerns. of services, without adequately lines’ and the railway lines function as the compensating such obligations. As a backbone of the public transport system. At the time when railway undertakings result, some of the railway companies In other cases, one of the requirements were in a monopolistic situation, Member concerned have to run the services at stipulated in the contract is to ensure the States had to resort to public services a loss, and end up cross-financing from coordination of schedules, compelling as an instrument of urban and regional freight to passenger transport or piling up the operator to create, to the best of its policy without necessarily measuring the debts. The repercussions of this state- ability, a coherent public transport system financial consequences of such a policy, of-play warrant some attention. It will be with coordination between buses, urban which eventually ended up as debt. Today, extremely interesting to observe whether transport and trains. This is the case in in light of the restructuring of most the cost-efficiency perspective that was Denmark and Switzerland. railway companies and the general trend introduced in the amended Regulation towards liberalisation, the prevailing 1370/2007 – and aims at rationalising Finally, Regulation 1370/2007 does not conditions have been significantly altered. the process of delineating the specificities apply to freight transport, contrary to In some countries, a number of very of the public service obligation by the what was foreseen in older legislation. lightly used services are being either competent authorities – can effectively Any public service transport for freight strongly supported financially or simply tackle this phenomenon.8 has to be notified to the European withdrawn where the cost of operating Commission under the Treaty9 state them is disproportionate compared to Another emerging trend is the conclusion aid rules for prior approval. In practice, the alleged public service benefit. Finally, of multimodal public service contracts, there have been very few freight services the development of high-speed rail, on the basis of which integrated rail and provided under public service obligations. generally not falling under public service bus services are being provided. This In the past, some of these services obligations, is also changing the economic is the case in France, the Netherlands, have for example included night trains landscape. Luxembourg, Slovenia (from 2013) delivering food supplies or other essential and to some extent in Austria. In goods to particularly remote regions.

8 See Article 2a para. 2 of the Amending Regulation 2016/2338. 9 Treaty on the Functioning of the European Union (TFEU)

CER - The Voice of European Railways 25 Public Service Rail Transport in the European Union: an Overview

2.6 Contract

Level at which the contract is as well as the way in which the relevant limits set to prevent over-compensation or tickets (whether they are allocated to the concluded payments will be delivered. This facilitates under-compensation. railway undertaking or whether they are the implementation of the Regulation in paid back to the public authority); Article 3 para. 1 of Regulation each Member State. Content of the contract • list qualitative standards, if any; 1370/2007 clearly states that, where • describe subcontracting details, if any; a competent authority decides to grant Nevertheless, the use of the word All elements relating to the provision of • specify the duration of the contract or the operator of its choice an exclusive ‘contract’ is of political importance: public services (level of financing, details general rules; right and/or compensation, of whatever it conveys a clear message to public about the services, etc.) can either be • lay down social rules as regards the nature, in return for the discharge of authorities that, whatever the legal form provided in the framework legislation transfer of employees. public service obligations, it shall do so of the document, it should be negotiated regulating public services in general or in within the framework of a public service between the parties and not simply the specific contracts concluded with the The amended Regulation 1370/2007 contract. imposed upon the railway undertaking. relevant authorities in each country. In stretches the scope of Article 4, which As will be displayed in more detail in practice, as noted above, the large majority delineates the mandatory content and The type of public authorities with the second part of this brochure, the of countries surveyed have included all the general rules enshrined in the public which the contract has to be concluded negotiation process between the railway details relating to the operation of public service contract, so as to impose the is not defined at EU level. The text undertaking and the awarding authority service transport in a contract rather than observance of certain social standards. cites ‘competent authorities’, which is not always effective. in a legislative act. As a general rule, public service operators is a vague definition that needs to be will have to comply with the obligations further delineated at national level. The amended Regulation 1370/2007 The contract must fulfil at least the foreseen in EU laws and regulations in the This will depend upon which authority foresees an exception to the norm following requirements: field of social and labour law, national law is competent for which type of traffic. of concluding a contract, when the and collective agreements. In addition to The only important criterion is to have, public service obligation consists in • clearly define the public service the general provision for the consideration according to national laws, the power to establishing maximum tariff obligations obligations and the geographical areas of existing social standards, the Regulation intervene in public passenger transport in for all passengers or certain categories concerned; seeks to tackle the thorny issue of a given geographical area. of passengers. In other words, such tariff • establish in advance and in a enforcement of social rights in case of obligations need not be formalised within a transparent manner the parameters transfer of staff, which, in light of the Legal form of the contract contract. In that case, however, they must for the calculation of the public service proliferation of the number of tendered be formalised in the form of a so-called compensation and the nature and extent PSO lines, will be of great practical The contract does not have to take any ‘general rule’.10 of the exclusive right, if any; importance. This is done via reference to specific legal form. In practice, it can • determine the arrangements for the Directive 2001/23, the scope of which be almost any document that clearly It should be stressed that the allocation of costs connected to the is limited however to cases where the and explicitly contains the requested compensation for such tariff obligations provision of public service transport; change of operator falls under the notion obligations and stipulates the method – whether in a general rule or a contract • determine the arrangements for the of ‘transfer of undertakings’ according to of calculating the level of compensation – must be adequate and in line with the allocation of revenue from the sale of the text of the Directive.

10 A ‘general rule’ consists in a measure which applies without discrimination to all public passenger transport services of the same type, in a given geographical area for which a competent authority is responsible. Such general rules apply to tariff obligations. This notion was included in the Regulation to take into account the current legal diversity in Member States and therefore allow for full flexibility when complying with the Regulation.

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2.7 Awarding of public service contracts

The European PSO Regulation foresees EU passenger-kilometres under PSO are The exceptions: direct award - The operator does not take part two general ways of awarding public directly awarded.11 in competitive tenders related to service contracts: either through The amended Regulation foresees several the provision of services outside competitive tendering or through direct It should be noted, though, that the possibilities for directly awarding public of the specific territory allotted to award. recently amended text of the Regulation service contracts, i.e. contracts that are the local authority/group of local has enhanced the wider application of concluded outside of the ground rule authorities. Two years before the The rule: competitive tendering tendering procedures, first by abolishing of classical competitive tendering. It end of its directly awarded contract, the general exemption for heavy rail (this should be noted that the new provisions the operator may participate in other In principle, the new text of Regulation provision will cease to apply in December foreseen in Article 5 will apply to tender procedures, provided that his 1370/2007 foresees in Article 3 that 2023) and, second, by narrowing down passenger transport services by rail as current contract will not be renewed. contracts for public passenger transport the notion of the internal operator (or from 3 December 2019. The following services by rail and road should be in-house operator) to an operator that situations allow for direct contract award: •  Exceptional circumstances: awarded following a competitive operates solely within the territory of the particularly where, in light of the tendering procedure, thus establishing awarding local authority. • Provision of services by the internal number of tenders that are already the principle of compulsory tendering. operator: a competent local12 being run, a call for tender of another Furthermore, the Regulation defines authority (or a group of competent additional service might not constitute In other words, such contracts should in an unambiguous way the minimum local authorities) can decide to provide the optimum choice in terms of cost- be awarded in accordance with either framework of rules according to which public service transport itself or to efficiency. However, in that case the national or European public procurement tendering procedures must be carried directly award the contract to a railway Commission will have to be notified and rules, depending on the size of the out in order to safeguard that these operator that it controls, under the the directly awarded contract shall not contracts in question. This provision procedures: following cumulative conditions: exceed the duration of five years. In any goes hand in hand with the objective of case, the subsequent contract shall be opening up the domestic market and • are open to all operators; - The operator is controlled in practice tendered out. enhancing the competitive process, • are fair; by the public authority in question which, in the long run, will tilt the scale • observe the principles of transparency (even though 100% ownership is not • Small value contracts: contracts with of modal share in favour of the sector. and non-discrimination; required). an annual average value of less than However, the effective application of • may involve negotiations in accordance - The operator (or any other entity EUR 7 500 000 (applicable only for this principle is, in practice, limited by with the above principles. upon which this operator exerts public passenger transport services by the existence of various exceptions to influence) provides services only rail) or contracts concerning the annual this rule, which are analysed in detail Finally, it is worth noting that a direct link within the geographical area of the provision of less than 500 000 km of above, as well as a general exemption was drawn between providing effective competent authority, notwithstanding public passenger transport services applying to the heavy rail sector under access to sufficient information regarding outgoing lines or other ancillary (also applicable only to rail) can be the original Regulation 1370/2007. In the tender and the objective of keeping activities that enter the territory of directly awarded. statistical terms, approximately 42% of all the process open to all operators. another competent authority.

11 See publication The Fourth Railway Package: another step towards a Single European Railway Area, conducted by the European Parliamentary Research Service, March 2016, page 13. 12 In the absence of a local authority, a national authority may proceed to the direct award of a public service contract, given that all the other requirements are met and that the relevant service is not national in scope.

CER - The Voice of European Railways 27 Public Service Rail Transport in the European Union: an Overview

• Contracts awarded to small and if such an awarding process would awarded according to one of the medium-sized enterprises (SMEs): effectively optimise the execution of following procedures: contracts concluded with SMEs can be the public service contract (in terms of awarded directly. An SME is defined cost-efficiency or quality of services), • direct award following negotiations as a company operating not more then the competent authority may with only one operator; than 23 vehicles. In this case, the decide to proceed to a direct award. • direct award following negotiations above thresholds can be extended to However, it should be highlighted with several operators on the basis EUR 2 000 000 or the annual provision that in these cases, first, there is an of a restricted procedure (public of less than 600 000 km of public obligation to notify the Commission of negotiations); passenger services. this decision and, second, detailed and • full competitive tendering within predefined performance requirements the framework of a formal open or • No effective participation in the must be fulfilled. Finally, the contracts restricted procedure. tender: in cases where only one concluded shall not exceed the duration operator expressed interest to of 10 years. In the past, the norm was for Member participate in the tendering procedure States to award contracts directly to and under the strict condition that this • Disruption of service: in case of the incumbent company. However, in a result was not artificially provoked disruption of service or imminent risk steadily increasing number of Member and that the relevant operator is able of such disruption, the public service States, national or regional authorities are to meet the requested obligations, contract may be directly awarded or awarding public service contracts further the contract, in the absence of any extended for a maximum of two years. It to tendering procedures. When doing alternative solution, can be directly should be noted that the public service so, the contracting authority indicates awarded. operator shall have the right to appeal clearly and in advance, in a transparent against such a decision. manner, the criteria according to which • Where the prevailing conditions the contract will be awarded. The price suggest to do so: if two cumulative • Heavy rail: public authorities may proposed by the competing bidders is criteria are met, i.e. if the relevant decide to directly award contracts for usually the most important criterion, structural and geographical heavy rail. It should be highlighted that whereas the quality aspect often does not characteristics of the market and this provision, foreseen in Article 5(6) receive sufficient attention. It should be network are prone to a direct award of the Regulation, will only temporarily noted though that the amended text of procedure (a pertinent example remain in force and will cease to apply the PSO Regulation clearly states that the would be Member States, where the as from 6 years after the date of entry specifications of public service obligations maximum volume is less than 23 million into force of this Regulation, i.e. in should also, where possible, serve the train-kilometres and which have only December 2023. objective of generating positive network one competent authority at national effects, including the improved quality of level and one public service contract Today in the European Union, public services. covering the entire network) and service transport contracts are being

28 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

Figure 7 Overview of contract awarding procedures in Europe in 2016

Country Formal award procedure Comment Austria Direct award following negotiation and Current contract awarded directly. The next contract should be tendered. competitive tendering Belgium Direct award following negotiation Bulgaria Competitive tendering Only one company participated in the tender. Croatia Direct award following negotiation De facto direct award. The legal provision might need to be amended in light of the new text of Regulation 1370/2007. Czech Republic Direct award following negotiation and The objective is to award an increasing number of contracts following a tendering procedure. However, given the density of traffic competitive tendering depending on the concerned and the shortage of applicants, it was not possible to switch to competitive tendering at once. contract Denmark Direct award following negotiation and In 2016 approximately 20% of public service contracts were put to tender. competitive tendering Estonia Direct award following negotiation and Given the state and the size of the market and different technical specifications on the network, the ongoing contract was directly competitive tendering awarded. Finland Direct award following negotiation France Direct award following negotiation and In June 2016, the Prime Minister along with the Association of French Regions announced their intention to launch an experimental competitive tendering project of opening up certain regional markets to competition. A law delineating the legal framework for this experimental phase has yet to be passed. Germany Direct and public negotiation and In February 2011, the Federal Supreme Court ruled that direct awards of public contracts for passenger transport services will only be competitive tendering permitted under a few – strictly defined – conditions, so that, gradually, open tendering procedures will become the norm. Great Britain Competitive tendering Greece Direct award following negotiation Hungary Direct award following negotiation The next public service contract in 2023/2024 will be awarded according to the provisions of the relevant regulatory regime at the time. Ireland Direct award following negotiation Italy Direct award following negotiation and Competitive tendering has to date been used by some regional authorities for part or all of their services (Veneto, Lombardia, Liguria, competitive tendering Emilia-Romagna and Piemonte). Latvia Competitive tendering Only one company participated in the tender. Lithuania Direct award following negotiation and Contract de facto directly awarded to the national operator as no other companies participated in the tender. competitive tendering Luxembourg Direct award following negotiation Netherlands Direct and public negotiation and Public service contracts for local railway services are awarded by way of a compulsory public tendering process. competitive tendering

CER - The Voice of European Railways 29 Public Service Rail Transport in the European Union: an Overview

Figure 7 Overview of contract awarding procedures in Europe in 2016 (continued)

Country Formal award procedure Comment Norway Direct award following negotiation and A Railway Reform White Paper, which was approved by the Parliament in June 2015, will bring about major changes in the Norwegian (gradually) competitive tendering railway sector in the years to come. To that effect, competitive tendering will be introduced for passenger train services, grouped in bid packages. Poland Direct award following negotiation and The vast majority of local voivodeships – with the exception of only three or four regions – prefer competitive tendering. competitive tendering Interregional and international traffic contracts are awarded directly by the Ministry to the operator of its choice, i.e. PKP Intercity. Portugal Direct award following negotiation and One suburban line tendered so far. competitive tendering Romania Direct award following negotiation Slovakia Direct award following negotiation and Tendering not applied due to shortage of applicants. competitive tendering Slovenia Direct award following negotiation Spain Direct award following negotiation Sweden Competitive tendering Direct negotiation is legally allowed but all contracts are tendered. Switzerland Direct award following negotiation and Since 1996, when the legal basis for open tendering procedures was established, no contract for public services in the railway sector has competitive tendering been attributed through a public tendering procedure.

The table above shows that the single have a clear legal obligation to award systematically leads to the incumbent nationwide contracts and most of the public service contracts following a full operator ‘winning’ the tender. This regional contracts are awarded directly competitive tendering procedure. Out of phenomenon can be attributed to the in a number of cases, however, there these four countries, two follow direct fact that no other company responds to are political commitments to move award procedures de facto, as there is the tenders because it is known ex ante towards an extended competitive only one participant in the tendering that the financial compensation will be tendering procedure in the next round process. In any case, the example of inadequate. In such cases and given the of contracts. For instance, Norway Germany, where the process of direct obligation of continuity of the service and France are currently undergoing a award, although legally permitted, that is borne by the operator, its very complete legislative overhaul, which aims is clearly abandoned, should not be own viability might end up being at stake. at restructuring the market for public overlooked. passenger railway services towards a more competitive model that will put As just noted, there are a number of these public service contracts out to Member States, notably among the tender. Ten Member States have recourse most recently admitted, i.e. Estonia, to the direct negotiation procedure for Latvia, Lithuania and Slovakia, where the time being, while four countries a tendering procedure is in place but

30 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

2.8 Contract negotiation

In principle, parties should negotiate the may appear. When a direct negotiation content of the PSO contract and come is carried out with the incumbent to an agreement regarding their mutual company, it may be difficult for the obligations (service provision on one side latter to effectively discuss the terms and payment on the other side). However, of the services required. Consequently, in some cases, the actual conditions competent authorities often use the under which a PSO contract is concluded direct award procedure to impose lag behind these expectations. their own conditions, whilst not fully compensating the cost of the services When the contract is tendered required. out, the procedure is usually more straightforward. The operator submits its proposal along the lines of the Terms of Reference. After the submission of bids, negotiations take place in order to determine how specific requirements from both sides can be met. Thus a sort of balance between the contradicting interests of both parties can be achieved. In some cases, part of the requirements from the competent authority can ultimately be revised in light of the generated costs compared to the added value for the service.

When no public bid is held and the contract is directly negotiated between the parties, the railway undertaking submits to the competent authority a detailed analysis of the conditions underlying the running of the service. This analysis includes a breakdown of the foreseeable costs and revenues. This is a situation where some form of disequilibrium in the negotiation

CER - The Voice of European Railways 31 Public Service Rail Transport in the European Union: an Overview

2.9 General payment conditions

Payments are generally made on a regularly checked and monitored and Figure 8 Payment conditions in the different Member States regular basis, usually through monthly affects the level of compensation in a instalments. What should be highlighted negative or positive way. To that effect, Country Interval Regularity VAT is that, in some Member States, for the amended PSO Regulation imposes Austria Monthly ✓ No instance Greece, Italy, Portugal, Slovakia an obligation on the competent authority Belgium Monthly ✓ No ✓ and Lithuania, the payment system – irrespectively of whether the contract Bulgaria Monthly Yes ✓ is unreliable, which leads to liquidity was tendered or directly awarded – Croatia Monthly No Czech Republic Monthly ✓ No shortages and other problems for the to periodically assess (at least every Denmark Monthly ✓ No operations in question (see Chapter 3 and five years) and make public whether Estonia Monthly ✓ No individual country reports in Part 2 for the railway undertaking has achieved Finland Monthly ✓ / more detail). its targets to meet the performance France Monthly ✓ Yes requirements. The competent authority Germany Regular ✓ No 15 With regard to the tax burden of this must then adopt effective deterrent Great Britain Monthly ✓ No compensation, no clear pattern can be mechanisms, i.e. a penalty system, if Greece Every third month X Yes discerned on the application of value required improvements in quality of Hungary Monthly ✓ No added tax (VAT). In some Member States, services and/or cost-efficiency are not Ireland Monthly ✓ No railway undertakings are exempt of VAT undertaken. Italy Yearly X Yes charges for public service transport Latvia Monthly ✓ No compensation. In other countries, VAT Apart from the specifications stipulated Lithuania Monthly ✓ No ✓ is imposed but can be recovered. This in the established bonus-malus systems Luxembourg Monthly Yes ✓ 16 depends upon the specificities of each (or any other penalty system), it is Netherlands Quarterly Yes Norway Quarterly ✓ No jurisdiction in question. important, in order to have an accurate Poland Monthly ✓ No overview of all the possibly associated Portugal Discretionary / Yes Another important parameter of the PSO costs, to examine the degree of Romania Monthly ✓ No system is the provision of services that application of the EU’s Passenger Rights Slovakia Monthly ✓ No meet a minimum quality level, as well as, Regulation 1371/2007.14 Naturally, Slovenia Monthly ✓ Yes in the majority of cases, the fulfilment non-observance of qualitative standards Spain Yearly ✓ Yes of a set of performance indicators.13 and violations of the Passenger Rights Sweden Monthly ✓ Yes 17 Observance of the aforementioned Regulation are interrelated. Switzerland Quarterly ✓ No quantitative and qualitative criteria is

13 The performance requirements cover in particular punctuality of services, frequency of train operations, quality of rolling stock and transport capacity for passengers. 14 Regulation (EC) No 1371/2007 of 23 October 2007 on rail passenger rights and obligations 15 The payment is regularly exempted from VAT. 16 VAT can be recovered. 17 VAT can be recovered.

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Figure 9 Overview of the application of EU Regulation 1371/2007 regarding passenger rights and the application of penalty systems for railway undertakings It is regrettable that, in most cases, penalties are foreseen instead of Country Full application of Reg. Penalty system applicable to Exemption from some articles Full exemption from all non- bonuses for good performance. 1371/2007 PSO of Reg. 1371/2007 mandatory articles of Reg. The granting of incentives would 1371/2007 foster service quality and enhanced Belgium • • performance and would encourage Bulgaria • • positive innovation. Croatia • • Czech Republic • • In this context, the quality of the Denmark • • infrastructure plays a major role as it Estonia • • has a direct impact on the performance Finland • • and quality of services an operator can France • • offer. It is often difficult to account for Germany 18 • • the effective price of ‘quality’ when Great Britain • • calculating the level of compensation Greece • needed. The application of the Passenger Hungary • • Rights Regulation forces operators to Ireland • • face increased costs in cases of delays Italy • • or cancellations. When such disruptions Latvia • • of service occur due to infrastructure Lithuania • • problems, railway operators often Luxembourg • • have very few means to obtain Netherlands • • reimbursement of the fines they had to Norway • / pay to passengers. This is why a number Poland • • of Member States have opted for broad Portugal / exemptions from the application of Romania • • the Passenger Rights Regulation, as displayed in Figure 9. Slovakia • • • Slovenia • • Spain • • Sweden • • Switzerland • /

18 Currently, there is only one exemption from the application of the Passenger Rights Regulation for rail transport: regional services are exempted from the obligation to provide food or drinks on board.

CER - The Voice of European Railways 33 Public Service Rail Transport in the European Union: an Overview

2.10 Duration of public service contracts

Regulation 1191/69 did not address the In order not to destabilise the market, The continuation of such contracts is question of the duration of the public the new Regulation 1370/2007 foresees submitted to the European Commission service contract; i.e. it did not set a a broad transition period during which for monitoring and approval. minimum or maximum duration. It simply existing contracts can continue to be required for the contract duration to be applied within a reasonable period of More specifically, the duration of the specified in the contract. As a result, some time. In particular, existing contracts are contract will vary depending on the date contracts concluded under the old regime to remain in place where the termination and the procedure according to which were concluded for quite a long period of the services at stake would entail it is awarded. The validity rules are and are still valid. On the contrary, the adverse economic consequences. summarised in Figure 10. amended text of Regulation 1370/2007 sets the maximum duration for public service contracts to 15 years. However, Figure 10 Contract duration validity rules according to the amended Regulation 1370/2007 if the contract is awarded directly (i.e. outside of a competitive tendering Contract award date Award procedure Duration of validity procedure), the maximum duration is Before 26 July 2000 Competitive tendering Until expiration brought down to 10 years. As of 26 July 2000 and before Competitive tendering Until expiration but no longer than 30 years 3 December 2009 There is the possibility to extend the As of 3 December 2009 Competitive tendering Until expiration but no longer than 15 duration of a PSO contract: years (without taking into account possible extension of the contract’s duration) • by a maximum of 50% of the duration of the initial contract, to take into account Before 26 July 2000 Direct award Until expiration but no longer than 30 years the depreciation of assets provided by As of 26 July 2000 and before Direct award Until expiration provided it is of a limited the operator which are significant for December 2017 duration as foreseen in the Regulation the discharge of the obligation, or when Between December 2017 and Direct award Until expiration but no longer than 10 years, required by the particular geographical 3 December 2019 except where Article 4 (4) applies situation, i.e. in the remotest regions; Between 3 December 2019 Direct award on the basis Maximum 10 years • by more than 50% of the initial contract, and December 2023 of Art. 5 (6) if justified by the need to amortise heavy investments (exceptional infrastructure, rolling stock or vehicular investment) and on the condition that it is notified to the Commission. This possibility for extension is limited to contracts awarded following a competitive tendering procedure.

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The chart below highlights the Within the EU-13 bloc there has been ‘contracts’ or equivalent arrangements discrepancies in duration of public a notable change in the duration of were therefore entirely dependent on the service contracts throughout the EU. public service obligations since 2005, annual outlook for the national budget. In the EU-15, contracts generally have when the first edition of this brochure Today, however, the situation has evolved a minimum duration of two to ten years was published. At the time, most of the as in an increasing number of countries, with the majority of contracts having contracts were awarded for a one-year allowing for investments and reasonable a fixed duration. The duration of the period. This was probably due to the fact planning aimed at improving passenger contracts is generally linked to the that contracts were inexistent and that services (Slovenia, Slovakia). However, importance of investments that need public service transport was organised some countries still opt for short-term to be accomplished by the operating differently and paid from the central arrangements (Croatia, Lithuania, company. budget as any other expenditure. Any Romania and Poland).

Figure 11 Overview of PSO contract duration throughout the EU

Italy Spain Latvia France Poland Ireland Greece Finland Estonia Croatia Sweden Norway Belgium Slovakia Bulgaria Slovenia Hungary Romania Lithuania Germany Denmark Switzerland Luxembourg Czech Republic The Netherlands

Minimum (years) Maximum (years)

No provisions made regarding contract duration in Portugal Data not available for Austria and Great Britain

CER - The Voice of European Railways 35 Public Service Rail Transport in the European Union: an Overview

2.11 Rolling stock

The attractiveness of passenger services EU-15, such as Belgium, Italy, France the amortisation of the rolling stock in and their ability to trigger modal shift will and Sweden. However, the age of the question. The technical characteristics in depend on their reliability and quality. In rolling stock is not in all cases suggestive terms of speed, number of seats or level this regard, the quality of rolling stock in of its quality, for instance in Sweden the of comfort of any new trains acquired to general, and its age in particular, can have reconditioning/refurbishment of the carry out a PSO is often defined in the a great impact on the overall quality of old fleet used for the provision of long- contracts alongside the conditions for the the service provided to the passenger. distance services is to such an extent that use of the trains on specified routes. passengers cannot spot the difference However, profound discrepancies when compared to new rolling stock. In Effective and non-discriminatory regarding the quality of rolling stock Sweden almost the entire fleet of vehicles access to suitable rolling stock is a can be traced throughout Europe, since used in the publicly procured local and key parameter for safeguarding open a significant number of companies in regional services is no more than 20 access to competitive tendering various Member States operate public years old and a large part not older than procedures, particularly since the service passenger transport using 10 years old. technical requirements for the rolling relatively old rolling stock. Indicatively, it stock used in tendered services have should be noted that in Bulgaria, Croatia, In most cases the rolling stock is the become increasingly demanding. Small Hungary, Latvia, Lithuania, Poland, property of the railway undertaking operators that do not have access to their Romania, Slovenia and Portugal, a large operating the agreed services. There own rolling stock or the financial means part of the rolling stock is over thirty are of course several cases where the to engage in costly investments might years old. On a more positive note, during awarding authority is the owner of the be reluctant to bid or might be de facto the past 5-6 years, important investments rolling stock used for the discharge of deterred from doing so. To that effect, the in renewals and refurbishments have the PSO, while there is a growing trend amended Regulation 1370/2007 clearly taken place, for instance in the Czech for leasing companies that handle the imposes on the awarding authorities the Republic, Estonia, Romania, Slovakia relevant rolling stock, such as Rosco in obligation to assess whether measures and Slovenia. This process has been Germany and Transitio in Sweden. facilitating access to rolling stock need to substantially boosted through European be adopted and subsequently elaborate a funding projects. When the financing of rolling stock report that should be publicly available. In forms part of the public service contract, their assessment the authorities must also Quality deficiencies in rolling stock are and is thus covered partially through take into consideration the presence of not of course geographically restricted to the relevant compensation, the rolling rolling stock leasing companies, or of other the EU-13, but constitute a substantial stock remains attached to the services market actors providing for the leasing of issue that warrants attention in various rather than to the company, unless the rolling stock in the relevant market. countries that form part of the bloc of duration of the contract corresponds to

36 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

2.12 Involvement of the regulatory body or other authorities in public service contract discussions

In 2010, railway regulatory bodies were In addition, the Directive allows for Figure 12 Overview of basic powers exercised by regulatory bodies or other bodies at national level relating to set up in all EU Member States.19 These railway undertakings to appeal to the the provision of public service transport bodies are in charge of licensing issues regulatory body if they believe that they and, as foreseen in Directive 2007/58, have been unfairly treated, discriminated Country Involvement of the regulatory body or other entity in public service issues are entrusted with the assessment against or aggrieved in any way, and in of whether the economic equilibrium particular against decisions adopted by Austria - Contracting authority on behalf of the Ministry of a public service contract would be the competent authorities. - Controls quality criteria compromised by the operation of a new Czech Republic - Guarantees the eligibility of an applicant for a PSO contract international passenger service. It should be highlighted that the new text Estonia - Deals essentially with safety-related issues of Directive 34/2012, as amended by Directive 34/2012 establishing a single the Fourth Railway Package, extends the Germany - Regulates access fees to stations European railway area took a step further regulatory bodies’ economic equilibrium - Regulates elements of train access fees to infrastructure (‘regional factor’) by clearly instituting these bodies. assessment duty to all requests for open - Information and coordination of construction measures (track works especially) Article 55 sets out its legal basis: “Member access rights, irrespectively of whether - Market monitoring States shall establish a single national they concern an international, or, as Hungary - Controls quality criteria set out in the contract regulatory body for the railway sector. This from January 2019, a domestic service. body shall be a stand-alone authority which The assessment should be concluded Norway - Monitors the rail market is, in organisational, functional, hierarchical on the basis of an objective economic - Handles competition-related issues and complaints and decision-making terms, legally distinct analysis, including certain predetermined Poland - Issues decisions on open access and independent from any other public or criteria and following a relevant request - Assesses the drafts of the PSO contracts private entity.” 20 submitted by an interested party. - Safeguards the effective implementation of the Passenger Rights Regulation

Moreover, the Directive sets out the Today, in some Member States, the Slovakia - Regulates the maximum price level in passenger transport regulatory body’s independence from any regulatory body (or another designated - Regulates the maximum level of track access charges for PSOs infrastructure manager, charging body, body) has specific powers with regard to - Awards licences and makes inspections allocation body or applicant regarding the operation of public service contracts. Slovenia - Carries out safety controls its organisation, funding decisions, Switzerland - Monitors that network access is non-discriminatory legal structure and decision making. Needless to say, it deems it functionally independent from any competent authority involved in the award of a public service contract. 21

19 Some Member States set up their rail regulatory body before this date, but others were compelled to do so in 2010 under the pressure of the European Commission infringement procedures launched back in 2009. 20 Directive 34/2012 of 21 November 2012 establishing a single European railway area, Article 55 21 Directive 34/2012 of 21 November 2012 establishing a single European railway area, Article 55

CER - The Voice of European Railways 37 Public Service Rail Transport in the European Union: an Overview

PART 1 3 Public service financing: the ‘heart of the matter’

3.1 Overview of the provisions foreseen in the amended Regulation 1370/2007 3.2 Current state of the art: too much under-compensation 3.3 The problem of under-compensation

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The financial aspect of public service contracts remains today at the heart of the matter. We can ascertain this from a business or economic perspective, a purely legal one and more importantly, from a political perspective. The prevailing economic conditions in PSO traffic are dictated by political decisions based on national (centralised and/or decentralised) social welfare and environmental policies. Theoretically, these political objectives should be supported by an adequate financial framework. Too often, however, short-term budget- ary discretion has an important impact on rail transport, as can be seen from the individual country reports included in this brochure.

The amendments to the PSO Regulation 1370/2007, approved by EU legislators in De- cember 2016 in the text of Regulation 2016/2338 (under the Market Pillar of the Fourth Railway Package), sought to tackle and effectively eliminate any possibility of overcompen- sation, but did not adequately address the issue of under-compensation. The very vague provision that the level of compensation must adequately ensure the long-term financial sustainability of the public passenger transport service has no particular enforceability, since it leaves the crux of the issue, i.e. the criteria against which the sufficiency of compen- sation can be assessed, unaddressed.

3.1 Overview of the provisions foreseen in the amended Regulation 1370/2007

Regulation 1370/2007 lays down for public service obligations, compensate the compensation payment, if any, is generated in discharging the public service the basic principle which states public service operators for costs to be calculated, and obligations, taking account of revenue relating that costs incurred through public incurred and/or grant exclusive rights in (ii) the nature and extent of any thereto kept by the public service operator service obligations must be properly return for the discharge of public service exclusive rights granted, in a way and a reasonable profit;2 compensated: there must be neither obligations”1 that prevents overcompensation. overcompensation nor under- c) determine the arrangements for the compensation. These principles can be • “ Public service contracts and general rules In the case of public service contracts not allocation of costs connected with found throughout the Regulation: shall […] awarded according to Article 5(1), (3) or (3b), the provision of services. These costs these parameters shall be determined in such may include in particular the costs of • “ To this end, this Regulation lays down ) establish in advance, in an objective and a way that no compensation payment may staff, energy, infrastructure charges, the conditions under which competent transparent manner: exceed the amount required to cover the net maintenance and repair of public authorities, when imposing or contracting (i) the parameters on the basis of which financial effect on costs incurred and revenues transport vehicles, rolling stock and

1 Regulation (EC) No 1370/2007 of 23 October 2007 on public passenger transport services by rail and by road and repealing Council Regulations (EEC), Article 1.1 2 Ibid. Article 4 para. 1 point b, as amended by Regulation (EU) 2016/2338 of 14 December 2016

CER - The Voice of European Railways 39 Public Service Rail Transport in the European Union: an Overview

installations necessary for operating the In principle, the process under the new The national regulatory body is, in general public authorities, without any possibility passenger transport services, fixed costs PSO Regulation is as follows. The public terms, empowered to monitor separation of transfer of revenue to another sector of and a suitable return on capital.” 3 authority outlines its expectations of accounts in application of EU law. In the public service operator’s activity”. according to its political objectives, this context, it must ensure that no such • Reasonable profit is defined as the • “In order to avoid overcompensation while the applicants try to provide the overcompensation has been granted, rate of return on capital that is normal or lack of compensation, quantifiable most competitive business offer within as well as monitor any issues of under- for the sector in a given Member State financial effects on the operator’s networks a tendering process. The price of the compensation. and that takes account of the risk, or concerned shall therefore be taken into offer plays an important role, but it is not absence of risk, incurred by the public account when calculating the net financial paramount, for quality and performance When the public service contract is service operator by virtue of the effect [of the compensation]” 4 remain increasingly significant criteria awarded directly, compensation must intervention by the public authority. including self-initiative (out of the comply with the rules laid down in the and budget). It must be noted that the final Annex of Regulation 1370/2007. It The new text of Regulation 1370/2007 price comprises a reasonable profit for should be noted that the main principles explicitly foresees that the method of • “the costs of the public service must the future operator. of the Annex correspond to those that calculating the level of compensation be balanced by operating revenue and should be applicable in any normal and must promote the maintenance or payments from public authorities, without The Regulation demands full transparency fair tendering process: development of effective management any possibility of transfer of revenue regarding payment conditions and by the public service operator and the to another sector of the public service separation of accounts (as in other EU • The compensation may not exceed provision of high quality transport. operator’s activity”. 5 rail legal texts6). The objective pursued by the net financial effect equivalent to the European Commission with this text the total of the effects,7 positive or On a more general note, the method of Thus, the level of compensation should, is to ensure that Member States do not negative, of the public service obligation payment can have a direct impact on the in principle, be subject to discussions make use of public service contracts to costs and revenue of the operator; adequacy of the level of compensation and effective negotiations between provide illegal or incompatible state aid • In order to avoid cross-subsidies, the and can be used as an effective tool to the parties, regardless of whether to railway undertakings. In other words, accounts of the operator must remain avoid not only overcompensation, but the contract is awarded following a public money granted for public service strictly separated. In particular, the also under-compensation. On the basis tendering process or whether it is directly transport obligations cannot flow back annex requires that “costs are balanced of the country reports two categories of negotiated with a determined operator. to non-subsidised commercial activities. by operating revenue and payments from payment can be discerned:

3 Ibid. Article 4 para. 1 point c, as amended by Regulation (EU) 2016/2338 of 14 December 2016 4 Ibid. Annex, Point 3 5 Ibid. Annex, Point 5 6 In particular Council Directive 91/440/EEC of 29 July 1991 on the development of the Community’s railways as successively amended 7 The effects are to be assessed by comparing the situation where the public service obligation is met with the situation which would have existed had the obligation not been met. The net financial effect can be calculated as follows: Public service obligation costs • minus any positive financial effects generated within the network operated under public service obligations • minus ticket revenues (where applicable) or other revenues generated by the public service transport • plus a reasonable profit

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• Compensation determined ex ante the operator as part of its payment lines of the traffic that falls under PSO. and not readjusted depending on for the services required by the This disequilibrium of the contract could the actual costs incurred. In this case, public authority. This form of contract instigate unforeseen and damaging for directly awarded contracts the is increasingly used in the EU as it economic consequences for the operator, assessment relies on historic costs, provides a strong, natural incentive for and may eventually lead to higher costs while for publicly tendered contracts the operator to increase ridership and for passengers and degraded public the compensation depends on the price customer satisfaction. It is also often services. proposed by the winning bidder on the regarded as an appropriate basis for the basis of its own assessment of forecast distribution of responsibilities between In some cases, cherry picking is an costs. In the vast majority of European the public authority and the operator, element of the contract. It may be countries this is the preferable option. leaving the latter some leeway to invest fully foreseen and it is then for the • Compensation paid in advance on in product and quality innovation. It is operator to calculate the degree of risk the basis of a fair estimate and then also a way for the public authority to he can bear. This must be taken into regularised, at the end of a certain have the operator take on the risk of consideration when calculating the level period, on the basis of the actual changes in ridership. of compensation. costs incurred. This process occurs • In a gross contract, ticket revenues go in very rare cases, i.e. in Lithuania, fully to the public authority, which then Luxembourg and Slovakia. It can rewards the operator to carry out the either lead to a reimbursement of required services. This form of contract any overcompensation granted to the is often used when the public authority operator by the awarding authority, if wishes to retain the full responsibility the actual costs are lower than those for the customers. It can go together forecast, or to an additional payment, with certain economic incentives for the if the actual costs were higher than operator. expected. While a gross contract is rather The economic equilibrium of public a straightforward in economic terms, the service contract is to be determined by operator’s business plan under the net its financial structure. There are two contract is heavily dependent on ticket basic types of public service financing revenues. mechanisms: the so-called ‘net’ and ‘gross’ contracts. To that effect, net contracts, might be more susceptible to disturbances caused • In a net contract, revenues generated by the entry of a new competitor that by ticket sales are accumulated by will ‘cherry pick’ the most profitable

CER - The Voice of European Railways 41 Public Service Rail Transport in the European Union: an Overview

3.2 Current state of the art: too much under-compensation

Public service obligations are to be was ‘soaring’ at 71% (according to data Hungary, Lithuania, Portugal, Romania likely to be applicable in all cases. On the compensated either through direct from 2009). It is evident that the chasm and Great Britain). contrary, it will vary to a certain extent in financial input, including a reasonable between the EU-15 and EU-13 as each case, depending on the specificities profit and/or through the award of regards the degree of compensation is The question of reasonable profit is also of the contract, and in particular on the exclusive rights. In practice it appears probably more profound than ever. an important issue. What constitutes degree of risk taken by the operator as that most operators benefit from financial a reasonable profit is not precisely well as on what is generally considered compensations while the exclusive rights It is interesting to note that in some defined in Regulation 1370/2007. It will to constitute a ‘reasonable profit’ in the are not necessarily provided. countries, i.e. the Netherlands and obviously depend on the degree of risk country in question. In other words, Norway, infrastructure charges for the company operating the services is there is no objective standard of what a Regulation 1370/2007 requires in its public service transport are very low or going to take and, in theory, should be reasonable profit should be that applies Annex that the “costs of the public service even non-existent as a deliberate policy the subject of effective negotiations uniformly throughout the EU. must be balanced by operating revenues decision taken by the awarding authority between the parties. A reasonable profit and payments from public authorities, to help balance the costs incurred by the is foreseen in the majority of contracts. The European Commission, in 2014, without any possibility of transfer of revenue services. In many countries, track access However, as can be clearly seen in the published interpretative guidelines to another sector of the public service charges for public service transport individual country reports, a reasonable concerning Regulation 1370/2007, operator’s activity.” 8 operations are lower in order to limit the profit is foreseen even in contracts for which outline the Commission’s level of public service compensation. The which the actual level of compensation understanding of the Regulation’s Data collected by CER show that in consequence is that the infrastructure does not suffice to fully cover the actual financial aspects. The Court of Justice practice a considerable number of manager has to compensate for that loss net costs. In these cases, the inclusion of will, as always, be the ultimate arbiter to Member States, particularly among those by increasing the level of freight access a reasonable profit is therefore a pure rule upon such matters. belonging to the EU-13 bloc, still under- charges, which in return negatively formality. compensate the requested public service affects the competitiveness of rail freight obligations. According to this data, in services. The Commission, in its Danske Eastern European countries only 64.5%, Statsbaner Decision,10 considered that a on average, of the net costs incurred for According to Commission RMMS reasonable profit of 6% was acceptable the discharge of the PSO was covered by data,9 between 2011 and 2014 PSO given the other circumstances relating the compensation granted in 2015. This compensation increased in absolute to the financing of this specific contract. has undoubtedly marked a significant terms in eleven countries (Austria, It should be stressed that the level downturn, which is striking to anyone Belgium, Denmark, Germany, Estonia, of reasonable profit will generally who would for instance compare this France, Italy, Luxembourg, Latvia, Poland correspond to the overall economy of version of the PSO Brochure to the one and Norway) and decreased in seven the contract. It is therefore difficult to drafted in 2011, when this percentage countries (Bulgaria, the Czech Republic, consider this fixed figure as a principle

8 Annex to Regulation 1370/2007, Point 5, third indent 9 See Commission Staff Working document accompanying the Fifth report on monitoring developments of the rail market, European Commission, 8 December 2016, page 78. 10 European Commission Decision C 41/08

42 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

3.3 The problem of under-compensation

Given that in countries belonging to the Figure 13 Consequences of public service under-compensation EU-13 bloc, where the issue of under- compensation is more widespread, almost the entire scope of rail passenger transport falls under PSOs, the degree Insufficient government funding for rail Historic Insufficient revenue from rail passenger of deficit inevitably leads passenger infrastructure debt services leads to low passenger TAC* rail companies into a downward (PSO under-compensation) of financial losses and reduced competitiveness, thus forcing them into short-term borrowing. Among the various tangled matters of concern, the most compelling include: Insufficient finances for Accumulation of debt and High TAC* for rail freight infrastructure debt service payments (cross-subsidisation of PSO traffic) • Implicit obligations not explicitly required by public authorities: railway undertakings sometimes continue to provide services not covered by a public service contract in order to avoid Decline in rail infrastructure quality the likelihood of politically coloured repercussions if they decide to close them. • Compensation through commercial Loss of rail freight and passenger traffic revenues: losses are compensated through the allocation of revenues Unfair conditions for from freight to public service passenger Loss of income and intermodal operations (cross-subsidies) which ability to invest competition (road undercharged) eventually affects the viability of commercial freight activities. While this could be a valid commercial choice * TAC = track access charges for a healthy railway undertaking, it is unjustified when imposed by a public Source: CER authority or where an authority’s idleness leaves the railway undertaking no choice but to cross-subsidise.

CER - The Voice of European Railways 43 Public Service Rail Transport in the European Union: an Overview

• Quality implications: railway On a concluding note, another indirect undertakings, particularly but not repercussion could emerge in relation exclusively in the new Member States, to competitive tendering procedures. suffer from chronically insufficient Naturally, the tendering of a public renewal of their rolling stock. The service which is known in advance to average age of rolling stock used for be inadequately compensated cannot public service transport in new Member succeed in any meaningful way. Tendering States is 30 years, which naturally has can be realised in formal terms, but a negative impact on the quality of positive effects from competition for services offered to customers. the market can only occur if there are • Low availability of rolling stock: the competing bids. In other words, the old rolling stock is costly to manage due main objective envisaged in the Fourth to recurrent breakdowns and shortage Railway Package – i.e. the opening of the of spare parts. This affects the overall domestic passenger traffic through the capacity available to clients. wide application of open access rules • Modal shift: the low reliability and and public tendering procedures – has quality of service results in modal very few chances of being accomplished, shift to less environmentally friendly without first resolving the issue of under- transport modes such as road. compensation in a pragmatic way. • Competitiveness: the adversities enumerated above, affect the overall competitiveness of the railway undertakings operating PSO traffic without receiving adequate compensation vis-a-vis new market players and railway undertakings that are properly compensated.

44 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

CER - The Voice of European Railways 45 Public Service Rail Transport in the European Union: an Overview

46 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

PART 2 Belgium Lithuania Bulgaria Luxembourg Country Croatia The Netherlands Czech Republic Norway Reports Denmark Poland Estonia Portugal Finland Romania France Slovakia Germany Slovenia Greece Spain Hungary Sweden Italy Switzerland Latvia

CER - The Voice of European Railways 47 Public Service Rail Transport in the European Union: an Overview

1. Organisation of public service • tariffs applicable to public service In Belgium, public service rail transport operations in Belgium missions; represents 100% of domestic passenger • conduct rules vis-à-vis the consumer; traffic. In other words, local, regional and The organisation of public services in • setting the level of public financial long-distance traffic is considered as Belgium Belgium is regulated in accordance with compensations and payment modalities, public service transport, bearing specific the following pieces of legislation: whilst taking due account of revenues traffic and tariff obligations. This is generated by the operation of public mainly due to the size of the country and • Law of 21 March 1991 reviewing service operations; the number of commuters crossing the some public enterprises (Loi portant • the sanctions to be applied in case one country on a daily basis to reach their réforme de certaines entreprises publiques of the parties to the contract does not workplace. économiques) respect its obligations.1 • The Belgian Railway Code of 30 August International passenger traffic is open 2013 (Code ferroviaire belge) It should be noted that the scope – and to competition. Up till now, though, • Regulation (EC) No 1370/2007, which in particular the financing aspects – no operator has really made more entered into application in December of public service obligations are not than marginal use of the cabotage 2009. enshrined in the Law of 1991 but are possibilities. The only tangible examples the object of negotiations between the of cabotage rights in Belgium are limited The Belgian law of 1991 foresees that, parties and are stipulated in the contract to the operation of routes from Brussels in principle, the state can enter into a itself. to Cologne and Brussels to contract for public service obligations by Thalys, and from Brussels to Cologne with public enterprises, the so-called Public service transport is managed and Frankfurt by DB/ICE. The possibility ‘contrat de gestion’. centrally by the Belgian Federal of offering cabotage on the Belgian Authority, which is competent for all market is also conditioned by the fact This law of 1991 in fact clarifies the nature railway transport and financing matters. that domestic passenger traffic falls of public service operations that may be under public service obligations. entrusted to public companies in Belgium. The domestic passenger rail market is It provides, among other items, for: currently not open to competition. Other railway undertakings than the incumbent • the tasks to be undertaken by the public SNCB/NMBS currently only operate enterprise to execute public services it international lines on a commercial basis has been allocated; (Thalys, Eurostar and ICE).

1 It should, however, be noted that even if an obligation is not respected by one of the parties to the contract, the rest of the obligations must nevertheless be executed. The injured party may receive damages to compensate this, notwithstanding the possible sanctions provided for explicitly in the contract. In practice this means that if the railway operator for example is not properly compensated for the operation of public service operations, it is nevertheless obliged to execute such obligations. The railway operator will then be entitled to receive damages – in theory.

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Belgium

2. Operators on the market routes, however, competition has patriotic, etc.) that are totally or effect, SNCB/NMBS coordinates and for public passenger service developed, various operators having partially compensated by the state; concludes the necessary agreements transport entered the market (Thalys, Eurostar, • obligations with regard to the with the neighbouring operators or states DB/ICE): DB/ICE operate commercial management of rail infrastructure; governing important aspects of these The Société Nationale des Chemins de international traffic in cooperation with • investments that are imposed (and operations, such as fare discussions. With Fer Belge (SNCB/NMBS) is the passenger SNCB/NMBS, and since 2010, Eurostar financed by the state); Luxembourg, in particular, the framework rail operator on the Belgian market. It is a International Ltd have been operating • rules to be followed in case of agreement is concluded between the two public law company with limited liability international traffic through Belgium. investment (procedure to be followed, governments. It should be highlighted (société anonyme (SA) de droit public). It As from 1 April 2015, Thalys (operating submission of projects to public that there are no private railway underwent restructuring in 2005 and before on a cooperative basis) became a authorities prior to any decision, etc.). undertakings operating on those lines. again in 2014. As of 1 January 2014, two distinctive passenger railway undertaking autonomous public companies each have operating international traffic through Quality criteria are an important part of Public service rail a separate public service contract (contrat Belgium. the discussions. The key criteria relate to – according to data from 2015 – is de gestion) with the state: punctuality, chances for the passenger provided by approximately 3 401 trains to get a seat, cleanliness, passenger per day, which represents 9 927 million • SNCB/NMBS is in charge of passenger 3. Definition of public service information in trains and stations, and passenger-kilometres per year. The transport (national and international) requirements complaint management. average ticket price in 2015 was and real estate. EUR 2.73, including all fare types, i.e. • Infrabel is the infrastructure manager. Public service obligations usually consist tickets, passes and cards. in: 4. Scope of public service transport Besides these two autonomous public by rail Other modes than rail, i.e. bus, , companies, HR Rail, also a public • a set of obligations for domestic metro, are covered by separate public company (but not falling under the passenger transport (these obligations Purely passenger transport service contracts between different 1991 law and thus not considered detail the type of train to be used for in Belgium is run as a whole under public regional/local authorities and regional/ an economic or autonomous public the specific traffic, minimum number service contract, whereas, in general, local operators (other than SNCB/NMBS). company), as a daughter company of of train-kilometres per day, degree of cross-border services are run on a SNCB/NMBS, Infrabel and the Belgian comfort required, scope of information commercial basis (see sections 1 and 2 state, manages the recruitment and to be provided to the customer, level of above). 5. Contract personnel affairs for both autonomous quality, access, etc.); companies. • quality criteria; As part of its public service contract Currently, rail public service obligations • a set of fare obligations (level of fares, with the state, SNCB/NMBS operates are included in one single civil law SNCB is the sole operator on the scope for increase in level, etc.); its trains to a number of the first cross- contract – the ‘contrat de gestion’ for domestic passenger rail market in • all fare reductions that must be applied border stations in France, Luxembourg, the whole territory – that covers the Belgium. On international commercial (linked to social criteria, family, public, Germany and the Netherlands. To that following types of services:

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Belgium

• public service passenger transport 7. Contract negotiation on the required extent of passenger- that are currently in force. In Belgium within the territory; kilometres to be operated under a Passenger Rights Regulation 1371/2007 • acquisition, building and In Belgium these discussions take the PSO. is fully applicable without any exemptions maintenance, management and form of a negotiation between the parties whatsoever. financing of rolling stock; to the public service contract. In practice, The compensation is awarded in • services that need to be performed the presents its business the form of both financial influx and On a concluding note it should be to satisfy ‘needs of the Nation’; case with regard to the extent of the exclusive rights on the entire network highlighted that the available public • cross-border passenger services public service operations to deliver on a (with a view to limit the overall level budget for rail has been drastically until the first stop across the border. yearly basis and submits a detailed cost of financial support), thus no ‘cherry- reduced since 2010. assessment to the Ministry of Transport. picking’ is allowed. The current public service contract was directly awarded to SNCB/ The SNCB/NMBS contract with the state 10. Duration of public service NMBS in 2008 and its application is to be considered as a ‘net’ contract. 9. General payment conditions contract extends until the conclusion of a new contract. The new contract, As to the fulfilment of the requisite level Payments are made in regular instalments The public service contract is routinely which will be directly awarded, is of quality stipulated in the contract, at determined intervals. The railway concluded for a duration of up to five/ currently being discussed/drafted. various methods of assessment are company and the infrastructure company six years. Its content and duration will comply foreseen. To be more specific, the bear all risks in relation to the execution with the prescriptions foreseen in current PSO contract prescribes quite of the contract. This means that they will the new PSO Regulation (Regulation a number of different reports, to be have to cover any deficit developed during 11. Rolling stock 2338/2016 replacing Regulation delivered to the state with different the execution of the contract. 1370/2007). periodicities (yearly/quarterly/ The payment is not subject to VAT. Rolling stock used in the context of the monthly), in addition to the overall public service contract is owned by yearly evaluation process. As regards There is a bonus/malus mechanism SNCB/NMBS. It is financed through the 6. Awarding of public service the requirement for investments, providing for the imposition of a fine to contract itself and remains allocated contracts regular financial controls and frequent either the railway operator (passenger exclusively to the operation of the evaluation meetings take place. or freight) or the infrastructure manager, contract. The SNCB/NMBS investment Rail public service is subject to a in case of a relatively high amount of plan is also an integrated part of the contract, thus its particular provisions minutes of delay caused by deficiencies contract with the state. are not foreseen and specified within 8. Calculation of the level of in their operations. Accordingly, a bonus a separate general legal framework. compensation scheme is foreseen, if the sum of minutes The vast majority of the fleet is relatively The rail public service contracts of delay is kept at a relatively low level. old. The average age of the fleet operated are negotiated directly with SNCB/ Compensation levels are determined by SNCB/NMBS for the discharge of NMBS and awarded by the national in advance, and based on a fixed and Passengers must also be compensated the PSO in 2015 was 20 years old. In Government. a variable component that depends in case of delays according to the laws more detail: 40.7% of the rolling stock is

50 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

more than 30 years old, 4.7% is ranging 1. Organisation of public service It is worth noting that only a small between 20-30 years of use and 29.5% operations in Bulgaria percentage of passengers, i.e. 5%, travel between 10-20 years, while 25% is newer by rail in the country, while the market than 10 years old. In Bulgaria public passenger railway share covered by water and air transport Bulgaria transport is regulated in accordance is insignificant. The vast majority has A part of the EMUs is already with Regulation (EC) No 1370/2007, opted for road-based solutions. modernised, while other EMUs are which is directly applicable, and the currently being modernised or will be Bulgarian Regulation for the Assignment modernised in the near future. However, and Execution of the Obligations for 2. Operators on the market there are no plans for modernising the Performing Public Service Transport, which for public passenger service coaches, which are in the majority of has been in force since 1 January 2002. transport cases relatively new. Public service transport is managed There is currently only one operator, centrally by the Council of Ministers of BDZ Passengers EOOD, in charge of the 12. Involvement of the regulatory the Republic of Bulgaria, represented by entire public passenger railway traffic in body or other authority the Ministry of Transport. Bulgaria.

No other authority other than the The entire rail passenger market is open Transport Ministry is involved in public to competition: 3. Definition of public service service contracts. requirements • The vast majority of domestic passenger traffic falls under the Public service obligations are defined in country’s single public service contract, the aforementioned Railway Act as well representing 95% of passenger- as in the contract concluded with the kilometres. Ministry. • Long-distance passenger transport operated on long-distance and Public service obligations essentially trains is run on a commercial basis. relate to: • International passenger transport by rail is also operated on a commercial • obligation to transport on the entire basis. It should be noted that no new network; operator has made use of the possibility • tariff obligations (especially with certain for cabotage since the opening of the categories of population); international passenger market to • essential quality standards. competition in 2010.

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Bulgaria

The essential quality standards relate to: provided. One crucial factor determining passenger-kilometres respectively. The contract establishes the rights and the level of quality of public railway According to the contract, railway obligations of the parties, the legal, • regularity and punctuality; services is the average traffic speed that passenger services are rendered on all financial and technical conditions for the • hygiene, elimination of faults. the infrastructure manager proposes. lines of the republic’s railway network, use of railway infrastructure as well as Cleaning intervals according to type listed in an annex to the contract. the definition and financing of the public (rough, basic, external, full basic) are Infrastructure maintenance works services through the central budget. determined in the contract; can cause significant delays to train The average ticket price in PSO traffic • monitoring through customer surveys schedules, increase the estimated has been increased slightly during the at regular intervals; travel time due to repeated movement past three years to EUR 1.03 (2016). 6. Awarding of public service • providing the necessary capacity; of trains onto detour lines and, finally, contracts • qualification of personnel – personnel enhance the volume of passengers must meet the minimal requirements travelling by buses in the areas that are 5. Contract The Council of Ministers of the Republic such as politeness, competence, temporarily shut down for repair. The of Bulgaria by adopting its Decision reliability, ability to cope with difficult negative impact of these factors leads to The Ministry of Transport started No 530 of 18 August 2008 paved the situations, wear the proper uniform, a decrease in the number of passengers concluding contracts for the provision way for carrying out an open tender badge with the name, be of appropriate carried and a loss of market position. of public service transport in 2004. The for the appointment of a carrier that appearance, etc.; second contract is currently ongoing; it would discharge public transport railway • collection of complaints – within was concluded in June 2009 following services. The very same decision granted two years at the latest, a system 4. Scope of public service transport a tendering procedure and entered into authorisation to the Minister of Transport for submitting complaints has to be by rail force on 1 January 2010. The duration to determine the specificities of this introduced. of the contract was set for a 15-year procedure and execute it. Accordingly, The domestic passenger rail market is period, meaning that under normal BDZ Passengers EOOD has been In the PSO contract, requirements open to competition; 95% of domestic circumstances it should remain valid appointed the executor of the public are also included with respect to the passenger transport (urban, suburban, until 2025. The way in which the next service contract for public transport intervals of cleaning (general, major, regional and inter-regional) is defined public service contract is to be awarded services in the field of railway transport on external and full major cleaning). in the Bulgarian law as public service is unknown. the territory of the Republic of Bulgaria. transport. Qualitative criteria are stipulated in the This single contract covers the entirety contract. In case of non-observance of In numerical terms, for the discharge of of public passenger railway services in 7. Contract negotiation these criteria, there is a penalty system public service , 576 the country. that can be triggered by the Assignor, trains (71 high-speed trains and 505 Public service transport is compensated leading to a corresponding reduction of suburban/regional trains) were operated The contract is drafted on the basis of solely through a financial influx. However, the compensation to be granted. in 2015 and 562 (71 high-speed trains a template produced by the Ministry of as there is a single contract covering the and 491 suburban/regional trains) in Transport, to which the operator has entire territory, the operator benefits The state of the infrastructure has a 2016, covering a sum of 1 461.4 million to adhere. Therefore, there is no actual from a ‘de facto’ exclusivity. Therefore, direct impact on the quality of services passenger-kilometres and 1 344.1 million negotiation between the parties. ‘cherry picking’ is not an option.

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Bulgaria

The level of compensation of public and quantitative criteria that need to • rolling stock; The compensation for free tickets and service contracts is defined in the be met and the relevant leeway for • (historic) debt payment1; tickets at reduced prices for traveling contract for the contracted period and is deviations (normal and maximum) from • other fixed costs. within the country is paid every month reviewed on a yearly basis. the agreed standards referring, inter depending on the actually provided alia, to train-kilometres, train-hours, Depreciation deductions are also services that are the subject of the The contractor elaborates yearly and availability of seats, number of trains, included in the costs for the purpose of contract, on the basis of documents three-year forecasts making projections speed, jib, gauges etc. calculating the level of compensation. displaying the degree of transport regarding the foreseeable necessary level services that were rendered. of compensation and submits them to the Staff-related costs include remuneration Contracting Authority and the Ministry 8. Calculation of the level of of the personnel and crew, These payments are made regularly of Finance, no later than 30 June of the compensation expenses for labour and uniform clothing through monthly instalments. The preceding year. These forecasts are based as well as measures adopted for the compensation covers 70-75% of the on preliminary net indicators of costs and The level of compensation is the safety of the personnel. total costs incurred for the provision of revenues for the corresponding period result of the difference between the the agreed services. as well as on macroeconomic figures and foreseen costs and revenues. According The compensation level does take into the Guidelines drafted by the Ministry of to data from 2015 and 2016, PSO- account a ‘reasonable profit’ of 3% A penalty system is in place in Bulgaria. To Finance. related expenses reached the sum granted to the operator. that effect, the amount of compensation of EUR 129.81 million in 2015 and granted for the provision of public railway Each year, in the course of the EUR 122.61 million in 2016. For the discharge of the services services can be reduced for the relevant budget procedure, the Contracting requested under the PSO contract, the trimester, if the requisite level of quality Authority submits to the Ministry of The public service contract is a ‘net’ state, through the Ministry of Finance, is not met, i.e. with regards to punctuality Finance a proposal for the amount of contract; revenues generated from ticket provides budgetary funds in the form of and regularity of the service. In more compensation granted for PSOs, to be sales are accumulated by the operator compensation for fulfilling the transport detail, deviations of +/-5% are foreseen discussed and further included in the - along with the associated risks - and obligation and compensation for in relation to the major indicators draft Law for the State Budget of the are taken into account when setting the performing the tariff obligation. (train-kilometres, available seats, train- Republic of Bulgaria. adequate level of compensation. hours). For every violation amounting to a deviation of 0.1% from the major The amount of compensation, For the calculation of the overall 9. General payment conditions indicators, depending on the category determined by the Law for the State costs incurred for the provision of the of train, the compensation to be given is Budget for the corresponding year, is requested public services, the following The compensation for executing the reduced by 0.05%. In the case of proven included in the Council of Ministers costs are, usually, taken into account: transport obligation is paid to the failure to fulfil the minimum sanitary Ordinance for implementation of the operator by the Ministry of Finance requirements, the compensation can be State Budget of the Republic of Bulgaria. • staff; against an invoice issued up to the 15th reduced by 2%. Over the years there • energy and fuel; day of the running month, according to have been instances, e.g. a failure to meet Finally, there is an annex to the • infrastructure charges; the coordinated annual schedule. This quality requirements and performance agreement introducing the qualitative • maintenance and repair of vehicles; compensation is subject to VAT. clauses, where penalties have been

1 Interest on Holding BDZ EAD loans related to the purchasing of assets (DMU, EMU) under the PSO contract.

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Bulgaria

imposed. Finally, as foreseen in the 1 January 2010. It was concluded for 12. Involvement of the regulatory contract and the Reference document, in 15 years. This duration is considered body or other authority case of a more than 60-minute delay, no satisfactory since it allows BDZ compensation is granted. Passengers EOOD to meet the The Railway Administration Executive principal requirement of ensuring Agency is the regulatory body in railway It should be noted that the poor quality quality and safe public transport transport and the national railway of infrastructure generates damages services at prices that are affordable transport safety body. The Agency controls for the operator, which in turn needs to for passengers. the access to the railway infrastructure compensate passengers. These costs and the performance of the PSO. are practically entirely born by the operator, due to insufficient measures 11. Rolling stock The control of the performance of the for successfully enforcing its right of PSO is executed through regular checks recourse against the infrastructure As regards the age of the rolling stock of the quality of the service provided, manager. Further deficiencies stem used for the discharge of PSO,96% of customers’ complaints etc. Prescriptions from low train speed, prolonged repairs, the rolling stock currently used is more are given for eliminating verified neglected deadlines for construction than 30 years old, representing 37.16% violations, a practice that, generally activities (set by the Reference of the wagons and 56.64% of the traction speaking, has positive effects on the documents) and restoration of traffic rolling stock; naturally, such a high contract performance. after a repair that actually worsens the percentage has a negative impact on the state of the railway infrastructure. overall quality of the services concerned. As regards the newest part of the fleet, The Passenger Rights Regulation (EC) 17.73% of the wagons and 22.03% of No 1371/2007 is applicable with certain the traction rolling stock are less than 20 exemptions; the exemptions cover all years old, while 4.82% and 17.48% are urban, suburban and regional railway less than 10 years old respectively. transport, as well as international transport where a significant part of the As of May 2011, following the contract route – including at least one station – is for the transfer of the rolling stock, all outside of the EU. rolling stock – including both wagons and traction rolling stock – is the property of BDZ Passengers EOOD. 10. Duration of public service contract Under the ongoing PSO contract, 30 new sleeping wagons were purchased The current contract was signed through capital contributions from the in 2009 and entered into force on state budget.

54 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

1. Organisation of public service likely to impact existing public service objective of passenger development. In operations in Croatia operations. practice, however, the financial margin of manoeuvre of HŽ Putnicki prijevoz d.o.o. Public service transport is organised is so limited that it cannot improve the Croatia centrally by the Ministry of the Sea, 2. Operators on the market services as it would wish. Transport and Infrastructure. It is based for public passenger service on Article 23 of the Railway Act (Official transport Gazette 94/13 and 148/13) which 4. Scope of public service transport defines services of general economic For the time being, there is no other by rail interest for rail transport. operator apart from the national carrier, HŽ Putnicki prijevoz d.o.o. (HŽ Almost the entirety of domestic It was organised in line with Regulation Passenger Transport), in charge of public passenger rail traffic falls under public (EC) No 1370/2007 even before Croatia service transport by rail in Croatia. service obligations. Since 2013, more became a member of the European than 99.5% of train capacity (covering Union (1 July 2013). both national and international 3. Definition of public service traffic) was utilised for the operation The Ministry of the Sea, Transport and requirements of public service obligations. They Infrastructure is in charge of determining relate essentially to all national, long- the scope of public service operations Public service obligations usually consist distance, inter-regional and international and of concluding related contracts in: lines (including all trains except for with the operator. Almost the entirety commercial excursion trains). of domestic passenger traffic falls under • tariff obligations; public service obligations. Operations • service quantity; In numerical terms, 951 million on the domestic market are not open • service quality defined by certain passenger-kilometres were concluded to competition for the time being but punctuality, regularity and passenger under a PSO in 2015 and 882 million there are plans to open this market development objectives; in 2016, for the discharge of which 713 to competition once this becomes • monitoring of planned or foreseen and 716 trains were operated per day mandatory at EU level. service disruptions through the respectively. agreement with the infrastructure The international commercial passenger manager. The PSO contract covers only rail market was opened to competition transport services. Separate agreements in January 2010, in line with the All of these criteria are imposed by are concluded with the relevant companies requirements of Directive 2007/58. the Ministry of the Sea, Transport and in relation to other modes of transport. In However, for the time being, no requests Infrastructure. The railway operator exceptional circumstances, for instance have been made on international routes remains free to add further quality when planned or unplanned maintenance including cabotage, which would be criteria to its services to help achieve its works disrupt rail services, the operation

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Croatia

of bus services in a complementary way, on 12 February 2016 remained valid Compensation is provided by direct • amortisation and maintenance costs; could form part of the contract. up until the end of December 2016. In financial influx. The operator bears the • train traction; parallel, the general framework of the risks related to ticket sales. Even though • power; In terms of revenues, public service upcoming contract due to commence ‘cherry picking’ is in theory possible, there • track access charges; transport represents about 85% of HŽ in early 2017 could be foreseen with a have to date not been any cases of cherry • administrative costs; Passenger Transport’s passenger rail relative degree of certainty; it would be picking directly affecting the economy of • staff costs. traffic revenue. The average ticket price awarded directly to HŽ Putnicki prijevoz a public service line. In practice, due to has decreased during the last three years d.o.o. and it would mirror contractual the absence of any competition on the No reasonable profit is foreseen in the and was EUR 1.55 in 2016. terms set out by previous PSO contracts. market, HŽ Putnicki prijevoz d.o.o. enjoys contract. de facto exclusive rights for the operation of its public service traffic. 5. Contract 6. Award of public service contracts 9. General payment conditions

Public service operations are defined by Public service transport contracts are 8. Calculation of the level of Payment is made monthly upon the the Ministry of the Sea, Transport and de facto awarded directly to HŽ Putnicki compensation terms of payment stipulated in the Infrastructure in a contract concluded prijevoz d.o.o., as there is no competition agreement. The amounts received are with the sole operator. It is a single on the market for the time being. The Compensation levels are determined not subject to VAT. contract covering the entirety of the legislation in this regard may need to be in advance. They are included in the territory of the Republic of Croatia. amended once compulsory tendering will contract. The Ministry of the Sea, Transport be required at EU level. and Infrastructure retains the right to The requisite level of quality of services The level of compensation is the result withhold, partially or totally, the payment is set and reviewed by the Ministry of the of the difference between the foreseen of the public service compensation in Sea, Transport and Infrastructure on a 7. Contract negotiation costs and revenues and is calculated case the operator is unable to reach or yearly basis. These quality specifications separately for each single train that maintain the level of key performance are not, however, directly foreseen in Upon concluding a contract, the operator operates under a PSO. HŽ Putnicki indicators agreed in advance. the contract. The contract focuses on proposes and identifies elements prijevoz d.o.o. makes a calculation of the key parameters and the realisation of required for the realisation of the overall expenses on a train-by-train basis, The poor quality of infrastructure the prescribed timetable, reflecting only obligations. In parallel, the Ministry also taking into account foreseeable significantly affects the quality of traffic a fraction of the quality requirements. defines according to its own analysis the revenues from ticket sales, and thus operations as well as the relevant modal Other quality criteria such as security, level of services of general interest it constructs the plan upon which the level share. It should be noted that in case of accuracy, productivity and quality of wishes and their related and estimated of PSO compensation will be determined decreasing passenger levels compared to services can also be added, albeit outside costs. Further to a discussion between in each of the following months. those originally forecast, the associated the scope of the contract. both parties, an agreement is concluded financial and commercial risks are borne on the final level of compensation to The calculation of the overall costs for by the operator, since the agreed level At the time when this brochure was being be paid for the services required. The the service in question are based on the of compensation is not readjusted updated, the ongoing PSO contract that correlation between the two is not totality of all direct and indirect transport accordingly. According to data from was directly awarded and came into force necessarily fair for the operator. costs, namely 2015-2016, the degree of compensation

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ranged from 72.11% to 74.70% In order to limit the level of the operator has to cover all the related respectively. compensation to be paid by the operator expenses and amortisation costs. to passengers, the Government has As to the various ways in which the decided not to apply the Passenger The fleet is relatively old, the average state of infrastructure affects the Rights Regulation in the Republic age being 34 years old. In more detail, discharge of the PSO, it should be of Croatia. Delays are handled in 87.6% is more than 30 years old, 1.9% noted that every interruption or delay accordance with the state’s Act is less than 20 years old and 4.9% is on the railway tracks, for instance on Transport Contracts in Railway less than 10 years old. due to railroad works, maintenance Transport and accompanying etc., results in the provision of subordinate legislation and However, in the past four years, HŽ inadequate services – if provided at internal tariffs. Although the strict Passenger Transport went through a all - and subsequently leads to the implementation of Regulation (EC) process of full modernisation, which granting of reduced compensation – if No 1371/2007 in national traffic was included, inter alia, the procurement of granted at all - for the period during postponed by the Government, it has new rolling stock. By the end of 2016, which the impediments to proper been widely applied in international 24 new trains were already put into functioning appeared. transport during the last 4 years. traffic, while the deployment of 23 more is planned in the next three This outcome should be examined years. in light of the established process of 10. Duration of public service allocating earmarked public funds on contract a train-by-train basis, according to 12. Involvement of the regulatory projected costs for the operation of each The contract is concluded on a yearly body or other authority and every train at a certain quality level. basis following the railway timetable. Thus, if this requisite level is not met This is not felt to be satisfactory, as The regulatory body is the Rail Market and the quality of services lags behind it does not allow for any long-term Regulatory Agency. The basic legal what was stipulated in the contract, the investments or quality improvements framework for the work of this agency discharge of the PSO by this particular due to financial instability. is the Act on Rail Market Regulation train will not be compensated at all. To Agency. It has no powers whatsoever that effect, the operator sends to the related to the conclusion, negotiation Ministry individualised monthly reports 11. Rolling stock or running of the public service concerning every train that was (or was contract. not) run during the previous month and The rolling stock used for the discharge the level of compensation is adjusted of public service operations is owned by accordingly. In addition, monthly reports the operator, i.e. HŽ Putnicki prijevoz on the volume of passenger complaints d.o.o. It should be noted, though, that the are gathered and reviewed by the rolling stock is not financed through the Ministry as indicators of quality. public service contract. On the contrary,

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1. Organisation of public service International passenger traffic as well as mandated discounts on tariffs), all other operations in the Czech Republic domestic passenger traffic were opened companies operate services falling within to competition as of 2008. Since 2014, the scope of a public service contract. In the Czech Republic public service three companies established in the Czech Czech Republic railway operations are regulated Republic (ČD, RegioJet and ) It would be worth noting that the market according to the Act on Public Service in have been operating the international position of private operators has been Passenger Transport and amendments traffic (mainly to Slovakia). strengthened over the past few years of other Acts adopted in April 2010. The and it can be speculated that in 2017 Act entered into force on 1 July 2010. Finally, it should be noted that distinct they will hold approximately 5% of the Regulation (EC) No 1370/2007 of the public service contracts are concluded market (measured in million passengers). European Parliament and of the Council for different modes of transport, thus on public passenger transport is fully there is no provision for the discharge of reflected in the Act. It sets, amongst integrated public passenger services. 3. Definition of public service others, rules relating to the respective requirements responsibilities borne by the state, the regions and municipalities. Another 2. Operators on the market Public service obligations are defined in important point relates to the possibility for public passenger service the Act on Public Service in Passenger for synchronised public financing – transport Transport mentioned above, as well as notably by the Ministry of Transport in the public service contract concluded and the region, neighbouring regions, There are a number of railway companies with the railway operator. These the region and the municipality, etc. – operating passenger public transport obligations include: or both public and private financing. services in the Czech Republic. They are Regional operations are carried out currently the following: • obligations on tariffs and obligatory without direct state interference. discounts for particular social groups of • České dráhy (ČD), a.s.; the population; The Government, together with the • Die Länderbahn-GmbH DLB; • obligations on tariffs and obligatory Ministry of Transport, is directly in charge • GW Train Regio, a.s., discounts for pupils and students; of determining the scope of public service • KŽC Doprava, s.r.o.; • service frequencies in regions ( transport to be provided in the country. • Jindřichohradecké místní dráhy, a.s., transport); Long-distance and inter-regional public • Transport Czech Republic, a.s.; • service frequencies throughout the transport services are dealt with by the • RegioJet, a.s.; country (long-distance transport); Ministry of Transport, covering 28.8% • LEO Express, a.s. • qualitative criteria. of operations under a PSO; while the 14 administrative regions (‘kraj’) are in charge RegioJet, LEO Express and Arriva Quality is an important element of the of regional and local transport, covering operate at their own economic risk (but negotiation process. Public authorities, 71.2% of operations under a PSO. they are compensated for the state- whether at centralised level or at

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decentralised level, increasingly set high undertakings (see supra) have developed Each contract is concluded for a specific contracts with the state on nationwide qualitative criteria, which are then taken their private activities on those lines, set of lines. The vast majority of contracts traffic. Similar contracts have been into account when calculating the overall offering their services in parallel on a cover several lines, only a limited number concluded with other operators as well. costs of the services to be provided. They commercial basis. of them are concluded for a single line. most commonly relate to: Former agreements were concluded According to the train traffic diagram ČD has concluded two contracts for in the period of the previous regime. • observing the timetable (95%); (TTG) 2016/2017, 7 016 trains per day, nationwide transport that involve a single To that effect, they are subject to • train connections (95%); on average, are provided by the operator line: – Liberec and – Břeclav Regulation 1191/69 and they will be • credibility of operating rolling stock in České dráhy in the Czech Republic; the - . GW Train Regio has concluded a running until terminated in accordance duty rosters; rest of the train capacity is provided by contract for the Plzeň – Most train service. with Regulation 1370/2007. Contracts • equipping and fitting up rolling stock; other operators. concluded after the entry into force • washing and cleaning rolling stock. As regards regional transport, several of Regulation 1370/2007 are already The most alarming problem of the Czech small lines are operated by different subject to this Regulation. railway network relates to the lack of operators under a PSO: 4. Scope of public service transport capacity on main lines: Praha – Olomouc Trains which are not part of public by rail – and Praha – Česká Třebová – • GW Train Regio operates Sokolov – service contracts are operated by Brno. Kraslice – Zwotenhal, Karlovy Vary relevant railway companies at their own The whole range of passenger traffic in – Mariánské Lázně, Trutnov hl.n. economic risk. the Czech Republic (urban, suburban, As to the average ticket price, this is set – Svoboda nad Úpou, Trutnov hl.n. – regional, inter-regional and nationwide at 67 Czech crowns. However, the actual Lubawka – Jelenia Góra and Milotice As of 2005, administrative regions are traffic) falls under public service price is even lower in light of the widely nad Opavou – Vrbno pod Pradědem. free to decide upon the share they will get contracts, covering, according to data available discount schemes. Reckoned • Die Länderbahn operates Liberec – from the public budget earmarked for the from 2015, 92% of the market for revenues from the sale of tickets Hrádek nad Nisou – Zittau (Germany) financing of bus and rail transport. passenger railway services, rendering on lines covered by a PSO totalled – Varnsdorf – Rybniště/Seifhennersdorf 117.8 million train-kilometres and EUR 313 185 000 in 2015. (Germany) and Liberec – Dresden On a more general note, the concluded transporting 169 million passengers (Germany) contracts are private law contracts. (96.8%). • KŽC Doprava operates the line Praha – 5. Contract Čakovice It should be highlighted that international • Jindřichohradecké místní dráhy has 6. Awarding of public service long-distance and cross-border lines, Public service operations are organised a single line contract for the narrow contracts i.e. Berlin – Praha – Brno – Wien/ through the conclusion of contracts with gauge line Nová Bystřice – Jindřichův – Budapest, Praha – Plzeň – the competent authorities responsible for Hradec – Obrataň. Public service transport contracts are München, Warszawa – Ostrava – Wien, the organisation of direct award procedures awarded either directly or through Praha – Ostrava – Košice, are also or tenders and for the definition of required To date, ČD has concluded 15 contracts competitive tendering. The objective operated under a PSO. However, private public service obligations. with the administrative regions and three pursued by public authorities is to award

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an increasing number of contracts a detailed assessment of costs, revenues 8. Calculation of the level of A ‘reasonable profit’ is included in through competitive tendering in the and reasonable profit anchored in the compensation the contract. Its maximum amount is upcoming years. contract to the Ministry of Transport or determined by legislation. It differs the administrative region concerned. In Compensation levels are determined in depending upon the level of risk borne It is worth noting that some of the the new contracts, the jargon referring advance in accordance with contractual by the operator concerned. In new existing contracts1 contain a clause to ‘initial financial model’ and ‘reasonable provisions. The amount can be contracts, ‘reasonable profit’ is replaced whereby part of the volume of traffic profit’ has been replaced with a provision renegotiated in case of an increase in the with a provision for ‘net income from the ordered under a public service obligation for a ‘net income from the value of input price. value of operating assets’. (with a maximum cap of 75% of this operating assets’. traffic) can be gradually provided by The level of compensation is the result another operator chosen by the authority For many years, compensation has been of the difference between foreseen 9. General payment conditions before the contract end. insufficient to effectively cover the costs and foreseen revenues, taking into shortfall in revenues from the discharge account a ‘reasonable profit’. Payment is made through monthly of public service passenger transport. instalments and is reviewed on a 7. Contract negotiation These shortfalls pile up every year. The calculation of the overall costs for quarterly and yearly basis. There is no However, it should be noted that since the service in question as a whole is VAT applied to public compensation since The level of compensation in public 2009, the compensation levels have been generally based upon the following usual it is considered a state aid granted as service contracts varies from contract satisfactory, covering 62% of the total costs: compensation for the discharge of a PSO. to contract, according to the calculation costs incurred in 2015. When taking into State aid to pupils’ and students’ fares of costs and revenues for every single account revenues generated from ticket • energy and fuel use; generates VAT at a reduced rate and it contract. ‘Cherry picking’ is, in principle, sales, the degree of PSO compensation • direct material for output of motive is provided only for trains operated at a possible in the Czech Republic. Most of comes to 100.4%. power engines; company’s own economic risk. the risks regarding costs and all of the • on-board staff (train driver and other risks regarding revenues are borne by the In the framework of the 10-year contract mobile staff); The state of infrastructure in the Czech operator (‘net contract’). The contracts concluded between ČD and the Ministry • costs generated from the rolling stock Republic is not optimal, which ultimately concluded with the Ministry of Transport of Transport, apart from the core (amortisation and interests); affects the quality of services provided by are net contracts, while in the regions agreement, a supplementary agreement • shunting services; railway operators. As a result, the Czech both ‘gross’ and ‘net’ contract types can be that is renewed on a yearly basis has been • assistance to passengers with reduced authorities have decided to apply for discerned depending on the region. signed, allowing for regular reviews of the mobility; derogations from the Passenger Rights estimated costs and funding capacity. • controlling the service; Regulation 1371/2007 for domestic traffic, In practice, the railway company • track access charges; in order to avoid excessive compensation determines its business case with regard However ČD, the historical company, has • fixed costs; levels to passengers for delays/ to the extent of public service operations ‘historical debt’ to bear deriving from • variable costs; cancellations attributable to the poor to deliver on a yearly basis and submits years of under-compensation. • other passenger-related costs. quality of infrastructure on the network.

1 The existing contracts were fixed with the state and the administrative regions for 10 years and will remain in force until the end of TTG 2018/2019. The contract on long-distance traffic operation that was awarded by the state includes a clause according to which, for the duration of the contract, a market opening of 75% may be enabled. Similar clauses are part of contracts fixed with the administrative regions too, i.e. Jihomoravský region (55%), Jihočeský region (30%) and also Plzeňský and Ústecký regions admit the possibility.

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The operator is however likely to pay contracts based on tendering are old and the average age of carriages is 25 penalties to the awarding authority in concluded for a maximum of 15 years. years old. case it does not respect its obligations, in particular as regards the timetable, In more detail, 14 regional public service Further renewal of the rolling stock is train connections, types of rolling stock contracts carried out by ČD will expire based on the medium-term renewal used for given traffic, etc. To that effect, it in two years’ time. The same applies strategy of railway vehicles agreed within should be noted that in the public service for one of the general public service governing bodies. In particular, a great contract concluded between ČD and the contracts signed between ČD and the deal of new vehicles have been acquired Ministry of Transport, there are clauses Ministry of Transport. As regards the recently with support from EU funds, foreseeing an exemption from a possible other two contracts concluded between such as the Stadler Regio-Shuttle, the compensation decrease, if the non- ČD and the Ministry of Transport, the PESA Link, the Škoda 7Ev RegioPanter observance of quality benchmarks can be one concerning the Pardubice – Liberec and the InterPanter. imputed to deficiencies in infrastructure. line expired and was replaced by a new contract, which was directly awarded The Ministry of Transport has established to ČD, while the second one on Plzeň 12. Involvement of the regulatory three different methods of assessing – Most line expired as well and was body or other authority whether the requisite service quality levels directly awarded to GW Train Regio. are met and of monitoring the adequacy Until April 2017, The Rail Safety of the compensation granted. First, there Authority in the Czech Republic is the possibility to conduct irregular and 11. Rolling stock safeguarded the adequacy of safety levels unexpected financial inspections of railway and operated as a regulatory body. Since undertakings. Second, the Ministry’s staff Operators generally own the rolling the amendment of the Railway Act came carry out checks on the standard of quality stock they use for the public service into force (1 April 2017), the function of of trains. Last but not least, the railway contract. An adequate part of rolling regulatory authority has been taken over operators are requested to elaborate and stock depreciation is taken into by an independent regulator. Apart from submit regular reports on punctuality, account in the calculation of the level of the functions currently foreseen in EU composition of trains and affordability of compensation for the discharge of public law, it is in charge of guaranteeing the access charges. services. eligibility of applicants for a public service contract. In 2015, the average age of ČD’s rolling 10. Duration of public service stock was 21 years old, which marks a contract significant improvement compared to figures from 2010, when the average Current contracts have been concluded age was 30 years old. In more detail, the for a duration of 10 years or less. New average age of is 18 years

CER - The Voice of European Railways 61 Public Service Rail Transport in the European Union: an Overview

1. Organisation of public service There are no monopolies in Denmark. Public passenger railway services in operations in Denmark The Danish market is fully open to Denmark are organised by the Danish competition, regardless of the distance, Ministry of Transport, Building and In Denmark, the organisation of public the type and the economic nature Housing, which is the competent Denmark passenger railway services is mainly (commercial or PSO) of the state-owned authority for tendered as well as regulated in the following pieces of network. A few local lines are owned negotiated public service contracts on legislation: and operated by local authorities and for the state-owned network. Currently, the time being are not tendered. Free there is one negotiated contract with • Railway Act (No 686, 27 May 2015); access is provided to all duly licensed DSB covering national rail services (long- • Act on the Independent Public EU railway undertakings operating on distance, the majority of regional traffic, Corporation DSB (No 1184, last the Danish rail network for freight traffic the ‘S-Bane’ train services) amended on 27 May 2015); since 1999 and for passenger traffic in the Greater area. This • Regulation (EC) No 1370/2007 on since 2000. This access is utilised by contract expires in 2024. As of 2016, public passenger transport services by a number of daily long-distance trains this contract covers the Danish part of rail and road. running to and from Copenhagen the regional traffic between Denmark operated by Swedish SJ. and Sweden, which was formerly Danish legislation and its implementation tendered. distinguish between three types of rail The present international traffic to passenger services: and from Germany is integrated with the domestic long-distance traffic and 2. Operators on the market • ‘negotiated’ traffic, i.e. public services covered by a negotiated public service for public passenger service carried out by an operator based on a contract concluded in Denmark. The transport negotiated contract with the relevant cross-border regional traffic between competent authority; the eastern part of Denmark and DSB has been an independent public • ‘tendered’ traffic, i.e. public services the southern part of Sweden via the corporation since 1 January 1999. It is carried out by an operator based on a Øresund fixed connection is covered wholly owned by the Danish Ministry contract with the relevant competent by tendered public service contracts of Transport, Building and Housing. authority, which have been put out to concluded with the Danish and Swedish Formally, the state monopoly granted to competitive tendering; competent authorities. All passenger DSB came to an end on 1 January 2000. • ‘free’ traffic, i.e. non-public service traffic is covered by PSO contracts, traffic. and although an open access system Since 2000, political decisions have been has been established since 2000, no taken to gradually open up the market operator has taken advantage of this and put services on a number of railway opportunity. lines out for open, competitive tendering:

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• Arriva won in 2002 the right to peak hours and line sections with high require prior notification (at least 21 Swedish authorities, and the cross-border provide part of the regional public utilisation). Although not officially months) of changes in sales system and/ traffic to Germany, the Danish part of transport services in the western part stipulated as qualitative criteria in the or price structures and also define the which is run as an integrated part of the of Denmark and subsequently re-won contract, obligations on ticket sales, conditions related to free transport for domestic long-distance traffic covered an equivalent contract in 2009, which traffic information, PRM-accessibility children as well as other social groups. As by a public service contract with the expires in 2020. These contracts are and assistance, bicycle transport, regards seating availability, the contracts competent Danish authority. ‘net’ contracts. compensation schemes in case of delays provide that all passengers shall have a for both commuters and other travellers, seat available on 90% of the trains during Public service are of importance. rush hours and 95% of the trains running is currently provided to about half a 3. Definition of public service outside rush hours. In cases where the million passengers per day carried in requirements Public service operators have to comply load factor is above 100%, the operator’s approximately 4 000 trains per day. with the general common ticketing planning may allow up to 20% of standing According to data from 2016, 5. 884 The public service contracts in Denmark system in Denmark and cooperate with passengers for a maximum of 30 minutes. million passenger-kilometres were prescribe in great detail the quantitative bus operators and other rail operators. operated under PSO. and qualitative requirements imposed on Fares are regulated along strict limits In addition, train operators often add the operator as well as the specificities depending on inflation rates, thus further qualitative criteria on their Public passenger railway transport can of the compensation. capping the level of revenue that can be own initiative as a commercial gesture be divided in four types of transport: accumulated in case of a ‘net’ contract. to improve the service and increase The minimum level of service for each performance. Some of these additional • S-trains (Greater Copenhagen area) line and station, calculated in trains/ Qualitative criteria are, as mentioned, qualitative criteria are based on a direct and the Metro system, which are stand- stops per hour/day, is determined included in all contracts. Initially, these positive business case (such as additional alone networks; in advance along with the minimum criteria are defined by the competent services to first class passengers), while • regional transport organised by number of direct connections between authority. The final set of criteria and other criteria seek to increase general regional authorities, awarding the major centres. The minimum seating their precise wording and requirements ridership and are therefore considered to relevant contracts to internal operators. capacity is prescribed through is, however, the result of negotiations be commercially viable per se. Currently, there are 14 small-sized upper limits on standing passengers that take place before the signing of regional railway undertakings spread (overcrowding) per line, duration, and the contract – both for tendered and all over the country. Despite the fact time of day. negotiated contracts. 4. Scope of public service transport that they are called ‘private’ operators, by rail they are actually owned by the regional The contracts also contain specific Some criteria are defined in great detail in transport authorities; requirements on punctuality, reliability, the contracts. Particularly with regard to As already mentioned, all passenger • regional transport organised by the customer satisfaction (general travel ticketing; contracts lay down ticket prices transport in Denmark is run under state authorities; satisfaction, information on the train, in Greater Copenhagen, stipulate the public service contracts. This includes • long-distance transport (intercity trains). punctuality, availability of seats, train allowed increase in overall ticket prices the Öresund region cross-border train crew, cleanliness of the train) and seating (which has to be approved by the Ministry services running under public service All four types of passenger transport are utilisation (mainly directed towards of Transport, Building and Housing), contracts with the competent Danish and covered by public service contracts.

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At present, the market for public As a result, there is a multiplicity of either through direct negotiations or 8. Calculation of the level of passenger railway services is divided in contracts (see sections 1 and 2 above). through tendering procedures. The compensation the following manner: However, there are two major contracts Ministry of Transport Building and currently ongoing: Housing is the competent authority for Financial compensation is provided • approximately 85% of long-distance publishing the relevant calls for tenders. for in contracts currently running in and regional services (including those • One contract refers to the agreement Denmark through a direct financial operated by ‘private’ railways) are between DSB and the Danish Ministry influx. The granting of exclusive rights is negotiated; of Transport and Building and Housing 7. Contract negotiation not foreseen in the national legislation. • approximately 15% of regional services covering a very large part of the Danish However, public service traffic enjoys are tendered out. territory, i.e. long-distance traffic as well When a contract is tendered out, the timetabling priority over free traffic in as a large part of the regional traffic, operator submits its proposal in line case of capacity restraints. The public service bus system including DSB S-trains in the Greater with the Terms of Reference. After the is organised separately from the Copenhagen area and the Øresund submission of bids, a round of negotiations As there are no exclusive rights, ‘cherry rail system. However, despite the traffic. to determine the exact content of the picking’ is allowed. For the time being, contractual non-integration, both • Arriva has been awarded a contract proposal and how it corresponds to the though, no ‘cherry picking’ has emerged. national law and individual contracts (which was recently renewed) for the Terms of Reference will usually follow. prescribe a minimum level of system provision of regional services in the The DSB and Arriva contracts are ‘net integration, such as common ticketing western part of the country covering In the absence of a public bid, direct contracts’ and the operators bear the systems, customer information etc. As approximately 15% of the relevant negotiations might take place. More full risk regarding the level of revenues an example, in the Greater Copenhagen market. particularly, the Ministry of Transport, generated by ticket sales. There are area one can use the same ticket for Building and Housing will make a also very narrow limits for ticket price Metro, S-train, all regional trains and all The main objective of the contracts is to proposal for the conclusion of a public increases, i.e. according to inflation rates. bus services. establish a clear operational framework service contract that will clearly stipulate Railway undertakings can raise the prices safeguarding that the requested public all the relevant economic conditions. of the tickets once a year and they are service obligations will be provided in an To that effect, a detailed analysis of responsible for the consequences. 5. Contract efficient and economically sound way, so the foreseeable costs and revenues as to ensure the viability of the railway associated with the discharge of the Other important financial risks, which are Public service operations are organised undertaking in the long run. service should be elaborated and also relevant for gross contracts, relate through the conclusion of legally binding negotiated with the Ministry. to energy prices, labour costs, defects contracts freely negotiated between in the infrastructure etc. These risks are the railway operator and the competent 6. Awarding of public service There are strict accounting rules in place mainly borne by the operator. authority (The Ministry of Transport, contracts that prevent cross-subsidisation including Building and Housing, a regional authority a provision for full separation of accounts, The calculation of the overall costs for or the Metro company). As stated above, there are two awarding according to standard accounting the service in question are commonly processes for a public service contract: procedures. based upon the following costs:

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• energy and fuel costs; traffic, with no exemption. In this regard, when railway undertakings bear a provides for an obligation to make the • maintenance of rolling stock; quality of infrastructure plays a major substantially longer period in mind when rolling stock available to operators that • on-board staff (drivers and other role in public service operation. Examples assessing expenses related to rolling will win tenders on certain routes. mobile staff); of unsatisfactory quality of infrastructure, stock. This situation should be examined • costs generated by the rolling stock which from an operator’s perspective against the prevailing conditions in bus DSB’s fleet of rolling stock in use is, with (amortisation and interest); is felt as a severe business constraint, tendering, where the duration of the minor exceptions, between 10 and 30 • shunting services, heating and cleaning; include, inter alia, speed limitations (both contract and the lifespan of rolling stock years old. • assistance to passengers with reduced permanent and temporary), closing are dovetailed. mobility; down a section or a track for a certain • track access charges; period due to maintenance works, (old- The main dates for the two contracts are 12. Involvement of the regulatory • other passenger-related costs. fashioned) signalling systems limiting the following: body or other authority capacity on congested parts of the A ‘reasonable profit’ is included in the network, and – above all – failures of • The DSB contract concerning long- Up till now, the rail regulator contracts. Its level is negotiated between signals, points, tracks, catenary etc. distance and regional traffic, the (Jernbanenævnet) has played a minor the parties. The ongoing contracts foresee Copenhagen S-train and cross-border role in relation to public service contracts. a maximum reasonable profit of 6%. In the contracts concluded between the traffic to Sweden will remain valid until railway operators and the infrastructure 31 December 2024; manager, a detailed provision is laid down • The Arriva contract (renewed and 9. General payment conditions of the penalties that the infrastructure prolonged) will end on 12 December manager shall pay to the operators in cases 2020 (the contract was put into force in Payment is made through regular where the quality of infrastructure lags 2010, however it was signed under the instalments at determined intervals on behind the agreed minimum. However, in former legislation). a monthly basis, which is considered the majority of cases, these penalties do reasonable. not fully cover the relevant costs borne by the railway operator, i.e. compensations in 11. Rolling stock There is no VAT on public service accordance with the EU Passenger Rights contract payment. Regulation. Rolling stock is generally owned by the operator of the service. It should be noted The contracts contain different types that there are a number of leased double- of key performance indicators (KPIs), 10. Duration of public service decker coaches and DMUs, however, the however the focus is on efficiency, contract railway undertaking remains responsible punctuality and customer satisfaction. for the contract in every aspect. The The duration of public service contracts specificities of renewal or refurbishment Finally, the Passenger Rights Regulation varies between 8 and 10 years. However, of the rolling stock are foreseen in the 1371/2007 fully applies in Denmark to all this length is unsatisfactory, especially public service contract. The contract also

CER - The Voice of European Railways 65 Public Service Rail Transport in the European Union: an Overview

1. Organisation of public service to competition. In practice, however, services under a public service contract operations in Estonia there is no actual competition taking and the second company operates place, as the market is not attractive international lines on a commercial basis. Public service is enough for new entrants and also due Estonia organised by the Railway Act1 which to the recently established practice of • The state-owned AS Eesti Liinirongid entered into force on 31 March 2004 and granting direct contracts. (former AS Elektriraudtee, operating by the Public Transport Act.2 under trademark “”) provides all rail Public service transport is developed on the passenger transport in Estonia, covering Regulation (EC) No 1370/2007 is directly basis of a long-term national development both the suburban services in and around applicable and serves as a complementary plan approved by the Estonian on the electrified network in Estonia basis for the operation of public service Government. The long-term national public and intercity services on diesel trains; contracts. transport development plan includes: • AS GoRail, a private operator active on the international market, operates a Public service transport is managed • data concerning the calculated need daily passenger train linking Tallinn to St. centrally by the Ministry of Economic for subsidies for specific purposes, Petersburg and . Affairs and Communications (hereinafter as prescribed in the state budget for the Ministry). The Public Transport the support of public transport, which AS Eesti Liinirongid operates public service Act Article 10(13) provides for public is determined according to planned transport as defined by public authorities service contracts in the railway sphere changes to the role of public transport under the directly awarded contract, whereas to be granted directly, within the remit and the revenue base of the budget; AS GoRail operates exclusively international of Regulation 1370/2007 Article 5. • a list of legal, economic, social and passenger transport outside of any public Please note that this article in the technical measures to improve the intervention (so-called ‘free traffic’). The public national legislation was amended in light competitive position of public transport; service market represents 99.9% of the rail of the mandate of a seminal court case, • a list of other factors which influence passenger market. following which the Ministry granted a the development of public transport. direct contract for national passenger rail transport to a state-owned company, thus 3. Definition of public service terminating an effective agreement with 2. Operators on the market for public requirements a privately owned company before the passenger service transport termination of the contract. Public service obligations include: To date, there are two passenger According to the Railway Act, the companies operating passenger • the obligation to operate services; i.e. passenger transport market is fully open transport, one operates passenger to provide high-quality and continuous

1 The Railway Act can be found in English at www.riigiteataja.ee/en/eli/522082014003/consolide 2 The Public Transport Act can be found in Estonian at www.riigiteataja.ee/akt/129062014096.

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public transport services and, if service transport is due to the size of the • details about monitoring requirements procedure (published and organised necessary, additional services. This territory of Estonia. and details about how and when the in conformity with national public also includes an obligation to return information must be submitted to the procurement rules). However, given the the public transport vehicles and line In numerical terms, Elron provided 4 Ministry; current state of the market, the ongoing facilities which were transferred to the 846 287 passenger-kilometres in 2015, • provisions concerning the procedures single public service contract was directly carrier on a contractual basis after the operating 214 trains per day. for the expiry, termination and negotiated with the incumbent operator. public transport services have been amendment of the contract; Furthermore, the existence of different withdrawn; The average ticket price for operations • the period of validity of the contract; technical specifications on the network • the obligation to carry; i.e. to carry under a PSO was EUR 1.75 in 2016. • conditions for insuring passengers and (electrified (132 km)/non-electrified (663 passengers under the terms and property; km) network) already limits the variety conditions and for tariffs prescribed by • other conditions, where necessary. of potential competitors on the market. a contract of carriage; 5. Contract Finally, the size of the market is such that • tariff obligations approved by state The contract is based on a mixture it might not likely attract competition authorities. There is only one public service contract between public and private law, in the coming years, although there has concluded in Estonia between the particularly as regards liability issues. been a significant increase in the number Ministry and AS Eesti Liinirongid. of travelling passengers within the past 4. Scope of public service transport In addition, it must be stated that two years. by rail In more detail, the contract foresees: AS GoRail also receives a small compensation from the Ministry for Passenger railway transport has • a clear description of the overall offering train tickets at a reduced price 7. Contract negotiation increased in the recent years, which services required including the specific on its trains between stations situated in can be attributed to the purchase of public service requirements together Estonia (e.g. on the Tallinn-Moscow train In theory, when awarding a PSO contract, new Stadler trains, both electrical and with the calculation of the distance to it is possible to travel with a reduced price the Ministry enters into discussions with diesel. In addition, the decrease of cargo be travelled; ticket from Tallinn to ). This type of each of the operators for the related transport has given more time slots for • the provision of public transport compensation was introduced in order to market. passenger services and at this moment vehicles and line facilities for the attract more passengers to use Tallinn- passenger transport takes up to 75% of provision of transport services and Moscow trains also for intra-Estonian Negotiations essentially revolve around the total allocated national rail capacity. requirements concerning their use and travel. the amount of compensation that will their return to the authorities; be granted for the discharge of the Public passenger rail transport may be • the amount of compensation paid 6. Awarding of public service PSO. Moreover, qualitative criteria are provided for all national rail services to compensate the public service contracts stipulated, including: (international traffic is not covered requirements; but currently represents 0.01%: daily • the calculation method used to assess The Railway Act provides that public • real-time monitoring of trains; connection from Tallinn to St. Petersburg the level of compensation that will be rail transport services can be awarded • electronic information displays and and Moscow). The fact that almost the granted; directly to an operator. Of course the voice communications on trains; entire network is covered by public • a penalty system; Ministry may also open a public tendering • free Wi-Fi on trains;

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Estonia

• cleanliness of trains and stations; for sales and marketing. In practice, Elron conducted four service audits may be concluded for a time-frame of • provision of catering services on however, the Ministry informs the in 2015, using the Mystery Shopping up to ten years, which is considered certain trains; railway operator of the amount of public technique, in order to check and monitor satisfactory as it allows operators to • electronic information in some money available, which forms the basis the fulfilment of the requirements effectively deploy their business plan stations; for the discussion on the effective range stipulated in the public service contract. in advance and to foresee additional • waiting rooms in some stations (fixed of services that can be provided for the qualitative criteria. listing). earmarked amount of money. Finally, the state of the infrastructure has a direct impact on the quality of the services The ongoing public service contract In addition, the operator bears limited A ‘reasonable profit’ is generally foreseen provided. When delays are imputable between Elron and the Ministry of risks. If there is a substantial fluctuation, in each contract. to the infrastructure, the infrastructure Economic Affairs and Communications as for example in fuel prices or manager will compensate the operator, was brought into force on 1 January 2014 passenger volumes, the public authority which will in turn compensate passengers. for a four-year period. It should be noted may then share the risk and provide 9. General payment conditions It should be noted that the Passenger that the awarding authority has the right additional compensation. Rights Regulation 1371/2007 is applicable to extend the duration of the contract for The compensation of public service with exemptions in Estonia. an additional period of up to ten years. The concluded contract is a ‘net’ obligations is paid through the allocation contract, allowing for the accumulation of financial input. A de facto exclusivity on On a more general note, the quality of of revenues generated from ticket sales lines derives from the specific situation in infrastructure is considered satisfactory 11. Rolling stock by the operator, who will, however, have Estonia; i.e. small network with different at this moment, ensuring a requisite to bear the associated risks. technical specifications (electrified level of reliability of the services The entirety of passenger transport network/ privately owned network) etc. provided. For instance, maximum speed rolling stock used by AS Eesti Liinirongid Finally, the average level of track access for passenger trains is guaranteed on for the discharge of its PSOs is owned charges applied to PSO traffic was Payment is made on a monthly basis. the entire network (without any speed by the state, while AS GoRail owns the EUR 6.60 in 2015. The sum received as public service restrictions stemming from infrastructure rolling stock with which it provides its compensation is not subject to VAT, while deficiencies) and timetable punctuality international services. The entire fleet there are no treasury issues. was 98.6% in 2016. Nevertheless there owned by the state was renewed in 2012 8. Calculation of the level of are several infrastructure bottlenecks and thus national rail passenger transport compensation According to data from 2015-2016, that do not allow for growth, thus is operated using the entire new fleet of the compensation granted covered capacity allocation for passenger Stadler trains (both electrical and diesel). The level of compensation is the approximately 76% of the total costs operators is not possible. However, the fleet of GoRail is old. result of the difference between incurred for the discharge of the PSO. the foreseen costs and revenues for the services required. The relevant As mentioned above, a penalty system 10. Duration of public service 12. Involvement of the regulatory costs include, inter alia, infrastructure is foreseen in case of failure by a railway contract body or other authority charges, energy (fuel and electricity), undertaking to provide public rail rolling stock (lease and maintenance), transport services for passengers as The Public Transport Act provides that The regulatory body, i.e. the Technical management costs, as well as costs required. It is punishable by a fine. a public service contract with a carrier Surveillance Board, deals essentially

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with the safety-related aspects of public 1. Organisation of public service • a service agreement covering long- service contracts. operations in Finland distance and urban/suburban traffic awarded by the Ministry of Transport; The Competition Board is also involved The organisation of public passenger in the award process of public service Finland railway services in Finland is regulated in • the Metropolitan Area contracts, as it in charge of issuing activity the following pieces of legislation: commuter traffic contract. licences. • Regulation (EC) No 1370/2007 on Public Passenger Transport Services by 2. Operators on the market Rail and by Road for public passenger service • Regulation (EC) No 1371/2007 on Rail transport Passengers’ Rights and Obligations • Rail Transport Act 15.12.2000/1119 VR Group is a wholly state-owned • Act on Public Transport company. It is currently the only 13.11.2009/869 passenger rail operator in Finland. • Railway Act 8.4.2011/304

The Ministry of Transport and 3. Definition of public service Communications has been appointed the requirements only responsible body for public services in the field of railways. Except for the Helsinki The definition of public service Metropolitan Area, where a municipal requirements is made by the Ministry authority – the Helsinki Regional Transport of Transport and the Helsinki Regional Authority called Helsingin Seudun Liikenne Transport Authority (HSL) for their (HSL)1 – is responsible for arranging all respective contracts. public transport (urban and suburban). The definition of services differs from one There are currently the following public contract to another. They can be defined, passenger transport contracts in Finland for example, (described in greater detail below): • by the identification code of each train included in the contract; • a public service contract covering • by volumes. long-distance and urban/suburban traffic concluded with the Ministry of The Helsinki Metropolitan Area Transport; commuter traffic contract covers a

1 https://www.hsl.fi/en/helsinki-regional-transport-authority

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Finland

number of different qualitative criteria of Transport, ending in 2024. This Ministry of Transport is ongoing until operator receives a fixed amount as agreed in advance. contract concerns only passenger the end of 2024. compensation. The other contracts are rail traffic and is not a multimodal ‘net’ contracts. contract; 4. Scope of public service transport • a service agreement covering long- 7. Contract negotiation by rail distance and urban/suburban traffic 9. General payment conditions awarded by the Ministry of Transport, There are agreed amounts for The Helsinki Metropolitan Area is running until the end of 2019. This compensation provided for public In the current agreements, the covered by a public service contract, as contract concerns only passenger services. These amounts are defined payments are carried out on a monthly is all urban and suburban traffic. Long- rail traffic and is not a multimodal in advance and they meet the basis. In the Helsinki Metropolitan Area distance traffic consists of both PSO and contract; requirements stated in Regulation commuter traffic contract, detailed commercial traffic. • the Helsinki Metropolitan Area 1370/2007. qualitative criteria are included, e.g. commuter traffic contract, ending in regarding cancelled or delayed services In numerical terms and according to data 2021. VR Group’s contract concerns The specificities of the quantitative etc. There is a penalty system in place, from 2016, 3 868 million passenger- only passenger rail traffic, however, and qualitative criteria of the services which in case of non-observance of the kilometres were discharged under a PSO. VR the Helsinki Regional Transport provided under the PSO contract are stipulated criteria usually foresees a Group operates 300 long-distance trains per Authority is in charge of planning all determined on a yearly basis and are decrease in the level of compensation day and 800 commuter-trains per day. traffic in the metropolitan area. the outcome of negotiations between granted as well as other sanctions, the two parties. depending on the case.

5. Contract 6. Awarding of public service The contract concluded between contracts 8. Calculation of the level of VR Group and the infrastructure Public service contracts are concluded compensation manager includes a penalty scheme by the Ministry of Transport and by the The public service contracts in force that monitors disturbances on the Helsinki Regional Transport Authority. have been granted directly to the sole In public service contracts, there is network, which may lead to disruptions Public service contracts for long-distance railway undertaking on the market, an agreed amount for compensation, to services. In that case, it should be and urban/suburban traffic include VR Group. which is defined in advance. Therefore, highlighted that liability covers both exclusive rights for long-distance traffic in all the revenues and costs incurred, VR Group and the infrastructure return for carrying out the public service It is expected that the next round of as well as the reasonable margins are manager. obligation of operating non-profitable contracts will be awarded following a reflected in the agreed price. traffic. As mentioned above, there more competitive process. The Helsinki 10. Duration of public service are currently three public passenger Metropolitan Area will organise a The Helsinki Metropolitan Area contract transport contracts in Finland: tendering of its rail services operated contract is a ‘gross’ contract, under a public service contract. The meaning that the awarding authority The public service contract covering • a public service contract covering current contract for long-distance accumulates the revenue generated long-distance and urban/suburban long-distance and urban/suburban traffic, also including commercial by ticket sales and also bears the traffic concluded with the Ministry of traffic concluded with the Ministry traffic, between VR Group and the associated costs, thus the railway Transport ends in 2024.

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The service agreement covering long- 1. Organisation of public service distance and urban/suburban traffic operations in France awarded by the Ministry of Transport runs until the end of 2019. The organisation of rail passenger France is regulated by the The Helsinki Metropolitan Area LOTI Law1 and the Law on Solidarity and commuter traffic contract ends in 2021. Urban Renewal,2 which was adopted in 2000. These laws are integrated together with all railway legislation and pieces of 11. Rolling stock regulation in the Transport Code (Code des transports). Rolling stock for long-distance traffic is owned or leased by the operator. All competencies with regard to the definition, negotiation and financing of In the Helsinki Metropolitan Area, public service obligations are transferred the majority of rolling stock is leased to: by a joint company owned by Helsinki Metropolitan Area cities and VR Group. • Regional transport: the regional authorities (Conseils régionaux) of the 13 administrative regions are 12. Involvement of the regulatory competent in the field of regional rail body or other authority passenger transport. Since January 2016, following a territorial reform that A railway industry regulatory body resulted in the merging of the 20 pre- operates within the Finnish Transport existing regions, 13 regions are in place Safety Agency (Trafi), whose task is to (the relevant decree was published in ensure the functioning of the market the Official Journal on 29 September and the non-discriminatory and equal 2016). treatment of all operators that are active on the market. The Consumer Rights Agency is the competent authority for safeguarding effective implementation of the Passenger Rights Regulation. The latter is applicable with exemptions, which are stated in the Rail Transport Act 15.12.2000/1119, para. 8a.

1  Loi d’Orientation des Transport Intérieurs (LOTI) of 30 December 1982. 2 Loi Solidarité et Renouvellement Urbain, n°2000-1208 of 13 December 2000.

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France

• Urban transport: in the field of rail the first decision was adopted in July de Carol). On these two lines, the former that the operation of RER trains in Ile-de- passenger transport in the Greater 2016. In more detail, the central state regime, including state financing, will France is split between SNCF and RATP. area (Paris, suburb and Ile- announced its intention to remain the remain as it stands. de-France region), the competent competent authority for 6 lines (Paris authorities are the agglomerations – Orléans – Limoges – ; Paris – At the end of 2016, there were 20 2. Operators on the market of a public body called ‘Syndicat des Clermont-Ferrand; – Toulouse contracts for public passenger railway for public passenger service Transports d’Ile-de-France’ (STIF) – ; – Bordeaux; Toulouse services awarded in France; 18 for the transport which includes, since 1 July 2005, – ; Nantes – ). For the regional trains (one per region,3 before representatives of the region (Conseil residual lines, agreements are gradually their merging, except ), one with Currently, there is only one main operator régional d’Ile-de-France) and of the being concluded with certain regions, e.g. STIF and one with the French state. on the French rail market, i.e. SNCF, and eight Ile-de-France local authorities Normandy was the first region to become the regions have a legal obligation to (Départements) including the City the competent authority for Intercity The competent authorities finance these negotiate public service contracts with it. of Paris. The region takes on the operations in its regions (April 2016), four public service operations through their This legal framework is however under chairmanship of the STIF. more agreements followed with Grand own budget, which aggregates: review and is to be modified not only to • Intercity trains: the central Est, Nouvelle Aquitaine, Hauts de France, comply with the provisions of the Fourth administration for infrastructure, Occitanie and Centre. The set up defined • an envelope from the national budget Railway Package but also with a view to transport and the sea (direction générale in the agreement with Occitanie, which (a legacy from the state public anticipate the mandatory opening of the des infrastructures, des transports et de la was signed in December 2016 and due to service compensation for rail now market (please see below). mer – DGITM) is competent for six lines, be formalised in early 2017, is a specific decentralised since 2002); and agreements with regions have been case: it transfers one line to the region • their own envelope raised either Very few private railway companies, such or are currently being negotiated with and foresees an experimentation with through the accumulation of revenues as , operate regional passenger regions to transfer the competence to joint competence of the region and the or through loans. rail services on the French territory: them on the remaining Intercity lines. central state for another line (Clermont- Ferrand – Beziers) for two years. So far, the domestic market is not • either as a subcontractor of SNCF, STIF and the regions are called completely open to competition. Regional for operations on the French National ‘organising authorities’ (autorités As regards the Intercity night trains, in trains (TER), Intercity trains and Transilien Network (Réseau Ferré National – RFN); organisatrices). April 2016, the Government launched trains (Ile-de-France region) are not open to • or, directly with local authorities under a call for potential operators interested competition. Urban and suburban markets public service contracts for operations From 2010-2015 the French state in offering night train services on a are open under the regime of public service that fall outside of the French National was the competent authority for all commercial basis. In the absence of delegation with tendering. However, there Network (Réseau Ferré National). Intercity conventional trains (average candidates, the Government decided to is a monopoly covering regional rail, trains and long-distance). However, in 2015, maintain its financial commitment for and regional express trains (RER) in the These operations remain marginal as the the Government adopted a roadmap for two lines that were identified as essential Ile-de-France region and conventional long- domestic rail passenger market is not open Intercity trains, on the basis of which (Paris – Briançon; Paris – Rodez/Latour distance rail (Intercity trains). Please note to competition by virtue of the LOTI law.

3 Only Grand Est, one of the new regions, has already negotiated a new contract following the merging. There will be 11 contracts when all the regions will have negotiated new ones.

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However, it should be noted that the scope • Other rail networks (Paris region, i.e. The quality of the service varies from PSO contracts in France do not of this law is currently being discussed Ile-de-France, underground in other one region to another, depending on the necessarily solely cover rail transport. On so that it will be fully aligned with regions): 100% specificities required by the organising the contrary, there are some multimodal Regulation (EU) 2016/2338 amending • main lines excluding high-speed: 100% authority. Nevertheless, SNCF monitors contracts offering integrated services Regulation (EC) No 1370/2007. • High-speed (TGV): 0% the general quality levels in a constant between trains and the so-called manner with a view to maintain and ‘substitution buses’, which stop at the The debate on the introduction of Intermodal competition is also growing enhance it permanently beyond the same cities, following the railway stations regulated competition in France is in light of the development of urban and minimum requirements stipulated in the on a regional railway line, e.g. during off- underway. In June 2016, the Prime ‘inter-departmental’ road services. contracts. peak hours on specific routes where the Minister along with the association of number of passengers is very small. This French regions announced their intention mix of train and bus services is foreseen to launch an experimental project of 3. Definition of public service 4. Scope of public service transport and defined in the PSO contract, thus opening up certain regional markets to requirements by rail ensuring the requisite level of flexibility. competition. A law that will delineate the legal framework for this experimental The definition of public service Public service contracts are granted The average ticket price on Intercity phase is still to be passed. Two senators obligations varies from one regional for services throughout the territory. PSO trains was EUR 20.30 in 2015 and have announced their intention to table authority to the other, depending With a sum of roughly EUR 7.7 billion in EUR 20 in 2016. such a draft bill within the course of 2017 on its specific needs and contractual 2016, public passenger railway services with the aim of having it passed in autumn specifications. However, such represented 53% of the turnover Transdev operates marginal lines (two in so as to make it possible to experiment obligations can be generally categorised generated by SNCF’s passenger Brittany). with competition in anticipation of the as follows: transport services, which resulted in the deadline of the Fourth Railway Package. transportation of 4.3 million passengers • service specifications; (per day). 5. Contract In line with EU legislation, the • tariffs; international passenger market has • service quality; Intercity trains serve 345 towns in Organising Authorities and the railway been opened to competition since 2010. • passenger information. France, including 12 night train lines. operator – SNCF – are bound by a type However, only marginal competition has Regional services (TER) carry 1 million of contract similar to a concession. It is emerged; operates one line in the Common qualitative criteria currently passengers a day and serve 5 000 a contract governed by public law on Provence – Alpes – Côte d’Azur region included in such contracts relate to: stations and stops throughout the the basis of national regulations. Each (two trains a day in each direction). territory. renewal procedure allows the authorities • punctuality; and SNCF to renegotiate contractual Currently, the rail traffic that falls under • cleanliness and comfort of coaches; In the Paris region, 6 200 Transilien trains requirements. Each authority may sign PSO is as follows: • effective circulation of foreseen trains; run every day. They carry 3.2 million one or several contracts covering its • quality of services in train stations; passengers on each working day. territory, which results in a multiplicity of • Regional: 100% • passenger information. contracts on the national territory. In the

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France

majority of cases, the regional authority 6. Awarding of public service There is a bonus/malus system in • installations necessary for operating signs a single contract with a single contracts place against which observance of passenger transport services. operator for the provision of regional rail the stipulated qualitative criteria and services in its territory. Regional trains, Intercity trains and efficiency indicators is measured. The financial risks associated with the Transilien trains (i.e. in Ile-de-France To that effect, a detailed report is PSOs are allocated as follows: Each contract between SNCF and the region) are awarded through direct submitted to the awarding authority authorities specifies which services, if award. On the contrary, urban and every four years, covering various • risks which are entirely borne by the any, can be subcontracted by SNCF. For suburban transport is awarded operational aspects. operator: production costs; instance, rail services that have been through public tendering (or direct • risks shared between the operator and provided by Transdev in the past were public management by the competent In case of substantial changes in the the competent authority: revenue; subcontracted services. authority, i.e. in house – ‘régie’). conditions surrounding the contract, the • risks entirely borne by the competent contractual terms can be re-negotiated authority: track access charges, VAT etc. In 2016, 18 regional contracts concluded between the parties. between SNCF and the respective 7. Contract negotiation Moreover, any change in ticket prices regions were in force. Following the leading to lower revenues might be merging of some regional authorities, the The level of compensation of public 8. Calculation of the level of treated differently depending on the contracts will be merged when they end service operations varies from region compensation specificities of the contract. In the and be renegotiated. to region. In practice, the competent majority of cases, the financial risks authority determines the level of The pattern for the delineation of associated with revenues are shared End of contract Number of contracts public service obligations for all the the adequate level of compensation between the operator and the regional regional lines within its territory. is determined in advance. The PSOs authority. However, for Intercity trains 2024 1 (with a review clause in 2020) SNCF proposes a service covering are compensated through a direct and urban transport these costs are fully 2020 1 (with a review clause in 2018) the public service obligations. The financial influx for regional, Intercity and assumed by the operator. competent authority compensates the Transilien trains. 2018 6 costs stemming from the discharge Overall, the degree of compensation 2017 7 of PSOs that are not covered by The level of compensation is the result only allows for a small profit to be 2016 3 revenues. of the difference between the foreseen accumulated. It should be noted, though, costs and revenues. that in France the concept of ‘reasonable Current common quality criteria that profit’ is not well-established, since The organising authority determines the are included in such contracts refer to: Costs involved in calculating PSO levels: organising authorities tend not to relevant quality levels, ticket prices and perceive public services as a means of train schedules, but the operator has • punctuality; • staff; accumulating profits (political taboo). some leeway to suggest improvements • cleanliness and comfort of coaches; • energy; This is contrary to the situation in other or propose alternative options that, of • effective circulation of foreseen trains; • infrastructure access charges; Member States, such as the UK, where course, the authority has the discretion to • quality of services in train stations; • maintenance and repair of vehicles; making a reasonable profit is considered accept or decline. • passenger information. • rolling stock; the norm.

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9. General payment conditions 11. Rolling stock 1. Organisation of public service operations in Germany All payments are based on an SNCF Rolling stock is financed either by invoice. SNCF, or, in the majority of cases, by the The organisation of public services in competent authorities (sometimes via Germany Germany is regulated in the following All receipts and compensations leasing companies). pieces of legislation: are subject to a 5.5% VAT, which is subsequently recovered by SNCF. In light of the objective to gradually • Regulation (EC) No 1370/2007; open up regional traffic outside Paris to • General Railway Act (Allgemeines As regards the operation of the competition and according to contractual Eisenbahngesetz – AEG); Intercity trains, in 2016, the degree of specifications (with justified financial • Federal Regionalisation Act compensation granted for the discharge compensation – depending on each case), (Regionalisierungsgesetz des Bundes); of the PSO covered 94.6% of the overall all types of rolling stock could be placed • Regionalisation Acts of the Federal incurred costs. at the disposal of the region. States (Regionalisierungsgesetze der Länder); In France there is a penalty system • Regulation (EEC) No 1191/69; stipulated in the contract, foreseeing 12. Involvement of the regulatory • Public Procurement Law penalties for cancellations or changes in body or other authority (Vergabeverordnung); train compositions, i.e. when the railway • Act against Restraints of Competition undertaking discharges a lesser service The regulatory body is in charge of ensuring (GBW). than agreed. effective and non-discriminatory access to the market. In application of Directive In Germany, public services have been Regarding train delays, France has 2007/58/EC, the regulatory body is in organised in a decentralised manner decided to apply exemptions from the charge of assessing whether the economic since 1996. There is neither a legal nor Passenger Rights Regulation 1371/2007 equilibrium of public service contracts a de facto monopoly in the domestic rail to PSO traffic. is likely to be affected by any potential passenger market. Regional rail passenger international or domestic passenger traffic. services are ordered by the competent contracting authority (Aufgabenträger), 10. Duration of public service in each of the individual federal states contract (Länder), on the basis of discretionary awards or tender procedures, with a Currently, the duration of PSO contracts significant increase of the latter in recent is between 5 and 10 years. The length of years. The Länder and other decentralised the relevant contracts allows for reviews authorities are institutionally competent to take place. to determine public service obligations and to conclude contracts with railway

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operators. Therefore, the German The federal states maintain other Public service contracts for regional (formerly Véolia) as well as subsidiaries of Ministry of Transport is not involved in responsibilities including, inter alia, transport services are awarded on a various state incumbents such as Abellio the conclusion of those contracts. The decisions on the general strategy, the non-exclusive basis, thus, in theory, it (affiliate of , NS), Ministry will only be consulted if any allocation of funds to the PTAs, as is possible to offer purely commercial (affiliate of Société Nationale des issues of principle arise. It is, however, well as decisions on whether to spend services in competition with services Chemins de Fer Français, SNCF), responsible for proposing the legal additional money from the federal operated under a public service contract (affiliate of Ferrovie dello Stato, FS), the framework, which the Parliament then states’ general budgets for regional rail (‘cherry picking’ principle). Schweizerische Bundesbahnen (SBB/ decides upon. transport. CFF/FFS), and Vias (affiliate of Danske Statsbaner, DSB). The so-called ‘regional funds’ The German domestic passenger rail 2. Operators on the market (Regionalisierungsmittel) are the major market was one of the first markets in for public passenger service DB Regio is the largest operator on the source for financing transport public Europe to be liberalised. The Railway transport market for public service operations. service obligations. In 2016, an annual Reform of 1994 has opened up the rail According to data from 2016, the volume funding scheme of EUR 8.2 billion was network to third parties. In 1996, the In 2016, around 93.7 billion passenger- of the regional railway market was about agreed upon, for a period up to 2030. Federal Regionalisation Act provided kilometres were provided by RUs in the 673 million train-kilometres.2 Amongst the The funds are provided by the federal the legal basis that was necessary German passenger rail market, 58% of largest competitors were Transdev (7%), government to the states (Länder). The to decentralise the planning and which were covered by PSO traffic and Netinera (5%), BeNEX (3%), Hessische latter provide additional funds for the administration of regional transport the rest by commercial (typically long- Landesbahn (HLB) (2%) and Keolis (2%). transport of special groups (students, and to allow for the federal states and distance) traffic. persons with reduced mobility etc.) or the the competent authorities to take Another trend emerging in the German purchase of rolling stock. responsibility in doing so. Today, the Competitors have penetrated the passenger rail market, which can also be rail passenger transport market is open German market, mainly after the Railway traced in the relevant British and Swedish Decentralised authorities may retain the to competing railway undertakings Reform (even though some were rail markets, is its internationalisation. In entire scope of responsibilities regarding (RUs) operating on both regional and already present beforehand, however 2015, about 45% of all train-kilometres public service contracts themselves, or long-distance markets. It should be on a marginal scale), and are currently operated by non-DB companies were run they may decentralise such tasks even noted that competition in the regional running on a certain number of lines. by internationally operating companies and further by granting them partially or transport markets is particularly fierce. Since 2013, the competitors’ market foreign national carriers.3 totally to local authorities. More specifically, RUs have open access share has increased by approximately to the entire rail passenger transport 7 percentage points reaching 33% Apart from the intra-modal competition Currently, there are 27 regional market, including cross-border, long- of train-kilometres, while DB Regio’s between RUs, intense competition takes authorities (PTAs) (Aufgabenträger), distance and regional services. Access market share is 67% (train-kilometres place between RUs and long-distance responsible for procuring and monitoring requirements are stated in the General in 2016).1 Some of the most important buses and coaches, as well as with low-cost regional passenger rail services. Railway Act (AEG). competitors of DB Regio are Transdev airlines, particularly on longer routes.

1 Association of German Competent Authorities BAG-SPNV, 30 March 2017 2 See 1. 3 See to that effect a case study conducted by Dr Heike Link, Liberalisation of passenger rail services in Germany, CERRE, 6 December 2016.

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3. Definition of public service to network utilisation. Naturally, In principle, current PSO contract Even in 2016 there were, though very requirements when tackling these challenges the requirements cover only rail transport. few, contracts in Germany that were respective infrastructure works do not The contracts regularly foresee based on the former regime (Regulation The decentralised authority is solely only affect PSOs but the entirety of substitute services in case of limited 1191/69). Most contracts, however, responsible for the definition of the railway services. For instance, rerouting access to infrastructure due to, are based on the new one (Regulation notion of a public service obligation. may be required and can lead to the for instance, maintenance work or 1370/2007). Generally, such obligations consist in: channelling of services through more emergencies. These services are time-consuming routes or lines, or may subsequently covered by bus lines. As there are 27 competent authorities • tariff obligations (usually for gross cost require substitution by bus and coach in Germany, many different contracts contracts); services. This affects the connectivity exist in terms of geographical coverage • service frequency requirements; of the respective service and of course 5. Contract and duration. In the past few years, • quality of the services provided, leads to a perceived degradation in competent authorities have exercised particularly punctuality; quality of the PSO traffic. At the time being, there are their competence to reshape their • rolling stock characteristics; approximately 300 public service networks, divide them into smaller • marketing; contracts running, out of which 180 are lots and induce cooperation with other • train staff. 4. Scope of public service transport concluded with DB Regio. competent authorities. by rail It should, however, be noted that the There are no standardised contracts The contracting authorities are quality of infrastructure may affect the The entirety of urban, suburban, for the discharge of public service solely responsible for the definition overall quality of public service traffic, regional and inter-regional rail traffic in obligations. Each competent authority of the obligations stipulated in the mainly in terms of punctuality and Germany is covered by public service has its own contract form, which PSO contracts. They order local and speed. Consequently, this may have a contracts. By contrast, all long-distance reflects the prevailing conditions in the regional rail passenger services in the serious impact on the contract, as the EU traffic is operated on a commercial basis. region and has to comply with the legal German federal states and decide how Passenger Rights Regulation 1371/2007 requirements of EU law (Regulation such services are structured in their is nearly fully applicable in Germany. As for DB Regio, in 2015 approximately 1191/69 and, as of December 2009, regions stipulating which lines and 22 800 trains commuted daily, with an Regulation 1370/2007) and German stops should be operated, and at what One of the key challenges in providing average travellers’ distance of almost public law. frequency. These definitions can include high-level rail transport services is access 23 km. niche obligations referring to service to available and secure infrastructure. At In some cases, the contract concluded specifications such as punctuality, this point, Germany is facing tremendous The economic equilibrium test and, with the Aufgabenträger will relate to service frequency, operating hours challenges regarding urgently needed therefore, the possibility to limit open- the entirety of public service lines in the etc., as well as various technical maintenance and renewal works, as access traffic to protect PSO lines is not relevant area. However, in most cases requirements that the rolling stock well as forecasted bottlenecks relating applicable in Germany. the contracts cover a group of lines. must meet.

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6. Awarding of public service these, approximately 61% was awarded procedures are most commonly The level of compensation for the discharge contracts to competitors of DB Regio. In 2016, executed. Some of the contracts are of public service obligations varies the share of competitively awarded awarded through negotiation, which depending on the type of contract and the The contracting authorities have contracts was 88%; in numerical terms often concerns rather complex contracts, foreseen services. Choosing a certain type full discretion as to the awarding 19 tenders were launched. Within the i.e. negotiations for the extension of of contract, constitutes a typical means procedure, i.e. tender or direct award, next 5 years, it is expected that about previously tendered contracts. for competent authorities to steer the when concluding PSO contracts. This one third of the total market volume compensation level. This can vary from discretionary leeway has been effectively will be tendered out.4 It goes without The tendering procedure is rather rigid, so-called ‘gross’ to ‘net’ contracts; both restrained since February 2011, when saying that this year to year comparison leaving little leeway for introducing types may involve an incentive mechanism. the Federal Supreme Court ruled that only serves as an indicative example innovative or alternative details to In statistical terms, for DB Regio the ratio direct awards of public contracts for of the way in which the structure of already procured tenders. Once between ‘gross’ and ‘net’ contracts is passenger transport services will only the market has evolved. The volume published, the tender documents outline approximately 20% and 80%, respectively. be permitted under a few – strictly of the contracts that are being very specific technical requirements, On that point, it should be noted that there defined – conditions, so that, gradually, tendered out is relatively volatile and schedules, personnel occupation etc. has been a growing tendency, in the past open tendering procedures have become merely depends on the intensity with Thus, room for effectively proposing few years, towards gross contracts. Each the norm for practically all passenger which such operations were carried alternative solutions is scarce, if not non- public authority defines its priorities and transport services under a public out in the previous years. Thus, any existent. applies them to all operators within its contract. future stagnation in the number of geographic scope of competence. tenders, should not be interpreted The contractual elements are regularly The Aufgabenträger has the possibility as a new trend but as a natural set in the tender documents by the Throughout their lifetime, PSOs are to extend the duration of the contract consequence of the preceding intense competent authorities. There is no room compensated on the basis of an ex ante for a limited period of time, without any tendering activity. for negotiation other than in cases where agreed direct financial influx. The agreed tendering procedure. Examples have the PSO is awarded through the so-called level of compensation will not alter during occurred in the past. negotiation procedure, which will then the course of the contract. 7. Contract negotiation cover the following aspects: The year 2015 has even more Contracts typically foresee penalty resoundingly proven that competition is According to both German and • negotiation of qualitative criteria, payments in case of documented well-established in the German regional European procurement law, there are amendments to foreseen scheduling; deteriorating performance; in case rail market. For instance, in 2015, 117 different procedures for awarding a • alternative proposals to the type of of exceptional outperformance few million train-kilometres were tendered, contract, namely through tendering, rolling material/carriages; contracts foresee bonus payments. which, compared to the 63 million train- negotiation and, finally, direct awards. • equipment of rolling material/carriages; kilometres that were tendered in 2014, However, direct awards are only allowed • requirements/quota concerning As the market is open to competition, marks a significant increase. Out of in exceptional cases and thus, tendering accompanying train personnel. ‘cherry picking’ is, in principle, possible

4 See DB Regio AG Business Report 2015.

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– PSO contracts are awarded on a In practice, the railway undertaking a combination of the two aforementioned With the award of a tendered so-called non-exclusive basis, implying that other submits a technical and financial offer for contract models containing an incentive net contract, the financial influx is fixed competitors can choose to compete on the public service obligation requested element with regard to the growth of for the lifetime of the contract. The the same route, if they wish. to the railway authority. One revenue revenues. Beyond the gross remuneration agreed financial contribution is calculated element is the fixed financial influx paid the RU may receive a share of the revenues on the basis of revenue forecasts. Thus, In general, new market entrants tend on the basis of actually delivered train- if the growth is exceptionally high, however, the eventuality of decreased revenues to offer very competitive prices, kilometres if the contract is awarded; this will be clearly defined in the contract. has to be anticipated and calculated by while competitors with experience in another revenue element is generated by The extent of this ‘incentive’ element the RU. If such a risk materialises, the implementing the respective contracts ticket sales. The tender documents clearly compared to the agreed financial influx may, RU fully bears the relevant risk, as well set prices at a more solid level. So outline how the two revenue elements in practice, be so large that the contract will as the associated chance of increased far, cherry picking has been used relate to each other proportionally. The then function like a net contract. revenues. In the so-called gross contracts, by competitors with longer market predefined proportions vary largely and this specific risk is initially borne by experience, who have strategically therefore, the financial risk for the RU the contracting authority; so is the chosen to pursue PSOs with less varies largely. The financial influx may 8. Calculation of the level of chance for the authority to benefit from expected competition. In these cases, represent between 10 and 90% of the compensation unexpectedly higher revenues. a competitor may even bid for more revenues; the remaining percentage has complex PSOs. However, it should be to be covered by the ticket revenues. The level of compensation is determined in Despite the fact that RUs have had to noted that cherry-picking of lines and the offer proposed and part of the contract face increased costs, for example due to networks marked the phase during In other cases, the competent authority signed after a competitive tendering. higher renewable energy charges (‘EEG- the transition towards an open and may decide to conclude the so-called charges’) or labour costs, ticket prices competitive market. Since that stage is ‘gross cost contracts’, i.e. contracts The calculation of the overall costs for the have only been moderately adjusted now well-established, cherry-picking can whereby all revenues generated by the service in question will be based upon the each year. Moreover, it is worth noting be considered a bit obsolete as a practice. services are given to the authority by following costs: that for regional passenger services, the the railway operator. In such cases, the infrastructure manager can only increase If the contract provides that the contract is paid through a fixed amount • staff; access charges at the growth rate of ticket revenue generated through the agreed upon the conclusion of the • energy; regionalisation funds, which is currently operation of the service remains with contract and thus, no additional incentive • infrastructure charges; 1.8%.5 the railway undertaking (so-called elements exist. • maintenance and repair of vehicles; ‘net cost contract’), then the railway • rolling stock (depending on the The part of the contracts associated undertaking takes the associated Finally, RUs are experiencing a new trend contract); with revenues is often handled on a risk, which, depending on the actual adopted by the competent authorities, • installations necessary for operating different organisational level. The so- conditions, could constitute an which is to offer the so-called incentive- passenger transport services; called Verbünde (public associations) opportunity for the railway undertaking. based gross contracts. They basically form • sales/marketing costs. typically organise ticket tariff schemes in

5 See to that effect a case study conducted by Dr Heike Link, Liberalisation of passenger rail services in Germany, CERRE, 6 December 2016, page 10.

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the regions they are in charge of. These A monitoring process is instituted irrespectively of whether it is due to • distribution channels; associations are public organisations that on a per contract basis, whereby the unplanned maintenance works or to • setting up of fleet. bundle the interests of traffic operators parties to the contract keep track of scheduled maintenance activities, may and public authorities in order to offer the achievements made. This includes a lead to a reduction of the financial During the past 15 years, competent harmonised ticket schemes. monitoring of the quality targets met by influx. With few exceptions, sudden authorities have put an emphasis the railway undertaking. delays due to external factors, such on additional qualitative aspects, The PSO compensation level includes a as weather conditions or third-party apart from the basic indicators such reasonable profit in Germany. A system of bonus/malus is also actions, are treated as if the services as punctuality, cancellation of train established. Accordingly, the railway were not provided at all or too late services and capacity of the rolling undertaking will obtain premiums or be and lead to a full or partial deduction stock. Consequently, the qualitative 9. General payment conditions sanctioned depending on whether it has of the compensation. Failure on the requirements have been extended in managed to reach the quality targets infrastructure side falls into the risk order to cover wider customer criteria Payment is made through regular stipulated in advance in the contracts. sphere of the railway undertaking. The and ensure a smooth cooperation instalments at determined intervals. The operators will therefore have to bear between the competent authority and payment is regularly exempted from VAT. Penalties relate to the provision and the consequences of such delays, in the RUs. To that effect, qualitative The monitoring of the funding capacity the quality of the requested services. accordance with the provisions of the criteria commonly foreseen in contracts is defined in federal law. In 2016, the The contracts foresee fixed formulas EU Passenger Rights Regulation, which relate to various fields such as damage foreseen review was concluded on on how to calculate and deduct the is fully applicable in Germany.6 recovery, emergency management, the basis of an external independent penalties from the direct financial influx. travel information to customers, ticket assessment of the contracted and Delays and cancellations are objectively Qualitative criteria are typically defined sales through different distribution planned traffic volume. The financial measured and reported to the by the contracting authorities. Leeway channels, provision of personnel requirements for each federal state and contracting authority. With regards to for negotiation is very limited. Common etc. Observance of the stipulated its respective authorities are defined in the predefined qualitative criteria, apart qualitative criteria include, inter alia: qualitative standards is monitored national law (Regionalisierungsgesetz). from the regularly conducted objective systematically – bi-annually or up assessments, customer surveys are also • scheduling (synchronised and to twice per year, depending on the Data on the financial volume of PSOs taken into account. coordinated timetables); contract – on the basis of a detailed in Germany is not publicly available. • punctuality and requests for service scheme, which indicates against what According to a study commissioned by Typically, there is a scheme indicating frequency; scale to measure the results and what the German Government and published a percentage of the direct financial • equipment/standards of fleet; penalty system should be applicable. in 2016, the level of compensation - in influx to be deducted according to, • securing connectivity; The quality scheme further outlines terms of cost coverage - granted to RUs for instance, the minutes of delay or • cleanliness; whether the criteria are assessed on for the discharge of PSOs in Germany the low performance as perceived by • customer information/IT; an objective basis or through customer ranged between 105 to 106% in 2012. the customer. Cancellation of trains, • travel attendance; surveys. The results are directly

6 There is only one exemption from the application of the Passenger Rights Regulation for rail transport: regional services are exempted from the obligation to provide food or drinks on board the trains.

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sourced in the overall evaluation of the fact that usually the duration of the than mandatory rules for contracting compliance with quality criteria and public service contract is shorter than authorities, i.e. obligatory leasing models. directly lead to penalties for the RUs. the lifetime of rolling stock. To mitigate these risks and to enhance participation in tendering procedures, regional 12. Involvement of the regulatory 10. Duration of public service authorities have developed various body or other authority contract instruments, i.e. leasing models, train pools of PTAs and guarantee schemes. The national rail regulator (BNetzA) The average duration of public service does not interfere with the awarding contracts varies between 10-11 As for DB Regio, the majority of of PSO contracts, since competent years. This lifespan is, in principle, rolling stock used for the provision of authorities are already bound by law. In considered to be the minimum, as it public services is owned and financed case of contentious decisions granted by merely reflects the entrepreneurial by the company itself. Following the competent authorities in the course of investment perspective in rolling stock requirements of the tendered contracts, the awarding procedure, affected parties and maintenance facilities related to the majority of the rolling stock used by that have locus standi may ask for legal a PSO. DB Regio in the past few years has been review. relatively new. In more detail, only 7% of its fleet is older than 30 years, while The rail regulator has competence on 11. Rolling stock 55% is newer than 20 years and 21% is specific points with regard to public newer than 10 years. service operations: Rolling stock used in public service contracts can be owned by the operator The way in which competent authorities • access fees to stations; but can also be owned by the federal monitor the provision of rolling stock • determination of the infrastructure state and/or leased by a ROSCO, which that they own and finance in the fees; is a rolling stock company. However, form of the so-called ‘fleet-pools’ is • handling of price disputes; the awarding authority may require not transparent to RUs, as it very • elements of train access fees to the rolling stock to be tailored to the much depends on the authority itself. infrastructure (regional factor); services provided. Moreover, it should The standardisation of rolling stock • information and coordination of be noted that in the vast majority of constitutes an important factor for construction measures (track works tenders the use of relatively new rolling the development of a functioning especially); stock is required, which accordingly second-hand leasing market. It should • market monitoring. shifts the risk for financing rolling stock be highlighted that the standardisation to the operators, particularly in light of process would be more effective

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1. Organisation of public service 2. Operators on the market In numerical terms and according to operations in Greece for public passenger service data from 2015, TRAINOSE discharged transport 57 163 364 passenger-kilometres, In Greece public passenger railway operating 254 trains per day. Greece services are organised both at TRAINOSE is the only company that centralised and decentralised level. operates public service passenger Thus, regional and local authorities . Currently, there are 5. Contract have the competence to award public two licensed private freight operators. service contracts, along with the central There is a public service contract state authorities. However, up until now concluded between TRAINOSE and the only the central state authorities have 3. Definition of public service state. This ongoing contract is a ‘net’ concluded PSO contracts. requirements contract meaning that the operator can accumulate revenues from the sale of For the time being, the content, The obligations imposed by the tickets, but will also have to bear the delimitation and definition of public competent authority, i.e. the Ministry of associated costs. A ‘reasonable profit’ is service obligations is not regulated Transport and Communications, include, also foreseen. in great detail. The sole legal basis is inter alia, obligations on Regulation (EC) No 1370/2007 and the respective national legislation. • schedules; 6. Awarding of public service • rolling stock; and contracts Public service transport is provided in • special treatment for special categories accordance with prescriptions included of passengers. The current public service contract was in a contract negotiated with the national directly awarded to TRAINOSE. carrier, TRAINOSE. 4. Scope of public passenger The Greek market for domestic transport by rail 7. Contract negotiation passenger railway services will not be open to competition until 2019. TRAINOSE is the only railway According to current legislation, public undertaking providing suburban, local, service operations are to be compensated regional and long-distance passenger through financial compensation. traffic in Greece.

99% of the domestic railway traffic falls under a PSO regime.

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8. Calculation of the level of period considered is higher than the 11. Rolling stock compensation compensation already paid, the state, supposedly, will proceed to an additional The Hellenic State is the owner of The level of compensation is the result payment. If the compensation received is the rolling stock. GAIOSE, a state- of the difference between the foreseen higher than the actual deficit linked to the owned company, has been appointed costs and revenues and is delineated on supply of public services, the recipient is administrator of the rolling stock. a yearly basis. Elements that are taken obliged to return the difference without into account to determine the cost of the any interest. However, in practice, these As regards the age of the rolling stock, public services relate to the following provisions are not applicable as public 19.6% is less than 30 years old, 74.8% is costs: authorities are not in a position to finance less than 20 years old and 3.2% is newer the public service obligations they than 10 years old. • staff (driver and other mobile staff); request. • infrastructure charges; • costs generated from the rolling stock The compensation is subject to VAT. 12. Involvement of the regulatory (maintenance, repair, amortisation and body or other authority interests); No penalty scheme is foreseen given • shunting services; the prevailing conditions on the Greek The rail regulatory body in Greece does • installations necessary for operating market. not have any powers relating to the passenger transport services; provision of public service passenger • VAT. 1 Finally, the EU Passenger Rights transport. It should be noted that an Regulation is applicable with exemptions independent authority in charge of in domestic traffic. passenger transport (road and rail) has 9. General payment conditions been recently constituted.

In principle, compensation should be 10. Duration of public service paid in advance by the Greek state to the contract railway undertaking evenly distributed in four instalments. If the undertaking’s The current public service contract deficit for the provision of the public entered into force in 2011 and will service transport requested for the remain valid until 2019.

1 The railway undertaking will have to pay VAT on revenues generated by the sale of tickets. This VAT fully forms part of the costs incurred by the railway undertaking. As the costs must be calculated prior to the effective implementation of the service, the railway undertaking will base itself on the average VAT paid the previous year to determine the amount of VAT that must be taken into account in the overall cost of the services.

CER - The Voice of European Railways 83 Public Service Rail Transport in the European Union: an Overview

1. Organisation of public service • international passenger transportation • Fertőszentmiklós (HU) – Pomogy- operations in Hungary on international trains; Pamhagen (AT) (operated by GYSEV) • national passenger transportation on • Fertőszentmiklós (HU) – Pomogy- The public passenger railway transport certain non-public railway lines (traffic Pamhagen (AT) – Neusiedl am See Hungary in Hungary is regulated by Regulation on narrow-gauge lines, children’s (AT) (operated by GYSEV/Neusiedler (EC) No 1370/2007, Act CLXXXIII of railway); Seebahn (NSB)) 2005 on Railways and Act XLI of 2012 • non-scheduled national passenger • Sopron (HU) – Wiener Neustadt (AT) on Passenger Transport Services, as well transport on national public railway (operated by ÖBB) as Government and Ministerial Decrees lines (special trains). • Szentgotthárd (HU) – Graz (AT) issued as implementing regulations. (operated by ÖBB) Up to this point, the opening of Public service transport is managed international passenger traffic to The timetable for public passenger centrally by the Government and the competition has not affected public service transport services and the alternative Ministry of National Development, transport in Hungary. To that effect, it timetables are elaborated by MÁV- however, the local municipalities are also should be noted that within the framework START and GYSEV, the two exclusive involved with regard to the discharge of of the discharge of Austrian/Hungarian rail passenger operators on the local services. The market for domestic public service obligations, certain trains, Hungarian market, together with the passenger railway services has been whose origin/intermediate and stop competent authority. The timetable opened to competition since 2006. destination lie within Hungarian territory, is then approved by the Minister of However, the part of the market that are still considered as Austrian domestic National Development. Before the is actually contestable is marginal, i.e. traffic andvice versa, in accordance publication of the timetable for public approximately 1%, since it covers only with specific provisions of the relevant passenger transport services, its traffic that falls beyond the scope of PSO cross-border agreement. Therefore, the content should be consulted with local services. trains that are operated on these lines are public authorities and road passenger perceived as Austrian/Hungarian domestic transporters. The majority of passenger transport trains. However, they do not formally (suburban, regional, national (long- fall under the Hungarian or the Austrian The Railway Act, the Passenger distance), extra-national (long-distance PSO traffic, but rather receive a new train Transport Services Act and the above- – intercity), and urban) is public service number at the Szentgotthárd (HU) border mentioned decrees regulate access transport. In terms of market segments, station. The following cross-border lines to infrastructure, the market opening MÁV-START is active in all four segments constitute a pertinent example: process and the discharge of public and GYSEV is active in the regional, service obligations in compliance with national and extra-national long-distance • Deutschkreutz (AT) – Sopron community rules. segments. The following services fall out (HU) – Ebenfurth (AT) (operated by of the scope of public service obligations: Raaberbahn/ÖBB)

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2. Operators on the market 3. Definition of public service • control of the services, sanctions. 4. Scope of public service transport for public passenger service requirements by rail transport Qualitative criteria constitute an Public service obligations are defined important part of the contract. They Almost the entirety of the national There are currently two railway in the aforementioned Railway Act are negotiated in depth with the network is covered by public service companies present on the Hungarian and Passenger Transport Services Act Ministry of National Development transport obligations. There are market: MÁV-START and GYSEV. as well as in the contracts concluded each year. The criteria are assessed two parallel systems put in place, MÁV-START is indirectly 100% owned between the railway undertakings and both as a nexus and separately, the respectively covering coach and rail by the Hungarian state and is the major the Hungarian state (represented by the common database is evaluated at the transport through separately granted passenger rail transport operator in Ministry of National Development). end of each year. public service contracts. Therefore, Hungary, operating approximately 95% no integrated services are ordered; of rail services. GYSEV is a smaller The public service contracts contain The criteria vary for different service however, the operators are motivated to company, covering 5% of rail services, the rights and obligations of the parties; segments (suburban, regional, long- cooperate. its ownership is shared between the some contractual conditions are distance and long-distance with Hungarian state (65.6%), the Austrian determined in Government Regulations supplement); the most relevant ones In numerical terms, in 2016 MÁV-START State (28.2%), and STRABAG SE (6.1%). and special Annexes on a yearly basis. are the following: discharged its public service obligations It operates regional public service The main obligations refer, inter alia, to: operating approximately 2 865 trains and passenger lines in the western part of • punctuality; transporting 400 000 passengers per the country. • tariff obligations and compulsory • cleanliness; day, which amounted to a sum of 6 993 discounts for social groups of the • rolling stock technical parameters million passenger-kilometres throughout The public service contracts population; (heating, air conditioning, rolling the whole year. Accordingly, during the relating to rail cover the relevant • service frequencies; stock conformity for service same time period, GYSEV provided area of operation of the respective • the content of public service activities segment); public service transport operating, on infrastructure managers (i.e. MÁV and timetable; • passenger information. average, 90 972 trains (throughout the and GYSEV), therefore these are • compulsory quality indicators to whole year) and transporting 16 700 so-called ‘area based contracts’ where be reached such as punctuality, Both railway undertakings provide Wi- passengers per day, which was translated the respective railway undertakings cleanliness of rolling stock and Fi services in a number of wagons and into the rendering of 253.6 million (MÁV-START and GYSEV) provide the passenger areas in stations, provision at stations as a commercial gesture. passenger-kilometres in total. public services. The PSO contracts of information for passengers, relating to bus services are separate elimination of physical obstacles for Station cleanliness and passenger Overall, the railway traffic falling under and are handled in separate public persons with reduced mobility, etc.; information in stations also fall a PSO represented 95.2% (2015) and service contracts, the procurer (i.e. • separated accounting records within the ambit of PSO under the 95.4% (2016) of all passenger rail the Hungarian state) does not order according to the 50/2007/GKM-PM general parameters of cleanliness and services in the country and covers 100% combined traffic timetables. Regulation; passenger information respectively. of the domestic traffic.

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5. Contract contract in 2023/2024 will be awarded steady irrespectively of the distance or Level Agreements between the different according to the provisions of the the discharged kilometres. Moreover, business units which ensure their financial The Minister of National Development relevant regulatory regime at the time. there is a great variety of long-lasting and service level sustainability. Such – with the approval of the Minister for social discounts ranging from 20 to 90%. Service Level Agreements are necessary National Economy – concluded a long-term The average price on regional trains was due to the fact that GYSEV is an integrated public service contract with MÁV-START 7. Contract negotiation EUR 1.09 in 2016, while a one-way ticket railway undertaking where financial and GYSEV on the detailed conditions, as for a 90-km long-distance journey would separation of the different business units well as the method of financing of public The contracts between the Hungarian cost EUR 5.50 (1 680 HUF). However, it exists. These Service Level Agreements service passenger transport. state and MÁV-START Co. and GYSEV can be observed that the proportion of are not the same as the ones laid down were signed in 2013 and entered into the travel types has slightly altered; tickets in the annexes of the PSO contracts of Both contracts with GYSEV and MÁV- force on 1 January 2014. They were producing higher revenue are on the MÁV-START and GYSEV, it is only the START entered into force on 1 January concluded under the new public service increase as opposed to tickets and passes terminology which is identical. 2014. regime established by Regulation under a social tariff scheme. 1370/2007 and the Passenger Transport The contracts cover the operational Services Act. The contracts provide for the As part of the public service contract, the 8. Calculation of the level of territory of the operators. As elaborated rights and obligations of the parties, the Service Level Agreement stipulates certain compensation already in section 2, the public service legal, financial and technical conditions of parameters according to which passenger contracts relating to rail cover the relevant the use of railway infrastructure as well as transportation services are being rated. They According to the Passenger Transport area of operation of the respective the definition and partial financing of the mainly refer to passenger transportation as Services Act, financing is organised as infrastructure managers (i.e. MÁV and public services through the earmarked such, i.e. on-board passenger information, follows: GYSEV), therefore these are so-called ‘area central budget. cleanliness of the wagons, EMUs and DMUs, based contracts’ where the respective punctuality and technical compliance of the • partial compensation for losses made railway undertakings (MÁV-START and During the negotiation process, the rolling stock, but some parameters refer to from ticket sales (difference between GYSEV) provide the public services. railway undertakings determined the requirements fulfilled by the infrastructure reduced rate and full fare for domestic conditions under which they are able to managers, thus having an indirect impact tickets); provide the services considering both the on passenger transportation such as the • additional compensation covering other 6. Awarding of public service prevailing financial conditions and the punctuality of trains, the aesthetic condition activities/costs required in the public contracts requisite level of qualitative criteria that of the station buildings, cleanliness of the service contract (partial financing of needs to be met. stations and passenger information provided basic passenger services in the form The public service contracts mentioned in the stations. of supplementation of revenues; this in section 5 were granted through a At this point, it should be highlighted support also includes the monthly direct award process, on the basis of that ticket prices have remained It is important to note, in order to avoid compensation of other services ordered negotiations between the Ministry of relatively unchanged since 2012, due any confusion when using the term by the state, for example students National Development and the railway to the regressive characteristics of the ‘Service Level Agreement’, that in the case can travel free by train after a visit to companies. The next public service established tariff system; prices remain of GYSEV there are also so-called Service certain museums);

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• exclusive rights provided on all lines In the case of MÁV-START, the historical order to verify the reliability and accuracy have to bear the cost stemming from the covered by the public service contract, debt deriving from previous unpaid of the conducted assessment. The losses in profits. excluding any possibility of ‘cherry (or inadequately paid) public service customer operates a bonus-malus system picking’. obligations falls upon MÁV Co., the sole based upon the expected and performed For the time being, a direct reduction of and direct owner of MÁV-START. level of service. the compensation granted is not foreseen The rationale of the contract is that in the contract concluded with GYSEV, the Hungarian state – as a customer of The compensation is not subject to VAT, if the services provided do not meet the public service operations – determines 9. General payment conditions considering the fact that it merely covers requisite level of quality. In that case, the the volume and quality level of public the public service costs that are not only repercussion, is a related decrease services, the number of trains and the As stipulated in detail in the public service covered by revenues, thus no taxable in profits. volume of capacity to be allocated. contract, payment is granted through income is realised. monthly instalments and is planned on an In the contract concluded with MÁV- According to the public service annual basis upon submission of annually The concluded contracts are ‘net’ START, a bonus-malus system was contracts, the planned justified and quarterly reports elaborated by contracts, allowing for the accumulation established reflecting discrepancies costs not covered by revenues are the provider of services on the incurred of revenues generated by ticket sales, between the expected and performed calculated by MÁV-START and GYSEV costs and revenues as well as further along with the associated risks. level of services. Accordingly, the level and then approved by the Hungarian requirements foreseen in the contract. To of compensation paid by the Hungarian state. As regards the accuracy and be more specific, a cash flow plan forms Delays in services are compensated in state shall decrease if the qualitative appropriateness of the claimed amount, part of the contract, stipulated as a clause. accordance with Regulation (EC) No standards set out in the public service the method of calculation that was In the framework of the 10-year public 1371/2007 and Government Decree contract are not met due to deficiencies applied, as well as the correspondence service contract, the state undertakes 271/2009. Delays are treated equally, in infrastructure. with the registered actual costs, to cover the justified costs that are not irrespective of the conditions that regular checks can be conducted by the covered by the income. Fulfilment of this instigated the inefficiencies, so in case Any decrease in the level of quality awarding authority. obligation takes place annually, after the of force majeure passengers can still get of the services provided (punctuality, earmarked state resources are approved compensation. cleanliness, passenger information, vehicle Justified costs are based on the following and guaranteed in accordance with central requirements etc.) will naturally worsen costs: budget laws. The monthly reports that GYSEV is vertically integrated the conditions of travelling and will thus are handed down by the service provider and is therefore subject to various lead to lower passenger volumes resulting • staff; also assess the fulfilment of the relevant obligations that relate to passengers in a loss in ticket revenues. To that effect, it • energy; qualitative criteria (indicators), according and infrastructure operations and should be noted that reduced profit levels • infrastructure charges; to the specifications foreseen in Annex 8 to are foreseen in the Service Level do not qualify as a justified cost for the • maintenance and repair of vehicles; the agreement. Following this assessment, Agreements; when the level of passenger calculation of the relevant compensation, • rolling stock; the customer, i.e. the granting authority, services lags behind the relevant while the latter will be negatively affected • installations necessary for operating carries out monthly control checks via its qualitative standards due to the state of in case of non-observance of the agreed passenger transport services. commissioned representative (KTI-SZI) in infrastructure, the infrastructure unit will qualitative criteria. It is thus obvious that

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low quality of services will ultimately have 11. Rolling stock 12. Involvement of the regulatory a direct impact on profits and on the level body or other authority of compensation. The rolling stock used by GYSEV for the discharge of the public service The competent department of the In Hungary a ‘reasonable profit’ is contract is mostly owned by GYSEV/ Ministry of National Development included in the PSO compensation level Raaberbahn or MÁV. In more detail, (successor of the National Transport depending on the efficiency; the amount GYSEV is in possession of 10 EMUs, Authority since 1 January 2017) does can be up to 5% of the ticket income. which are financed through the PSO not play any role in the negotiation and However, the level of the ticket income is contract. awarding process of the public service low, representing about 18% of all costs contracts; its sole task is to check the covered by ticket sales. MÁV-START owns 27% of the rolling fulfilment of passenger rights and act stock used and rents 73% of the fleet as licensing authority. The Transport According to data from 2015 and 2016, from MÁV Co. Organiser Offices (KTI-SZI) act on behalf the compensation granted covered 96% of the Ministry of National Development (2015) and 92% (2016) of the total costs It should be noted that the majority of and control the quality parameters set incurred by GYSEV for the discharge the rolling stock is financed through out in the contract. of the PSO, while for MÁV-START the the PSO contract, nevertheless a relevant figures were and 91.2% and recent procurement of 42 EMUs and 89.2%, respectively. 6+15 EMUs has been co-financed by the EU Cohesion Fund.

10 Duration of public service As regards the age of the rolling stock contract operated by GYSEV, according to data from 2016, 73.5% was over 30 years The ongoing public service contracts of old, 17% aged between 20-30 years, GYSEV and MÁV-START were concluded while 9.5% was less than 10 years old. for a duration of 10 years, i.e. they remain The respective percentages for MÁV- valid until 31 December 2023. This START in 2016 were as follows: 84% duration provides railway undertakings of carriages and 47% of multiple units with a foreseeable financial framework were over 30 years old while only and the possibility to deploy a business 0.1% of carriages and 27% of multiples strategy. units were less than 10 years old.

88 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

1. Organisation of public passenger responsible for planning transport • Trenitalia, fully owned by Ferrovie dello service operations in Italy activities within their geographic area. Stato Italiane, which covers the majority of regional services; The legal basis for the award and Long-distance day and night intercity • , owned by Trenitalia and F.N.M. Italy financing of public service obligations in trains connecting northern to southern S.p.A. with a 50% share each, operating Italy is Regulation (EC) No 1370/2007. Italy are also operated under a PSO in ; The Regulation is reflected in the contract, which was directly awarded • another 20 or so railway undertakings, following national laws: to Trenitalia by the central government mainly owned by regional authorities (Ministry of Transport and Infrastructures (also called ‘internal operators’) • Decree No 422/1997, for regional endorsed by the Ministry of Economy). providing regional and local services. public services, as amended in 2009 in the course of ensuring, inter All public passenger transport is granted alia, compliance with Regulation through the conclusion of public service A few long-distance intercity and night 1370/2007; contracts; all urban, suburban, regional trains connecting northern with southern • Law No 166/2002, for national public and inter-regional traffic falls under Italy are also operated under a PSO services, as amended in 2007. public service obligations. contract, directly awarded to Trenitalia by the central Government. As of 2000, no monopoly exists in Italy. The Italian rail market is fully open to To that effect, deviations from the open- open-access competition on the entire Some international services are run by market norm related to reciprocity clauses network. Currently, competition takes Trenitalia in cooperation with SBB for – for foreign railway undertakings – and place mainly on the high-speed network trains to/from Switzerland and with DB/ economic equilibrium safeguards – for PSO where Trenitalia and NTV operate ÖBB for trains to/from Germany and services – may apply, conditional upon the competing rail services. This situation is Austria. review and approval of the regulator. unique world-wide, since only in Italy are there two railway undertakings competing SNCF operates high-speed services from Up until 2001, the entirety of public on domestic high-speed services. to Paris in direct competition and service operations was financed by the with cabotage between certain stations state. Since then, in application of a along the journey. general devolution of powers from central 2. Operators on the market to local authorities (Italian Constitutional for public passenger service Thello, a railway undertaking owned Law No 3/2001), public service transport by Trenitalia, operates a night train obligations rendered in majority on from Paris to Milan/Venice in direct regional lines are awarded and financed On the regional public service passenger competition and an intercity train by regional authorities. According to transport market there are several from Milan to Marseille with cabotage this legal framework, regions are solely companies operating in Italy: allowed.

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3. Definition of public service • charges for the use of infrastructure; requiring therefore a more economical Together, Trenitalia and Trenord operate requirements • transport services; solution. Their scope includes: approximately 8 500 regional PSO • additional services. trains and transport roughly 2 million Public service obligations usually consist • all regional and local services; passengers per day. in obligations on fares and timetables, Each region chooses the minimum • all local inter-regional traffic. traffic levels with regards to regional quantitative and qualitative standards of In 2016, 6 500 trains per day provided services and the effective deployment of service to be provided on the basis of a As regards the long-distance day and public service , long-distance rail links between the north catalogue. night intercity trains – connecting which represented, overall, 18 billion and south of Italy. northern and southern Italy – the passenger-kilometres. These figures are The qualitative standards foreseen in the service is provided under a public service distributed as follows between regional The PSO contract foresees a monitoring public service contract for long-distance contract directly awarded by the state for and long-distance services: activity through the identification of services negotiated with the state are: the period 2017-2026. specific key performance indicators Regional services (KPIs) and a provision for conducting • punctuality; Finally, certain international cross-border 6 278 trains per day train inspections in order to verify the • reliability; lines are also covered by a PSO. In more 18.6 billion passenger-km per year or 150 quality of the services provided. • cleanliness and comfort; detail: million train-km • rolling stock. • Switzerland – Italy: there is a PSO Long-distance services For regional services, the main The quantity of services to be provided that covers Briga – Domodossola, 222 trains included in the public service qualitative criteria stipulated in public is decided by the state on the basis operated by the local authority Regione contract service contracts relate to: of the availability of public funds. The Piemonte and SBB; there is also a non- 3.8 billion passenger-km per year or 25.1 public service contract foresees a price PSO service managed by Trenitalia and million train-km • punctuality; mechanism based on a price cap system SBB; other cross-border services are • reliability; linked to the fulfilment of the foreseen run by Trenord on the -Milan • seat composition/offer; standards. connection, also through the subsidiary 5. Contract • passenger information (in stations, on company TILO ( Lombardia); board, general communication); • France – Italy: there is a PSO that Public service obligations are fixed • cleanliness and comfort (in stations and 4. Scope of public service transport covers Cuneo – Ventimiglia (crossing through the conclusion of a public service on board); by rail France), operated by the local authority contract between the parties, i.e. the • rolling stock; Regione Piemonte and Trenitalia; railway undertaking and regional or • additional services (ticket offices, etc.). Public service contracts essentially cover • France – Italy: there is a PSO that national authorities, which covers the extra public passenger transport services by covers Limone Piemonte – Tende costs needed in order to fulfil the public The economic value of service contracts rail. They may, in certain instances, include (France), operated by the local authority service requirements. There are several is based on the hourly cost of train marginal road transport legs, but only as Regione Piemonte and Trenitalia and contracts, each region concluding one or service, calculated on the basis of the a substitute for rail traffic along certain another operated by the local authority more contracts. In some cases smaller following parameters: traffic routes with reduced load factor, PACA and SNCF. parts of the network form the basis for a

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competitive award of contract. The state, tendered out and won by an association of authority. In practice, the company 8. Calculation of the level of however, awards a single contract for the companies, among which were Trenitalia determines its business case with regard compensation services falling under its jurisdiction, i.e. and Ferrovie Emilia Romagna. to the extent of services required by intercity day and night trains. the authority and presents a detailed The compensation granted for National public service contracts have cost assessment. The financial plan is discharging the requested public service The majority of public service contracts until now been assigned through direct then negotiated between the parties obligations covers the extra costs of is in the process of being renewed/re- award. However, it is more likely that in light of the volume of services running these services. awarded and, once this has taken place, the next contract will be subject to a and level of quality required. This they will be fully compliant with the competitive tender. negotiation process may also refer to Costs incurred for the discharge of regime under Regulation 1370/2007. the level of qualitative and quantitative the PSOs on the entire network of The Ministry of Transport and requirements of services guaranteed. services or on part of it, depending on According to the norm, public service Infrastructures is the awarding authority the specificities of the contract, are contracts essentially cover public for the few long-distance intercity and A review process of the agreed terms is compensated through a mixed system of passenger transport services by rail. night trains connecting northern with also foreseen; the relevant time frame for direct financial influx and exclusive rights. However, there are instances (i.e. when southern Italy which are under PSO contracts awarded by the state is 5 years There is therefore no possibility for having some routes serviced by buses contract directly awarded to Trenitalia. from the date that the contract came ‘cherry picking’ the most profitable bits of is economically sounder) allowing for into force, while for contracts covering a public service contract. marginal road transport legs to be The only regions in which PSOs are not regional services this process can take included in the public service contract, yet awarded directly by the regional place a year after the kick off date, The majority of contracts are ‘net’ but only as substitute traffic for rail. authority but, as aforementioned, by the with some exceptions where a 5-year contracts, meaning that the operator can state on their behalf, are Valle d’Aosta, minimum is stipulated. On the basis of this accumulate revenues from ticket sales Sardinia and Sicily. retrospective process, a renegotiation of and therefore have to bear the related 6. Awarding of public service the contractual terms or a reassessment risks. It should be noted that in the contracts Furthermore, due to the special status of the possibility of increasing the Province of Bolzano/Bozen the relevant accorded to the Trentino Alto Adige/ financial commitment made by the state public service contract is a ‘gross’ In conformity with Regulation 1370/2007, Südtirol region, services in that region or the awarding regional authority may contract. contracts may be awarded either directly are awarded by the Provinces of Bolzano/ occur in the case of an evident economic/ or through competitive tendering. So far, Bozen and Trento respectively. All other financial imbalance stemming from the Qualitative constraints (e.g. on competitive tenders have been organised regions constitute the awarding authority agreed conditions. punctuality, cleanliness, air conditioning by the regional authorities for all or for rail services in their territory. and other standards) and penalties part of the relevant services in Veneto, Finally, as far as regards tariff for breach of the contracted quality Lombardia, Emilia Romagna and Piemonte. obligations, it should be noted that every standards are typically included in the Recently, a public service contract 7. Contract negotiation regional authority promotes its own agreements. covering the region of Emilia Romagna tariff system and thus there is no point for a referring period of 15 years +50% of Negotiations take place between the in calculating the average ticket price on All revised and new contracts foresee the contract duration (2019 – 2041) was railway operator and the awarding regional lines. a ‘reasonable profit’ when calculating

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the adequate level of compensation, in 1191/69 is applicable for existing and train, totalled about EUR 4.9 billion authority, the penalty system will not apply. accordance with Regulation 1370/2007. contracts and Regulation 1370/2007 in 2015, as well as 2016. Only a few On that note, it should be added that, The PSO contract concluded with the for the newly concluded ones) and are regional authorities use regional finances although deficiencies in infrastructure state – covering the intercity day and subject to subsequent monitoring checks, in order to marginally increase the can have an impact on the quality of night trains – provides for a return on carried out by the regulator. Accordingly, level of compensation they grant and the provided services, there is no direct invested capital of maximum 6%. if the conducted monitoring inspections consequently the level of services. correlation with the level of compensation. indicate that financing has exceeded the Thus, if the requisite level of quality The compensation is subject to a 10% realised costs, the excess sum will be There is an established malus system is not met for reasons attributable to VAT. deducted from the financial plan of the according to which, in case of non- infrastructure, the compensation granted following year. observance of the stipulated qualitative will not be reduced. In compliance with national laws limiting and quantitative criteria, penalties will be the allowed coverage of the costs The financial plan that forms part of the imposed on the operator. Despite the fact that the state and quality incurred for the discharge of the PSO, public service contract with the state of infrastructure in Italy is not optimal the degree of compensation is set to a is related to the actual availability of Such penalties apply to violations of (which eventually affects the quality of maximum of 65%, without taking into public funds, thus, in case of financial all relevant conditions. For example, services provided by railway operators), account the infrastructure costs. To constraints, the payment cannot be as regards the requirement to provide no derogations to the EU Passenger that effect, there are no differentiations guaranteed. information on the train, Trenitalia is Rights Regulation 1371/2007 were or variations depending on the type of committed to guarantee the following on requested to date by the Italian state. service provided. regional services: 9. General payment conditions The following costs are taken into • the diffusion, on trains equipped 10. Duration of public service consideration when delineating the For the public service contract concluded with loudspeakers, of information contract adequate level of compensation for the with the state, payment is granted by concerning the train stops; discharge of the PSO: the Italian Government on a yearly • in the event of delays or prolonged National public service contracts basis. In the regions, payment is granted stops, the and efficient diffusion concluded by the state for specific • staff; on a quarterly basis; the regularity of information related to the situation, services have a minimum duration of 5 • energy; of instalments is not however always where possible by loudspeaker, or years. The ongoing contract will remain • infrastructure charges; satisfactory, thereby causing financial anyway directly by on-board personnel. valid until 2026. • maintenance and repair of vehicles; problems to the operators. The penalty is not applied if the train • rolling stock; makes up for the delay on the route in Regional public service contracts • installations necessary for operating Regional authorities finance PSO question. In the case of announcements concluded at regional level have a variable passenger transport service; according to the level of funding that by the train , delays of over duration depending on what has been • sales network. they receive from the state. The state 10 minutes are taken into account. negotiated between the parties, in transfers funds for public transport; a fair compliance of course with Regulation With regard to both national and regional estimate of the respective sums for the In the event of delays due to external 1370/2007. Revised contracts have a public services, the estimated costs are previous two years, not distinguishing factors, such as acts of God (landslides, minimum duration of 2 years and can reach calculated on a yearly basis (Regulation between earmarked funding for bus floods, etc.) or orders from a competent a maximum duration of 9 years, while all

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new contracts are concluded for a 9-year stock to be used in regional services, and open-access domestic or international period. such activities can also be co-financed by services, and it has a monitoring role the competent regional authorities. over competitive tenders that are being Long-standing contracts offer a organised by regional authorities. modicum of economic stability to >30 years <10 years the railway undertaking, which may undertake relevant investments, such Blocked trains 32% 42% as the acquisition of new rolling stock or Engines 7% 50% major revamping of the existing fleet. In Coaches 76% 24% addition, they allow for investments in other commodities, which may ameliorate the passengers’ experience, such as the Trenitalia has already purchased a deployment of technologically advanced relevant number of new trains, and has systems of information and ticket selling. concluded a large tender for the purchase of more than 500 new trains, in order to renew the whole of the regional fleet in 11. Rolling stock the coming years.

For the discharge of regional public Regarding long-distance services, with service obligations, the entire rolling the conclusion of the new PSO contract stock is owned by Trenitalia. In rare cases, -running from 2017 to 2026 - the however, rolling stock is, to a small extent, foreseen investment plan will allow provided by the regional authorities. revamping intervention dedicated to Only a part of rolling stock depreciation rolling stock. The average age of rolling is taken into account in the calculation of stock used on long-distance lines was 25 the level of compensation of the contract years old in 2016. (see section 10 on the duration of contracts), as it is calculated according to Civil Code rules, which do not correspond 12. Involvement of the regulatory to contract duration. body or other authority

As indicated in the table below, part of The rail regulatory body is not involved Trenitalia’s rolling stock used for PSO was in the process of the conclusion of more than 30 years old in 2016, while the public service contracts in Italy. It is rest was aged 10 years or less. Certain however in charge of carrying out checks public service contracts do contemplate regarding the economic equilibrium of the acquisition by Trenitalia of new rolling PSO contracts, in case of competing

CER - The Voice of European Railways 93 Public Service Rail Transport in the European Union: an Overview

1. Organisation of public service 2. Operators on the market • qualitative criteria (information, various operations in Latvia for public passenger service services such as support of staff, transport luggage space, temperature in coaches, rapid treatment of complaints, etc.). Latvia Public service is JSC Pasazieru vilciens (‘passenger train’), regulated in the Public Transport Services a state-owned joint stock company, is Quality is an important element of the Law (adopted on 14 June 2007, with the only national passenger railway negotiation, therefore its technicalities amendments) and, as regards the railway undertaking in the country. Thus the are negotiated in great detail. However, transport, in the Railway Law (adopted public service contract was directly as mentioned below, the railway on 1 April 1998, with amendments). awarded to Pasazieru vilciens. undertaking has limited negotiation The text of the Public Transport power. In practice, the price for meeting Services law has been amended so as to the requested qualitative criteria does reflect the content of Regulation (EC) 3. Definition of public service not correspond to the actual underlying No 1370/2007. requirements economic conditions for the operation of the requested public service obligations. Public service operations in rail transport Public service obligations are essentially Thus, negotiation is limited in specifying are dealt with in a centralised manner by defined in the public service contract what JSC Pasazieru vilciens is able to the state (Council of Public Transport) concluded with the operator. They are provide under normal working conditions. and the ‘Road Transportation Directorate’ very wide ranging. They include: (VSIA Autotransporta direkcija). • tariff obligations (including limitations 4. Scope of public service transport The domestic passenger rail market to possible tariff increases); by rail is open to competition, as well as the • service frequencies; international passenger traffic (since • technical specifications for the services Due to the size of the country, the public January 2010 in application of Directive required; service passenger market represents 2007/58/EC). Up till now however, there • service quality in general (delay, 100% of the overall passenger rail has been no international traffic including information, etc.); market. cabotage operated in Latvia having • alternative services in case of an impact on existing public service exceptional interruption of services (in Public passenger railway services are contracts. cases of force majeure); rendered through approximately 244 • availability of appropriate sales staff trains per day transporting 47 000 both on trains and in train stations; passengers per day. In total, 544 million • availability of appropriate rolling stock; passenger-kilometres were concluded in 2016.

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5. Contract 7. Contract negotiation structure exceed certain pre-agreed 9. General payment conditions levels. On the other hand, the operator Public service operations are organised In practice, the Ministry of Transport bears all the risk of collecting ticket sale Payment is made monthly upon the terms through the conclusion of a single determines the extent of public service revenue (‘net’ contract). of payment decided in the agreement. contract covering the entire network. operations to be delivered on a yearly The payments are made directly without The contract is concluded with the basis and the operator submits a detailed The level of compensation is the result JSC Pasazieru vilciens having to send out state (Council of Public Transport) and cost assessment to the Ministry. In this of the difference between the foreseen an invoice. executed by the Road Transportation cost assessment, the railway company costs and the foreseen revenues. Directorate (VSIA Autotransporta includes a ‘reasonable profit’. The parties The amounts received as public service direkcija), which is responsible for the then negotiate the level of compensation The calculation of the overall costs for compensation are not subject to VAT. organisation of the award procedure on the basis of the public services that are the service in question as a whole will and the definition of the required to be provided. There is some leeway for generally be based upon the following The state of infrastructure in Latvia is public service obligations. The current negotiation at this point, however, rather costs: not optimal which eventually affects the contract was concluded in 2009, based limited. quality of services provided by railway on Regulation 1370/2007. This contract • staff; operators. This is a particular problem as exclusively covers rail transport. The compensation of public service • energy; regards the general condition of stations. obligations is paid through the allocation of • infrastructure charges; As a result, the Latvian Government Since 2005, the Government has financial input. In practice, JSC Pasazieru • maintenance and repair of vehicles; decided to apply for all derogations concluded several longer term public vilciens also benefits from exclusivity on • rolling stock depreciation; from the Passenger Rights Regulation service contracts with JSC Pasazieru the lines as no competitor has yet entered • installations necessary for operating (EC) No 1371/2007 for domestic traffic vilciens. Indeed, until 2005, public service the market despite the fact that it is fully passenger transport services; so as to avoid that the operators have operations were provided on a yearly open to competition. Moreover, no ‘cherry • interest payments; to pay excessive compensation levels basis. picking’ has occurred as no international • other fixed costs – mainly to passengers for delays/cancellations service including cabotage has been administrative costs. imputable to the poor quality of requested since the opening of the infrastructure on the network, amongst 6. Awarding of public service international passenger market. The calculation of the overall revenue other reasons. contracts generated by the service is generally based on the following production data: The operator is however likely to pay Public service contracts are granted 8. Calculation of the level of • number of passenger-kilometres; penalties to the awarding authority in following a competitive tendering compensation • number of passengers per particular case it does not respect its obligations, in procedure. line; particular as regards the timetable, train Compensation levels must be clearly • ticket sales per passenger-kilometre. connections, rolling stock types used for Since Pasazieru vilciens is a 100% determined in advance. Compensation given types of traffic, etc. state-owned company, the public service can be renegotiated on a case-by-case Track access charges are not lower for contract was directly awarded to it. basis, if particular costs in the cost public service obligation traffic.

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10. Duration of public service rail regulatory body is the competent 1. Organisation of public service contract institution for freight public service operations in Lithuania transport, if there were any. Currently, The current public service contract was there is no such freight public service The organisation of public service concluded in 2009 for a duration of 15 transport. Lithuania transport operations in Lithuania is years. A further 7.5 years may be added regulated in the following pieces of if requirements relating to new rolling legislation: stock are fulfilled by the operator. • Regulation (EC) No 1370/2007; This contract duration is satisfactory and • Republic of Lithuania Law on the Basics differs greatly from previous contracts of Transport Activities of October 8 that were concluded for extremely short 1991 No I-1863 (last amendments No durations. However, the current contract XII-1306 of 6 November 2014); duration will not allow the amortisation of • Republic of Lithuania Railway Transport existing rolling stock used for the services Code of 22 April 2004 No IX-2152 (last in question. amendments No XII-1725 of 19 May 2015); • Republic of Lithuania Law on Transport 11. Rolling stock Privileges of March 30 2000 (last amendments No XII-900 of 22 May All rolling stock is owned by JSC 2014); Pasazieru vilciens. • Republic of Lithuania Government Resolution on implementation of Law In 2017, 61% of the electric trains and on Transport Privileges of 28 April 68% of the diesel-engine trains were 2000 No 478 (last amendments No older than 30 years old. The rest of the 1252 of 24 November 2008); fleet is older than 24 years old. • Republic of Lithuania Government Resolution on organisation of tender for selection of carriers (operators) 12. Involvement of the regulatory for public service obligations and body or other authority conclusion and termination of contracts on public services of 4 September 2003 The authorities in charge of passenger No 1132 (last amendments No 1759 of public service transport are the 15 December 2010); Council of Public Transport and the • Republic of Lithuania Government VSAI Autotransporta direkcija. The Resolution on the approval of the procedure of compensation for the

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loss incurred by the public service Public service obligations cover the entire development of hub stations, impairing a transport service satisfying fixed obligations of 7 June 2010 No 716 (last domestic passenger rail market, since optimum connectivity and timetabling, standards of continuity, regularity and amendments No 1177 of 11 December all national passenger rail services are therefore placing the railway passenger capacity; 2013). loss-making and cannot be provided on market in a disadvantaged position • an obligation to carry – an obligation a commercial basis. To that effect, Joint compared to road traffic. imposed upon a carrier to accept As established by Government Stock Company “Lietuvos geležinkeliai” and carry passengers or goods at resolution, the Ministry of Transport (hereinafter – LG) provides domestic rail However, there are planned specified rates and subject to specified and Communications is authorised transport services suffering great losses. developments aiming to eliminate this conditions; to implement the functions of the gap. More particularly, the passenger • tariff obligation – an obligation ‘competent authority’ as foreseen As mentioned above, national and transportation directorate of LG and imposed upon a carrier to apply, in in Regulation (EC) No 1370/2007. international rail services were opened to the transport undertaking “Susisiekimo particular for certain categories of Therefore, public rail service operations competition even before January 2010, paslaugos” have signed a letter of intent passengers, for certain categories are organised centrally in Lithuania but this did not have any actual impact seeking to establish a joined ticketing of goods, or on certain routes, rates by the Ministry of Transport and on the structure of the market, given that system that would enable passengers approved by the state or municipal Communications. other operators have not showed any to combine their travel itinerary in the authorities which are contrary to the interest in operating on the passenger Vilnius Zone. The final contract is to be commercial interests of the carrier. Local governments also play a role service market. LG is the only operator signed in February 2017. in determining the scope of public undertaking such activities and for the The Republic of Lithuania Law on passenger rail transport by providing time being no cabotage rights have been After successful implementation of this Transport Privileges defines compulsory input on their specific needs directly granted nor requested. project, comparable initiatives could be discounts on national railway journeys to the Ministry of Transport. This role advocated in cooperation with other for particular social groups of the remains limited however. municipalities. population. 2. Operators on the market The entire national and international for public passenger service The PSO contract does not clearly passenger network was opened to transport 3. Definition of public service define the requisite level of quality of competition even before 2010. The requirements the provided services. However, LG is objectives of this opening coincided with LG is 100% owned by the state and is the providing to customers additional services the goals of EU transport policy. However sole public passenger service provider. Public service obligations are defined in to attract them to railway transport. the relevant steps that were adopted, i.e. the Republic of Lithuania Law on Basics legislative measures, did not effectively The public passenger traffic system in of Transport Activities (Article 2). They Moreover, the quality of the ensure the ability of national railway Lithuania is not integrated. Accordingly, comprise: infrastructure affects the quality operators to compete on their historic separate public service contracts of passenger traffic, particularly markets. No new entrant has so far taken are concluded for different modes • an obligation to operate – an obligation obstructing the deployment of high- the initiative to enter the Lithuanian of transport, not allowing for the imposed upon a carrier, which is speed services. In Lithuania there is market, particularly since all public development of operations that would licensed and has the right to operate no high-speed traffic, there are only a passenger railway services are loss- efficiently complement each other. This on any route, to take all necessary few lines where a speed of 120 km/ is making and not adequately compensated. structure has further prevented the measures to ensure the provision of allowed on some sections. Only 122 km

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Lithuania

of the total length of the lines (1 767.46 and fluctuates every year is the level of mitigate the degree of generated losses. • foreseen costs; km) are electrified. The electrification of compensation granted for the discharge This, however, remains exceptional since • foreseen revenues; two railway sections Vilnius-Klaipėda, of these services. It should also be the role of LG in discussions with the • compensation for application of totalling 376 km and, Vilnius-Minsk, highlighted that there are no quantitative competent authority is not effective compulsory discounts; which is an international line of 193 obligations stipulated in the contract. enough. The most alarming issue that • foreseen reasonable profit (maximum km, is underway. The latter has already warrants further discussions is the low 5%). been concluded, while the due date for Under the contract LG undertakes to level of passenger services required by completion of the first part is 2030. carry passengers on defined routes at passengers themselves. The compensation formula was adopted specified rates using appropriate rolling on 7 June 2010. stock. There is no bonus-malus system 4. Scope of public service transport established for the evaluation of the The costs for operating a PSO contract by rail quality of Lithuanian passenger railway are: 6. Awarding of public service transport services. Therefore, no relevant Public service passenger transport contracts monitors or checks take place. • staff; in Lithuania was provided in 2016 to • energy; approximately 10 060 passengers per day In accordance with the Republic of The average ticket price has been slightly • infrastructure charges; through the operation of 193 trains per Lithuania Railway Transport Code, the increased during the last five years • maintenance and repair of vehicles; day, which totalled overall 266.8 million PSO contract can be awarded either reaching EUR 3.12 in 2016. • rolling stock; passenger-kilometres. through competitive tendering or direct • installations necessary for operating award. passenger transport services; 5. Contract 8. Calculation of the level of • other fixed costs. The last contract was granted on compensation Since 2004 LG concludes a renewable 16 March 2016 and expired on 31 The average level of track access charges annual single contract with the Ministry December 2016. It was granted via The level of compensation should be in 2016 was EUR 2.10. of Transport and Communications direct award. Currently LG continues calculated in accordance with provisions covering the provision of public service to provide services without any legal of Regulation 1370/2007 and a formula obligations in the entire country. These contract. provided in the relevant Government 9. General payment conditions contracts are not completely compatible Resolution. with the requirements for public PSO is compensated in the form of passenger transport service contracts 7. Contract negotiation The formula for the calculation of the direct financial influx. However, this laid down in Regulation 1370/2007. overall compensation for the public compensation covers only about 0.6℅ of In practice, LG meets on a yearly basis services is based upon the following the total costs incurred for the discharge These yearly contracts define the subject with the Ministry of Transport and criteria: of the PSO. As said herein, there are no and scope of the agreement, the nature of Communications to discuss the scope profitable routes in Lithuania. In addition, the public service obligations, the parties’ of the public service obligations. In • number of rail trips; according to the PSO contract LG bears rights and obligations, liability issues, date this process, LG has been authorised • length of route; all the risks of under-compensation. The of expiry, etc. What is substantially unstable to close down some lines, in order to • average number of wagons on train set; earmarked public funds for the relevant

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compensation totalled EUR 296 000 in outside the territory of any European • The number of diesel passenger 2016. Union Member State. These limitations trains in operation is 40 (27 (60%) will remain valid until 3 December 2019. manufactured 2008-2013 and 13 In accordance with the public service (40%) manufactured 1988-1995). contract, payment is made on an annual • The number of passenger coaches for basis upon submission of an invoice by 10. Duration of public service domestic traffic is 28 (manufactured LG to the Ministry of Transport. In the contract 1982-1994). second part of the year this compensation is readjusted. In case there are some Public service contracts are concluded residual amounts from transportation for one year. The contract duration is 12. Involvement of the regulatory of passengers with concession activity, not considered satisfactory as it does body or other authority these amounts are then allocated to not allow for any return on investment cover the costs of loss-making routes. nor for any long-term planning for the The rail regulatory body does not have operator. any competence with regard to the It should be noted that, up until now, a provision of public service contracts. decrease in the level of compensation is not foreseen in case of delays, 11. Rolling stock cancelations and other deficiencies attributed to the state of infrastructure. The railway operator is due to own its rolling stock fleet when discharging public The amounts received as public service service transport. compensation are not submitted to VAT1. Currently, 40.2% of LG’s total fleet is 21- As far as regards the application of 39 years old, and 54.3% of LG’s total fleet Passenger Rights Regulation 1371/2007, is less than 10 years old. it is applicable with exemptions from a number of provisions on domestic rail • The fleet of passenger coaches is passenger services. Lithuania has opted comprised of 28 units (manufactured out from the Regulation for the provision 1982-1994). of international railway passenger • The number of electric passenger trains services, when a significant part of these in operation is 34 (4 manufactured services including at least one scheduled 1976-1982 and 30 manufactured stop at a railway station is provided 2008-2016).

1 The railway undertaking will have to pay VAT on revenues generated by the sale of tickets. This VAT forms full part of the costs incurred by the railway undertaking. As the costs must be calculated prior to the effective implementation of the service, the railway undertaking will base itself on the average VAT paid the previous year to determine the amount of VAT that must be taken into account in the overall cost of the services.

CER - The Voice of European Railways 99 Public Service Rail Transport in the European Union: an Overview

1. Organisation of public service The market for domestic passenger continuity of service, passenger operations in Luxembourg services has not been opened to comfort, cleanliness, passenger competition for the time being. information, attitude of personnel, Public service operations in Luxembourg handling of complaints, etc.). Luxembourg are organised at a national level by Despite the opening of international centralised state authorities. The related traffic to competition, there has been Qualitative criteria are an important contracts are based on national and no new operator entering the market. In element of the contract. They are European legislation (Regulation (EC) fact, there is no real scope for national thoroughly discussed with the No 1370/2007). cabotage due to the small size of the authorities. country and the very low tariffs applicable Other pieces of legislation applicable at to public service transport (which covers Public service contracts represent national level include: almost the entirety of the domestic roughly 98.9 % of the overall passenger network). traffic based on train-kilometres. 1) the modified law of 28 March 1997 approving: 2. Operators on the market 4. Scope of public service transport • the Rail agreement concluded with for public passenger service by rail Belgium and France on 17 April transport 1946; The public service contract covers rail and • the CFL Statutes; CFL is currently the only operator regional bus lines operated by the railway • the financial support provided to CFL in Luxembourg. It cooperates with operator in an integrated manner. and the monitoring thereof done by companies from neighbouring countries the state; and on cross-border passenger services. On average, in 2016 CFL transported • the amendment of the 1995 law 70 000 passengers daily and operated relating to the management of rail 1 000 trains under the public service infrastructure; 3. Definition of public service contract. Around 40% of these trains requirements covered cross-border traffic. Moreover, 2) the Law on Public Transport of 29 throughout the whole year (2016) CFL June 2004. Public service obligations are defined in transported 22.5 million passengers and the contract concluded with the national covered 8 million train-kilometres under In total, 98.9% of the domestic traffic is authority. These obligations include, public service obligation. covered by public service requirements. amongst others: In other words, the entirety of regional 5. Contract and long-distance traffic falls under a PSO. • tariff obligations and compulsory However, given the size of the country, the discounts for certain social groups; Public service transport is operated notion of ‘long-distance’ traffic should be • service frequency and timetabling; under a public service contract interpreted in relevant terms. • qualitative criteria (safety, punctuality, negotiated between CFL and the

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Luxembourg

national authorities. It is a commercial The degree of fulfilment of the stipulated On a general note, the level of infrastructure or third-party failure, apart law contract. The ongoing contract was qualitative criteria is reviewed on a compensation for the provision of public from force majeure cases, are at the cost of concluded on 1 January 2010 and will yearly basis by internal and external service operations covers the entirety the railway undertaking. be running until 31 December 2024, in auditors that conduct relevant reports (100%) of the net costs invoiced to accordance with the provisions laid down and submit them to the Ministry of the state after deducting the revenues CFL is compelled to maintain the in Regulation 1370/2007. Transport. generated from the sale of tickets. continuity of services. Measures adopted to mitigate the impact of delays CFL has a single contract covering all The change in ticket price that occurred or interruption of traffic are the same rail and road traffic provided under PSO. 8. Calculation of the level of in 2013 did not have any impact on CFL, irrespectively of whether the disruption While CFL is the only railway operator compensation due to the constant increase of the annual was due to internal or external factors, carrying out a PSO contract, there are number of passengers each year. and include, inter alia, free of charge several other road transport companies Public service operations are alternative road transport for passengers operating under PSO contracts in compensated through a financial (by bus or taxi) and accommodation. Luxembourg. influx, taking into account the revenue 9. General payment conditions generated from ticket sales. Although The EU Passenger Rights Regulation is exclusive rights are not granted, a de facto CFL gets advance payments on a monthly applicable in Luxembourg with certain 6. Awarding of public service exclusivity exists on most of the national basis (in accordance with the approved exemptions on national and cross-border contracts network. budget). This frequency is considered traffic, in line with the provisions foreseen to be satisfactory, while no budgetary in the Regulation itself. Passengers’ Contracts are, for the time being, directly The full cost coverage principle is problems have emerged so far. complaints for delays are dealt with by a awarded by the state. applied including a ‘reasonable profit’. dedicated service (service réclamations). CFL’s sophisticated accounting system At the end of each year, the finance allows CFL to calculate the precise costs department of CFL sends a final 10. Duration of public service 7. Contract negotiation incurred for the discharge of public calculation whereby the remaining contract service obligations. expenses are invoiced to the state. The Ministry of Transport determines The current contract was concluded in the terms and conditions of the contract, The main costs that are taken into Payments are granted against invoices accordance with EU public service rules which is signed by CFL. There is not much account when delineating the adequate submitted by CFL. The compensation is for a duration of 15 years. room for negotiation. Discussions do level of compensation are: subject to VAT. take place, however, they mainly focus on the level of compensation provided • staff; A penalty system is foreseen when 11. Rolling stock and its correspondence to the scope and • energy charges; the operator does not comply with the quality of services required. It should be • infrastructure charges; performance criteria and the qualitative Rolling stock used in public service noted that there is no provision for the • maintenance and repair of vehicles; standards laid down in the contract. This contracts belongs to the operator, it is renegotiation or readjustment of the • rolling stock; penalty will not lead to a decrease in however financed by the state. In more agreed compensation if the underlying • installations necessary for operating the compensation, but will rather have a detail, 25% of the fleet is less than 10 conditions and circumstances alter. passenger transport services. direct impact on profits. Any delays due to years old, while no parts of the rolling

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The Netherlands

stock are more than 30 years old. The 1. Public passenger transport Public transport services by rail are amortisation costs are also covered by services in the Netherlands granted by the Ministry of Transport the public service contract. and Environment with regard to the In the Netherlands public passenger so-called national ‘trunk network’ The Netherlands transport services are regulated in: (hoofdrailnet). As from January 12. Involvement of the regulatory 2015, this network also includes the body or other authority • the Passenger Transport Act 2000 (Wet Dutch part of the high-speed railway personenvervoer 2000 or Wp 2000). infrastructure from Amsterdam to The rail regulator, i.e. the Institut The Wp 2000 is applicable to all forms Brussels. The Ministry has granted Luxembourgeois de Régulation, has no of public passenger transport services to the Dutch Railways (NS) a public competences with regard to public irrespectively of whether they are service contract (concessie) for the service transport apart from those provided by rail, road or ferry; operation of this network, which will be provided by Directive 2007/58/EC. • the Decree on Passenger Transport valid until 2025. 2000 (Besluit personenvervoer 2000 or Bp 2000), which describes in further Regional public transport services by detail the granting and the content of rail and/or road are granted by the public service contracts; competent local (provincial) authorities. • the Railway Act and related decrees For these services, public procurement and regulations, which set rules for the is compulsory. access to the railway infrastructure, the network statement, allocation of International passenger services railway infrastructure capacity, track are operated by NS via commercial access, charges, services, etc. groupings. These services include, amongst others, Thalys (with SNCB/ This legislation is compliant with the NMBS and SNCF), IC-Brussel (with relevant European legislation such as SNCB/NMBS) and IC-Berlin (with DB). Regulation (EC) No 1370/2007 and Directive 2012/34/EC. To comply with Other railway companies also operate Directive 2012/34/EC, amendments cross-border services along with and some new regulation provisions NS. For instance Arriva runs the on services to be provided by the cross-border service – railway undertakings and on the levying Nieuweschans – Leer (DE) on the of charges for the use of railway basis of an international public service infrastructure were made and entered contract, while DB Regio runs the into force in July 2015. – Münster/Dortmund lines.

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Regarding international passenger estimated in terms of train-kilometres • other requirements such as facilities metro, tram, ferry and bus transport, services, Regulation (EC) No 869/2014 in 2017): for bicycles. while in the eastern and southern part on open international passenger of the country there are combined train services is of great importance and • Transdev () (market Qualitative criteria are set by the and bus concessions. has a great impact on the Dutch share 0-10%) competent authorities. These criteria trunk network, particularly in case of • DB (Arriva) (market share 70-80%) are discussed with various consumer The combination of train and intermediate stops, i.e. cabotage. The • NS (market share 5-15%) interest groups which, have the right to bus enables an optimisation of national regulatory body (Authority • Keolis (Syntus) (market share 0-10%) give their opinion beforehand. public transport. For instance, the for Consumers and Markets, ACM) is rearrangement of train and bus lines authorised to elaborate an economic These railway operators, apart from NS, The quality and availability of the railway whereby the bus lines function as equilibrium test, in order to assess operate only regional public transport infrastructure are key parameters for feeder lines and the railway lines the effects that a new international services by rail, sometimes combined the provision of high-quality public function as the backbone of the public service might have on existing public with public passenger services by road service transport. In some cases, the transport system can be regarded as service obligations (PSOs), if, of course, (coaches). (lack of) quality of infrastructure or successful. the eligible entities submit a relevant the imposition of capacity restrictions request. can spark fierce debate. However, Only domestic passenger services are 3. Content of public service overall the quality of the Dutch railway covered by public service contracts, obligations infrastructure is of a high standard. which represent approximately 95% of 2. Operators on the market Recently, the Dutch Government the total passenger traffic by rail. The for public passenger service Although the Wp 2000 and Bp 2000 decided to harmonise the railway residual traffic covers the international transport regulate the content of a public service infrastructure with the European Rail passenger services. In numerical contract (concession) extensively, Traffic Management System (ERTMS). terms, public service obligations in The right to operate on the trunk public service obligations can vary the Netherlands amounted to the network is directly awarded to NS in each concession, depending on discharge of approximately 18 500 by the Ministry of Transport and the specific needs. Those needs may 4. Scope of public service transport million passenger-kilometres in 2015, Environment (the Ministry). The first consist in: by rail operated approximately by 6 500 trains concession was awarded to NS in 2005 per day. and the second in 2015. This second • tariff imposition with a certain Public service contracts are concluded concession runs until 2024. margin that is left to the operator to for either train, metro, tram or bus increase such tariffs. This margin is services individually or for a combination 5. Public service contracts Regional railway services have subject to negotiation; of these modalities. The so-called been publicly tendered by regional • minimum frequency of trains during multimodal concessions are increasingly Public service operations are granted authorities to the following operators peak hours to major cities; being concluded throughout the through the conclusion of two types as part of the market for competitive • services to passengers with reduced country. In Amsterdam, for instance, the of public service contract (concession) public transport1 (market share mobility; concession includes a combination of depending on the type of service:

1 The relevant market is the market for contestable public transport and includes concessions covering (urban and regional) bus services and possibly also including tram and metro services, concessions containing regional railway services and the concession for high-speed services. It excludes the urban transport system of the three major cities (Amsterdam, and ) as well as the trunk network.

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• public service operations for the trunk conditions. The public service contract 8. Calculation of the level of be recovered. From a fiscal point of view network, which are included in one for the trunk network was awarded to NS compensation payment is in some instances, depending single concession for the entire trunk through direct negotiation, in accordance on the conditions of the contract, network granted by the Ministry of with the Wp 2000. This contract has to The level of compensation must be regarded as a source of normal income. Transport; be approved by the Dutch Parliament and clearly determined in advance and • public service operations for the explicitly accepted by NS. should cover the difference between the In case of non-observance of the agreed regional railway network which foreseen costs and revenues. All costs qualitative criteria, the Ministry or are included in individual contracts associated with the operation of a train the competent regional authority may covering one specific line or a set 7. Contract negotiation service as well as the relevant revenues impose the corresponding penalties that of lines and are granted by the are taken into account when delineating are foreseen in the contract. competent local authorities. For the exclusive right to operate the the adequate level of compensation. In a trunk network, NS pays a concession public procurement procedure there is Compensation to passengers in cases of All public service contracts are subject fee of EUR 80 million per year to the no limitation with regard to the different delays was already provided by NS prior to public law and are publically available. Ministry. types and combinations of costs and/ to the adoption of the EU Passenger or revenues that can be considered. In Rights Regulation (EC) No 1371/2007. On the other hand, for executing the case of direct award of a contract, It should be noted that the terms of the 6. Awarding of public service an onerous regional public service the parties negotiate all relevant costs compensation granted by NS are more contracts contract, railway undertakings receive and revenues. All the relevant criteria favourable than the standard provisions compensation from the local authority. are negotiated, some of them are even of Regulation 1371/2007. Public service contracts are awarded The level of compensation can vary and fiercely debated. However, the level of through either a competitive public is the result of the tendering procedure. compensation as well as the contractual procurement procedure, for regional Railway undertakings quote in their terms and conditions must meet the 10. Duration of a public service public transport services, or through a bid the fee they consider necessary to minimum standards as foreseen in contract direct negotiation, for the trunk network. accomplish the service required. Regulation (EC) No 1370/2007. As mentioned, public service contracts The maximum duration of a public for local railway services are awarded Every railway undertaking is also obliged service contract depends on whether it by way of a compulsory public tendering to pay charges for the use of the railway 9. General payment conditions is a railway-only, a multimodal (including process. In practice, the competent infrastructure to ProRail, the Dutch bus and railway services) or a unimodal authority determines the requested infrastructure manager. Sometimes Payment is made through regular bus contract. The maximum duration of public service conditions (in terms of these charges are directly compensated instalments at determined intervals contracts covering railway-only services, frequency and quality) for specific lines by the local authority. (quarterly). The frequency of the as well as of multimodal contracts is 15 and delineates the maximum price (in payment is considered satisfactory. years, while for unimodal bus contracts the terms of compensation). Subsequently, In the Netherlands, track access charges maximum is set to 10 years. In practice, the the bidding railway undertakings propose are based on the costs directly incurred The compensation might sometimes be stipulated duration is often shorter than a service covering the public service as a result of operating train services subject to VAT, which can subsequently the maximum.

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11. Rolling stock 1. Organisation of public service Directorate will be responsible for operations in Norway proposing long-term development plans Most of the rolling stock used by NS for the rail transport sector in Norway, is subject to a lease agreement. Other Public transport services by rail have including, inter alia, the development operators also tend to lease their rolling Norway traditionally been organised centrally of infrastructure, the amelioration of stock. In tendering procedures, the by the Ministry of Transport and passenger rolling stock and the requisite regional authorities often require or Communications. expertise as well as other input factors have a preference for contractors that necessary to produce a train service. are willing to use new rolling stock. In Public passenger railway traffic is general terms, the age of the rolling organised fully in line with Regulation Bane NOR is the state-owned company stock varies. (EC) No 1370/2007, which is responsible for the national railway implemented in Norwegian legislation infrastructure. As infrastructure manager, through Regulation No 1673/December it oversees the development as well 12. Involvement of the regulatory 2010. as operations and maintenance of the body or other authorities national railway network, the traffic As part of the EEA agreement, Norway management and the development of The Authority for Consumers and aligns its transport legislation with EU railway property. Markets (ACM), as the national law. regulatory body, has a supervisory The Railway Directorate, as of January task in the case of bus/tram/metro A railway reform White Paper, which 2017, will be in charge of determining concessions that are awarded in the was approved by the Parliament in June the scope of public service operations main cities outside the scope of a public 2015, will bring about major changes in and concluding related contracts with procurement procedure. Also, as stated the Norwegian railway sector in the years operators. above, ACM is authorised to execute a to come. principle purpose test or an economic equilibrium test, to assess the effects of In more detail, competitive tendering 2. Operators on the market a new international rail service. will be introduced for passenger train for public passenger service services, grouped in bid packages. transport Besides these two tasks, ACM has no Moreover, in 2017, passenger rail specific role regarding the award or the rolling stock, real estate, maintenance The following rail operators are active in content of public service contracts. of rolling stock and ticketing systems, the Norwegian passenger market: formerly belonging to NSB Group, will The Ministry or a local authority, as the be transferred to separate state-owned • NSB AS, a limited company 100% competent authority, has a supervisory companies to promote competition. owned by the state is the major role over the concession. Finally, a newly established Railway passenger rail transport operator;

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• NSB Gjøvikbanen AS, a company owned • planned or foreseen service disruptions. level of compensation necessary for the and NSB Gjøvikbanen. This will ensure by NSB AS which operates Gjøvikbanen, provision of public service rail transport. further development of all passenger rail a regional line that was put to public NSB reports on its performance and the The contract is a ‘net cost’ contract and is services until all the routes have been tendering in 2004. The new tendered fulfilment of its obligations on a quarterly awarded directly according to Regulation competitively tendered. contract started up in June 2006; basis. 1370/2007. • the Airport Express Train named The average ticket price on PSO traffic , a limited company 100% All of these criteria are stipulated in the has slightly increased over the past 3 owned by the state, operates the line agreement between the state/Ministry of 6. Awarding of public service years reaching EUR 5.32 in 2015. to/from /Drammen to Gardermoen Transport and NSB. NSB remains free to contracts airport in Oslo; add further quality criteria to its services • SJ Norrlandstog AB, providing public to help achieve its objective of passenger So far, just one line has been tendered out 7. Contract negotiation service passenger transport on development. (in 2004). In light of the imminent Railway ; Reform, The Norwegian Government No specific information provided. • SJ AB, providing public service publicly announced in February 2016 passenger transport between Oslo and 4. Scope of public service transport the upcoming organisation of two rail . by rail passenger service tenders: Rail Passenger 8. Calculation of the level of Service Tender 1, ‘South’, and Rail compensation NSB AS runs a commercial service Almost the entire domestic passenger Passenger Service Tender 2, ‘North’. The between Halden-Gotenburg, in transport market falls under public service two packages represent approximately Compensation levels must be clearly cooperation with a public service obligations; according to data from 2016, 25% of the revenues generated in the determined in advance. For the current between Oslo and Halden. 84% of the total services were operated Norwegian passenger train market. agreement with NSB AS, the level of under a PSO. In numerical terms, the main compensation was determined for the railway operator rendered 2.55 billion For Tender 1, ‘South’, the initial ambition whole 6-year period. The compensation 3. Definition of public service passenger-kilometres of PSO traffic, is to complete the process in time for is set in the long-term agreement. The requirements operating 988 trains per day in 2015. the selected bidder to be able to start its difference between the foreseen costs traffic on the date of the timetable change of production, sales and marketing and Public service obligations usually consist in December 2018. For Tender 2, ‘North’, administration expenses on the one hand, in: 5. Contract the goal is to start traffic on the date of and revenues on the other, defines the the timetable change in December 2019. level of compensation. • tariff obligations (determining the The largest public service transport average level of yearly increase in agreement in Norway is a negotiated The current public service contracts The compensation is based on production tariffs); contract between the Ministry of Transport with NSB Gjøvikbanen AS and NSB volume for each route and the level • service quantity (determined on a and Communications and NSB AS. The AS expire in December 2017. In order of investments (capital cost) in rolling yearly basis on every line); duration of the contract is from 1 January to safeguard the gradual introduction stock dedicated to each route that falls • service quality (given by certain criteria 2012 to 31 December 2017. The contract of competition on the Norwegian rail under the public service contract. The such as punctuality, regularity and lays down the level of services provided network, the Ministry has announced that agreement allows the operator to achieve passenger development objectives); and the price requirements, i.e. the it will directly award contracts to NSB a ‘reasonable profit’ from the provision of

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services on these routes over time. The infrastructure is below 98.2% or above compensation, however, is not subject to concluded between the Ministry of operator bears the majority of the financial 98.9% per year. However, this provision VAT. Transport and Communications and NSB and operational risks (‘net’ contract). of the public service contract has never AS for a duration of 6 years. been applied in practice. In case of delays, passengers can claim a Some deviations from the strict ‘net’ nature refund of 50% of the ticket price if the train of the public service contract are foreseen. The stipulated reduction in compensation is is delayed by more than 60 minutes on 11. Rolling stock To be more specific, in case of substantial NOK 10 000 for each cancelled departure the Oslo-Trondheim, Oslo-Bergen, Oslo- changes in public tolls and charges, if the operator provides the customers Kristiansand/ and Trondheim- The rolling stock used for the public service an adjustment of the compensation alternative transportation. If the operator Bodø lines. On all other trains, customers can operations was, according to the past regime, might occur. On average, the degree of does not provide alternative transportation, claim a refund of 50%, if the train is delayed the property of the operator. As of 2017, compensation covers 50% of the costs the stipulated penalty is NOK 30 000 by more than 30 minutes. Season ticket the rolling stock is leased by a Government- incurred for the discharge of the PSO. per cancellation. In addition, breach of holders are issued a refund on the ticket cost owned rolling stock company. contract may result in a reduction in the in accordance with the above principles but The contract also contains a provision on compensation, award of damages etc. divided by the number of days the season If the rolling stock is made redundant, the reviewing the revenue from tickets sales, ticket is valid for. The maximum total refund state has issued a guarantee to the rolling in order to prevent any over or under- Until now, infrastructure charges have for a season ticket is limited to 50% of the stock company for 75% of the book value. compensation. been set very low (zero for passenger ticket’s purchase price. The rolling stock company will, however, traffic) as a deliberate policy to balance hold the remaining risks. The contract includes a bonus–malus the costs of using roads. One exception However, passengers will not be system related to the fulfilment of quality is the where the compensated if the delay or train As far as concerns the age of the rolling targets such as the operator’s regularity. infrastructure charge covers the cancellation is due to circumstances stock used for the discharge of the PSOs, In principle, a penalty is applied if the operation and maintenance of this line. beyond the control of NSB or Bane NOR, 28% is older than 30 years, while 28.4% operator’s regularity is below 99.1%. The infrastructure manager is financed such as extraordinary weather conditions and 32.4% is less than 20 and 10 years old However, the operator is not penalised in through the annual state budget. or acts of God, statutory orders and respectively. cases where the regularity targets are not prohibitions, strikes, lockouts, etc. met due to the failure of infrastructure. From 2017 Bane NOR (infrastructure manager) introduced a new regime of 12. Involvement of the regulatory As to possible actions that can be infrastructure charges. The operators 9. General payment conditions body or other authority taken with regards to deficiencies in will contribute to the financing of rail infrastructure and their impact on infrastructure through these charges. It No specific information provided. The Norwegian Railway Authority public passenger services, there are should be noted that this additional cost will monitors the railway market to ensure free two relevant benchmarks that, if met, be taken into account when determining competition and process complaints related may instigate a renegotiation of the the adequate level of compensation. 10. Duration of public service to competition issues. contract. If the number of hours of delay, contract attributed to the state of infrastructure, VAT paid on ticket sales currently is below 8 000 or above 13 000 per amounts to 10% - which is much less than The largest ongoing public service year, or, alternatively, if the availability of normal VAT, which is currently 25%. The transport agreement in Norway was

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1. Organisation of public service The current transport operator is PKP 2. Operators on the market operations in Poland Intercity; for public passenger service transport Public service transport is regulated in • In a decentralised manner, by the Poland Poland in a series of texts. Regulation 16 individual regional authorities Public service rail transport on the Polish (EC) No 1370/2007 has been directly called Voivodeship Marshals. The passenger market is executed by: implemented into the Polish legal system. Voivodeships are competent for In addition, the public transport market regional traffic within their geographical • PKP Intercity S.A. – inter-regional (inter- in Poland is regulated by the Act of 16 scope. Przewozy Regionalne sp. z voivodeship) and international services – December 2010 on public transport (Dz. o.o. (hereinafter referred to as PR) based on PSO and commercial services; U. 2011 No. 5, pos. 13). Apart from those is owned by the Voivodeships and two, a selection of the most important Industry Development Agency. Other • Przewozy Regionalne sp. z o.o. (PR) – Polish legal acts relating to passenger operators are also active at this level regional (voivodeship) and cross-border railway transport, which were adjusted to ( – KM sp. z o.o., services; the EU law, include: PKP SKM w Trójmieście Sp. z o.o., Arriva RP Sp. z o.o., Koleje Dolnośląskie • PKP Szybka Kolej Miejska w Trójmieście • The Railway Act of 28 March 2003 S.A., Szybka Kolej Miejska Sp. z o.o., sp. z o.o. (PKP SKM) – regional/urban; (recently amended on 20 October sp. z o.o., Koleje 2016); Małopolskie sp. z o.o., Łódzka Kolej • Warszawska Kolej Dojazdowa sp. z o.o. • The Regulation of the Minister of Aglomeracyjna sp. z o.o., Koleje Śląskie – urban; Infrastructure of 27 February 2009 on Sp. z o.o.), participating in tendering the conditions of access to and use of procedures. • Koleje Mazowieckie sp. z o.o. – regional/ rail infrastructure; urban, inter-regional during holiday • The Act of 29 January 2004 on Public The principles of transport organisation periods; Procurement Law; in Poland, within the framework of public • The Act of 20 June 1992 on the rights service obligations, were laid down in the • Szybka Kolej Miejska w Warszawie sp. z to discounts in means of collective Railway Act of 28 March 2003 on railway o.o. – urban; transport. transport, which was recently amended on 20 October 2016. • Arriva RP sp. z o.o. – regional; In Poland, public service transport is organised at two levels: Currently, passenger rail services are • Koleje Dolnośląskie S.A. – regional/ provided by 12 carriers, thus rendering urban; • Centrally, by the Ministry responsible the rail passenger market highly for transport issues, which is competent diversified. • Koleje Wielkopolskie sp. z o.o. – for long-distance, inter-regional and regional; international public service traffic.

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• Koleje Śląskie sp. z o.o. – regional/ Share of rail passenger operators in the Share of rail passenger operators in the 3. Definition of public service urban; market in 2016 (based on number of market in 2016 (based on passenger-km) requirements passengers) • Usedomer Baderbahn GmbH – cross- Przewozy Public service obligations are defined Regionalne border; Koleje PKP SKM in the Act of 16 December 2010 on 22.23% Mazowieckie 14.31% PKP Intercity public transport, which makes a direct 20.82% 49.37% • Łódzka Kolej Aglomeracyjna sp. z o.o. – reference to the definition provided in EU regional, urban. Regulation 1370/2007. PKP The greatest number of passengers Intercity These obligations include: is currently carried by Przewozy 13.18% • obligations on tariffs and obligatory Regionalne sp. z o.o.; PR’s market share discounts for certain social groups of was over 27% in 2016. The second Przewozy SKM Koleje the population; largest operator is Koleje Mazowieckie Regionalne Warszawa Mazowieckie 27.17% 8.14% 11.28% • obligations on tariffs and obligatory (KM) sp. with a share of 21% in 2016, the discounts for pupils and students; Koleje Śląskie Koleje PKP SKM third is PKP SKM sp. z o. o with a market 5.24% 5.74% • service frequencies in regions (regional Koleje Dolnośląskie share of over 14% in 2016. Dolnośląskie 2.22% transport); Koleje 2.50% WKD Wielkopolskie • service frequencies throughout the The biggest passenger rail company 2.35% 2.01% country (long-distance transport); operating at national level is PKP Intercity Koleje Koleje • qualitative criteria. Śląskie SA with a market share of over 13% Wielkopolskie Koleje SKM 2.79% 3.09% in 2016 (by number of passengers). Małopolskie Warszawa 1.64% 1.86% The average ticket price in inter-regional The largest market share in terms of traffic, operated by PKP Intercity, was Pozostali LKA Pozostali ŁKA 0.64% 0.01% Arriva passenger-kilometres (49.4%) is currently 0.02% UBB Arriva 0.86% EUR 6.99 in 2016, while in regional, RP held by PKP Intercity SA - due to the long- 0.17% RP WKD urban and suburban traffic, operated by UBB 0.50% 0.56% distance nature of the provided services. 0.80% 0.004% PKP SKM and PR, it was EUR 0.71 and Koleje EUR 1.30 respectively. Małopolskie 0.49% An increasing number of public authorities, whether centralised or decentralised (voivodeships), set the bar high for the stipulation of the qualitative criteria, which are then taken into account when calculating the overall costs of the services to be provided. Discussions between the operator and

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the public authority relating to the level • ticketing service/organisation of ticket reductions must however be discussed Regional services (PR) of qualitative criteria take place on a distribution; and agreed by the public authority in yearly basis. • information on prices; charge of the service. • 77.6 million train-kilometres in total; • setting special seats in coaches for • 90.5% (ca 70.3 million train-kilometres) Quality criteria included in PSO contracts parents with small children, pregnant run as public service; with the company PR: women, disabled people and people 4. Scope of public service transport 7.3 million train-kilometres (9.5%) run with reduced mobility; by rail as commercial services (interREGIO • punctuality on the level 90-95%; • regularity; trains) • delivering a proper level of security, • personnel. Until 2005, only regional services were hygiene conditions, comfort and due carried out on the basis of a public service Operations (in train/km) service; In both cases, punctuality is a major contract. While, as of 2006, regional • delivering proper information (including concern and given that infrastructure services (including urban and suburban station announcements); quality is not optimum due to financing traffic), inter-regional and international • information on the timetable; restraints, the Polish Government decided traffic fall under public service contracts. • ticketing service (at ticket desks, to opt for a permanent exemption from on trains, in other places agreed by the Passenger Rights Regulation for Overall, the services performed under operators); urban, suburban and regional services public service obligations cover almost • information on prices; and to adopt other major exemptions. 73% of PKP InterCity’s operations and PSO (REGIO trains) Commercial (interREGIO & REGIOekspres trains and interREGIO buses) TOTAL of PSO Percentage • in case of rolling stock breakdown, It should be noted that the quality of 90.5% of PR’s operations. 2011 65 687 884 7 311 218 72 999 103 89.98% ensuring a substitute means of infrastructure clearly affects the quality of transport; services provided within the framework Intercity services (PKP Intercity) 2012 59 748 066 6 664 425 66 412 492 89.97% • setting special seats in coaches for of PSO. In case of poor condition of the 2013 51 128 209 7 387 392 58 515 602 87.38% parents with small children, pregnant infrastructure, various speed limits are Number of passengers 2014 47 251 320 5 839 818 53 091 139 89% women and disabled people; imposed, which result in limiting the Share Share 2015 2016 • personnel. extent of the operation and diminishing (%) (%) the frequency of trains running, causing PSO 20 969 230 67.2% 28 041 083 72.8% Quality criteria included in PSO contracts further deficiencies in capacity and rolling 5. Contract with the company PKP Intercity: stock. As a consequence, a decrease in the Commer- 10 218 250 32.8% 10 490 512 27.2% cial attractiveness and competitiveness of rail Since public service transport is • punctuality; transport can be noted. organised at two different administrative Passenger/km (in thousands) • safety and security conditions, hygiene levels, there is a multiplicity of contracts Share Share depending on the type of traffic. conditions, comfort and due service; In addition to these criteria and in order 2015 2016 • delivering proper information (including to enhance passenger development, (%) (%) station announcements); the operator grants additional price PSO 5 201 644 67% 6 748 438 71.3% For centrally-organised traffic, there are two framework contracts concluded with • information on the timetable; reductions for services on certain lines or Commer- 2 566 304 33% 2 717 842 28.7% in certain urban agglomerations. These cial the Ministry responsible for transport

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issues, one covering public service tender that was organised in 2009, However, in case a valid application The level of compensation of public obligations relating to inter-regional traffic, procured two out of nine contracts for is not submitted, the contract will be service contracts varies from contract to and the other covering the international public transport services carried out in directly awarded. contract, according to the calculation of traffic in the entire country. Annual their region. costs and revenues for each line. ‘Cherry contracts are then concluded on the basis Inter-regional and international traffic picking’ is not possible in Poland even of the relevant framework contract. For PKP Intercity, the existing contract contracts are awarded directly by the though exclusive rights are not granted on national services is valid until 2021 Ministry responsible for transport issues to the operator. In practice, the fact that Different contracts are concluded with and has been concluded with the Ministry to the operator of its choice, i.e. PKP ‘cherry picking’ is prohibited amounts to a the Voivodeship Marshals (at least responsible for transport issues under Intercity. de facto exclusive right. one per voivodeship – there are 16 the new regime based on Regulation voivodeships). These cover all regional 1370/2007. As far as regards the public PKP SKM is taking part in various Contract payment is made on the traffic (including urban and suburban service contract on international services, tenders, PR took part in open tendering basis of a contract concluded between traffic). Some regions may decide to split the ongoing contract expires at the end in 11 voivodeships. In one of the the relevant authority (the Ministry their public service operations in pieces of the year. It should be noted that the voivodeships, there are no public responsible for transport issues or a concluding a separate contract for each Ministry responsible for transport issues services provided at all. voivodeship) and the operator. one. Accordingly, certain lines will be the has already officially announced its object of a separate contract. intention to conclude with PKP Intercity the contact covering the coming year. 7. Contract negotiation 8. Calculation of the level of For PR, the contracts must be concluded compensation no later than 6 months before the In general terms, the concluded contracts Effective negotiations take place timetable enters into force. For PKP are governed by commercial and between the railway operator and the The level of compensation is defined Intercity, the scope of an annual administrative law. competent authority. These however by the local government in the form agreement needs to be specified no later relate essentially to qualitative criteria of a Budget Resolution for a given than 1 month before a given budgetary and the leverage on the correlation year, resolved by the local government year starts. 6. Awarding of public service between the costs of the obligations and assembly (Sejmik). contracts the level of compensation provided (or The contracts relate essentially to rail likely to be provided). The compensation is composed of transport. There are some multimodal Polish law provides for a possibility to financial means earmarked by the contracts covering urban transport (bus conclude contracts both following a The railway undertakings have an local government to cover the deficit and metro) with an competitive tendering process as well effective role/power in the discussion generated by the public service obligation system. In such cases, the different as direct negotiations with a single with the competent authority, but to carry. The deficit constitutes the operators agree upon their share of the contractor. limited in scope. For instance, in the difference between revenues from the income. case of SKM the qualitative criteria for sale of tickets and subsidies to statutory The vast majority of local voivodeships – rolling stock were set out in the tender discounts on the one hand, and costs of PR and PKP Szybka Kolej Miejska w with the exception of only three or four documents and were not subject to executing regional transport on the other. Trójmieście sp. z o.o., as a result of the regions - prefer competitive tendering. negotiation. However, it should be noted that in each

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voivodeship the deficit is higher than local Regarding the possibility that changes With regard to PKP Intercity, the • punctuality; government compensations. in ticket prices could lead to lower compensation is delivered through • delivering a proper level of security, revenues for the railway undertaking, monthly instalments. Payments are hygiene conditions, comfort and due With regard to PKP Intercity, it should be noted that, in the case of settled after presentation of the agreed service; compensation is calculated according to PKP SKM, those changes do not result detailed plan for the particular period. • facilitating access to the services for the compensation calculation guidelines in lower revenues. On the contrary, up In 2015–2016, there were no incidents disabled persons; (an annex to the contract). The guidelines until now, any change in ticket prices of late payments. Moreover, in the case • delivering proper information on are elaborated on the basis of Regulation have led to an increase in revenues. of SKM, payments are made according conditions of services; 1370/2007. The sum of compensation The framework agreement with to the schedule which is an annex to the • information on timetables; comprises costs, revenues and a the Marshal’s Office of Pomorskie agreement. Payments are spread evenly • ticketing service (at ticket desks, ‘reasonable profit’. The PSO agreements Voivodeship does not provide for any over thirteen instalments, which is a on trains, in other places agreed by contain a list of trains, instead of sections compensation if changes to ticket satisfactory solution for SKM. operators); of railway lines, which are subject to price lead to a decrease in revenues. • information on prices; state funding. In the event of a surplus However, PKP Intercity is required to As the state of infrastructure is quite • delivering a substitute means of of revenues over costs, the demand for apply the statutory reduced tariffs to poor in Poland, due to limited financing transport; compensation would be reduced. As of all categories of trains (in both PSO and of the infrastructure manager, it affects • running all trains listed on the 22 February 2011, a reasonable profit is commercial services). Lost revenue on the quality of services provided to timetable. taken into account when delineating the this account is returned to the carrier in passengers, particularly in terms of adequate level of compensation. For PKP the form of grants (alignment to 100% of train speed, delays and cancellations. For example, in the case of PKP Intercity Intercity the foreseen reasonable profit the ticket price). The Government has therefore the penalties are specified in separate for 2016 was 2%. opted for major exemptions from annexes to the contract, containing a The average level of track access charges the Passenger Rights Regulation catalogue that outlines the type and scale The main costs taken into account when in 2016 was EUR 2.84 for urban traffic to avoid additional costs borne by of charges. The penalties have already calculating the level of compensation for (PKP SKM), EUR 3.11 for regional traffic the railway company (see section been applied in practice: both inter-regional and regional services (PKP SKM) and EUR 1.85 for inter- 3 above). Obviously, this does not relate to: regional traffic (PKP Intercity). have a positive impact on the overall • For failing to meet qualified punctuality image of the railway operator and for inter-regional and international • staff; substantially affects its marketing policy trains in 2016, the company was • energy; 9. General payment conditions and therefore its competitiveness charged EUR 116 960. • infrastructure charges; compared to other modes of transport. • For improper trainsets (not complying • maintenance and repair of vehicles; Payment is made on a regular basis and with the provisions of the annual • rolling stock, including the associated is generally considered satisfactory by There are contractual penalties that will agreement) the company was charged depreciation costs; the operators, i.e. it does not lead to lack have to be paid by the operator if it does EUR 1 301 450. • installations necessary for operating of liquidity or other financial problems. not fulfil its contractual obligations. passenger transport services; These relate to the following objectives As regards delays, the following applies: • other additional fixed costs. The payment is not subject to VAT. that are included in regional contracts: • Regional and urban traffic: delays over

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10 minutes are treated as inadmissible running on time); and the time of the tender bidding. This Despite the long duration of the and result in a contractual penalty • qualified punctuality (an indicator of the provision has already been used by the framework agreement, the conclusion of of a set percentage of the monthly percentage of the number of trains that parties to the agreement. annual contracts renders the adoption payment or a fixed amount in the were delayed due to the fault of the of informed business decisions and the case of PKP SKM, where contractual operator). • PKP Intercity: The amount of funding objective of economic efficiency hard to payment is imposed each time a train in a given calendar year depends on the achieve. leaves or comes from/to the station It should be noted that no compensation amount of co-financing of rail services, with 10 minutes’ delay. is claimed in the following cases: as defined in the Budget Act for the Some indicative examples of contract • Inter-regional (or in case of PKP • if delays are the result of infrastructure calendar year. The risk of exceeding duration in Poland include: Intercity) traffic: for delays of services works (modernisation, repair, etc.); the set amount is on the operator’s provided under a PSO, Regulation • if delays are the result of limits provided part. According to data from 2016, the • PKP SKM, which concluded a 1–year 1371/2007 is applicable. for defence matters, security or natural compensation granted for the discharge agreement from December 2016 to disasters; of the PSO covered 94.9% of the December 2017. In case of delays of services under PSO, • if delays are caused by incidents on relevant costs incurred. the Ministry responsible for transport lines independent of the operator; • PKP Intercity, which concluded a 10- issues imposes penalties on PKP • if delays are caused by a necessity to • PR: Until 2015 - only one voivodeship year framework contract for the period Intercity only if the delay occurred for maintain a change connection with committed to covering 100% of the of 25 February 2011 to 24 February reasons attributable to the carrier. For other delayed trains. deficit after completing the contract 2021 for the provision of inter- delays due to external factors (failure in the financial year in the case of a regional services. Since 2014 annual on the infrastructure side, fault of a Regarding the assumption of the financial justified increase of costs or in the case agreements are concluded. third party), the situation is treated risk under the PSO contracts, there are that the planned revenues are not met. differently depending on the service. varying situations depending on the In other voivodeships, the financial However Polish railway undertakings In relation to SKM, agreements with contract: risk is borne entirely by the operator. are not completely satisfied with this the Marshal’s Office of Pomorskie However, as of 2015, all voivodeships situation. In more detail: Voivodeship do not foresee contractual • SKM: As foreseen in the agreements, cover 100% of the deficit incurred after penalties in the event of eventualities in the event of a significant change in completion of the contract. • SKM’s case – the contract was signed outside the control of the operator the rates of access to infrastructure, for a period of one year, thus limiting preventing the proper provision of it is acceptable to renegotiate the the possibility of obtaining long-term services, e.g. accidents and other amount of the subsidy granted per 10. Duration of public service loans and the acquisition of EU funds, unforeseen events on railway line etc. train-kilometre to better reflect contract ultimately leading to restrained ability the actual costs. The precondition to conduct long-term investments. In order to differentiate the cause of for renegotiations is for the railway For inter-regional services, the framework delays, two indicators are taken into undertaking to effectively prove an agreement is concluded for a period of • PKP Intercity’s case – a 10-year account: increase in the rates of access to 3 to 6 years. This framework agreement contract for inter-regional services is • punctuality (an indicator of the infrastructure or in energy prices constitutes the basis for the conclusion of considered relatively short having in percentage of the number of trains compared to its original forecasts at annual public service contracts. mind that the company is subject to the

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framework agreement on rolling stock the voivodeships. Its fleet is comprised of obligations, 58.9% of PKP SKM’s fleet investment projects. 1 233 units, out of which: is 30 years old or above, while 20.5% is newer than 10 years old. For PKP • In the field of international transport, • 952 units (77.2%) are owned by PR; Intercity, the relevant percentages are the lack of long-term agreements • 6 units (0.5%) are owned by leasing 47.7% and 2.6% respectively. creates unfavourable conditions for companies; the planning of these services and • 248 units (20.1%) are owned by the establishes uncertainty in negotiations voivodeships, the company Metchem 12. Involvement of the regulatory with international partners, i.e. without and Czech Railways. body or other authority any guarantee that they will be covered by a PSO contract. In the case of PKP SKM, who owns a big According to Polish law, the regulatory part of the relevant rolling stock, the body, i.e. the Railway Transport Office, • PR’s case – Short-term contracts are number of rolling stock units used for assesses the drafts of PSO contracts not satisfactory for the company. providing public services is 73, of which: and issues decisions on open access. Long-term contracts would ensure In addition, it supervises the standards the continuity of funding for a period • 60 units (80.2%) are owned by PKP of quality and proper execution of the of up to 10 or 15 years, which would SKM contracts’ provisions as well as effective enable the implementation of the • 13 units (17.8%) are owned by implementation of the Passenger Rights company’s investment plan in rolling voivodeships Regulation. stock, including co-financing by the EU. A Long-term contract would The provisions of the framework Moreover, the Competition and ensure stability, lower costs and a agreement concluded with PKP Consumer Protection Office – UOKIK level playing field in the market. On Intercity stipulate the use of rolling – took part in creating the framework the contrary, short-term contracts stock co-financed by European agreement for inter-regional services discourage investments in improving Funds. By now, implementation of (directly awarded to PKP Intercity) and the level of comfort and the quality of the projects within the framework monitors the provisions of the agreement travel, therefore not allowing for the of the Operational Programme in terms of monopolistic practices and amelioration of the overall image of rail Infrastructure and Environment has protection of consumer rights. transport. been completed. The total spending of these projects amounted to over PLN 3.1 billion (ca EUR 704.5 million) 11. Rolling Stock gross, which equates to PLN 2.5 billion (EUR 568.2 million) net. For PR, a part of the rolling stock used for the discharge of the PSO belongs to the Regarding the age of the rolling stock company, while another part belongs to used for the discharge of public service

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1. Organisation of public service • Legal framework for the state No 231/2007 of 14 June 2007, and operations in Portugal sector including CP (Decree-Law Decree-Law No 151/2014 of 13 No 133/2013, of 3 October 2013), October 2014; Law 52/2015 of 9 June defines the which establishes the principles and Portugal notion public services as well as the rules applicable to the state sector • Decree-Law No 133/2013 of 3 competences of each entity. and the general basis for the relevant October 2013 defining the legal regime by-laws; of Business Sector State that should be The state is the competent authority taken into account; for national transport, international • Legal framework regarding financial transport, heavy railway transport, as provisions, Decree-Law No 167/2008 • Decree-Law No 137-A/2009 of 12 well as transport in the Metropolitan of 20 August 2008; June 2009, amended and republished Areas of Lisbon and Oporto. There is the by Decree-Law No 59/2012 of 14 possibility to delegate these competences • Legal framework providing the basis March 2012, defines the legal regime to other entities. for public services in every kind of applicable to CP and its statutes and passenger transport, Decree-Law No foresees the provisions that must be The regions are in charge of transport 52/2015 of 9 June 2015; included in the public service contract, in the municipalities and inter-municipal referring to: areas as well as transport in Metropolitan • Legal framework providing the a) rights and duties of the parties, Areas. provisional basis for public services including the public service and the concession agreement until the obligations, prices, financial Legal provisions for the discharge of signing of the public service contract, compensation and exclusive rights; public services are mainly foreseen in the Decree-Law No 104/73 of 13 March b) criteria for the calculation of the following pieces of legislation: 2013 – already repealed, but bases compensation of the public service XXV, paragraph 3, XXVI, XXVII, XXVIII, obligations; • Legal framework relating to the land XIX, paragraphs 1 and 2, XXXI, XXXII, c) geographical area covered by each transport system (Law No 10/90, of 17 paragraph 4, and LIII remain in force service; March 1990); until the conclusion of the public service d) rules for allocation of costs related to contract between CP and the state; the provision of services; • Legal framework imposing tariff e) rules for allocation of revenue from limitations on passenger transport • Legal framework for the definition the sale of tickets; lines (Decree-Law No 8/93 of 11 of the conditions for the provision f) duration of the contract; January 1993 and Decree-Law No of rail transport services, Decree- g) dimensioning the offer; 58/2008 of 26 March 2008, amended Law No 270/2003 of 12 of June h) qualitative requirements and and republished by Decree-Law 2003, amended, amongst others, performance levels. No 35/2015 of 6 March 2015); and republished by Decree-Law

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2. Operators on the market 3. Definition of public service the amendments introduced by Law No other competitor has provided for public passenger service requirements No 35/2013 of 11 June 2013 and Law international passenger services, transport No 17/2012 of 26 April 2012). including cabotage, in Portugal since the The definition of public passenger service liberalisation of this market in January According to Decree-Law No transport is defined in Law 52/2015 of 9 The following categories of traffic fall 2010. 270/2003, Article 4, No 2, (as amended June 2015. under PSO: and republished by Decree-Law No 231/2007 and Decree-Law No ‘Public passenger transport service’ • lines and services with low demand and 5. Contract 151/2014 of 13 October), domestic rail means a passenger transport service negative profitability; passenger transport has not been subject of general economic interest provided • traffic for which timetables and CP is running passenger trains ensuring to the liberalisation process yet, therefore to the public on a non-discriminatory frequency of services are based on the continuity of the public service it is not open to competition. basis, according to which vehicles are public service and non-profit criteria according to Government instructions. made available for multiple persons instead of economic ones; It does so without having a public For the time being, there are two railway simultaneously, not being exclusively at • services with regulated prices. service contract, but in the framework undertakings operating public passenger the service of any of them, who use them of a concession. The relevant qualitative service : paying some remuneration according to a Long-distance passenger transport is criteria that services provided by CP have previously approved exploitation regime. not considered to be run as a public to meet are defined by law. • CP – , E.P.E. is the service obligation. So far, there is one main operator in Portugal and wholly Despite not having a public service international train between Portugal is operating the suburban line owned by the Portuguese state. The contract in place, CP is obliged to fulfil and Spain and a cross-border train split referred to above, under a concession current concession which allows CP a minimum quantitative and qualitative between Spain and France (at Medina guaranteed by a contract, providing – Comboios de Portugal to run trains level of public passenger service transport del Campo there is a bifurcation; one services that are considered public across the country was granted by law; defined in the aforementioned Law. More part goes to and the other services. The relevant contract was • Fertagus is a private company which particularly, it has to offer services that to Hendaye). This cross-border train extended until 31 December 2019. It won an international competitive meet a requisite level of ease of access size ensures the connection to the rest of should be noted that Fertagus has not tender for the operation of a suburban and capacity and effective communication Europe via France. received any compensation as of 2011. line (54 km long) crossing the Tagus of information to the public. (north-south axis). The operation to Madrid is a partnership between CP and Renfe, the cross-border 6. Awarding of public service Apart from Fertagus, no other competitor 4. Scope of public service transport operation between Spain and France is contracts has provided international passenger by rail provided by CP only. services, including cabotage, on the The historic and incumbent company, CP – Portuguese territory since the opening CP has been operating all suburban CP also operates an international train Comboios de Portugal, E.P.E. is requested of the international passenger market to and regional passenger traffic as public between Oporto and Vigo, the so-called to provide the majority of public service competition in line with Directive (EC) services on a historical and legal basis Celta Train. The associated costs are transport (approximately 96%) throughout 2007/58. (Law No 88-A/97 of 25 July 1997, with allocated between CP and Renfe. the country according to Decree-law No

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137-A/2009 of 12 June 2009, as amended During this time, CP has been 11. Rolling stock Other rolling stock: and republished by Decree-Law No providing rail passenger services <10 years >10<20 >20<30 >30 years 59/2012 of 14 March 2012. at prices that do not cover the Public service transport is provided via old years old years old old associated production costs. rolling stock belonging to the operator. 0% 0% 100% 0% For the time being, the only line to be granted through a public tendering As foreseen in Decree-Law On average, rolling stock used for On this point, it should be noted that the procedure is the one granted to Fertagus. No 58/2008, amended and regional public service transport is renewal of all CPA ( trains) republished by Decree-Law relatively old. and long-distance trains is underway as The awarding authority in Portugal is the No 35/2015 of 6 March 2015, the well as the rehabilitation of the Schindler Secretary of State for Infrastructure and operator must bear the compensation As regards the age of the rolling stock and the historic narrow-track (Diesel Planning. There are currently no other costs in case of delays both for used by CP for the discharge of its public Locomotive 9004 and three carriages) decentralised authorities. regional and long-distance traffic that services, the following tables provide and other carriages. The associated costs falls under PSO. detailed data: will be assumed by CP. Finally, no exclusivity is granted except for the lines awarded to Fertagus on a public According to Article 16, paragraph 8, Rolling stock in service solely the property of service contract basis. of this law, passengers are entitled to CP: 12. Involvement of the regulatory ask for reimbursement of the ticket <10 years >10<20 >20<30 >30 years body or other authority price up to 30 days after the delay. old years old years old old 7. Contract negotiation Lisbon 0% 25.49% 41.18% 33.33% Competence over regulatory activities Where the delay or cancellation is due is shared between two institutions, the No further input. to failure on the infrastructure side, Oporto 0% 100% 0% 0% Institute for Mobility and Transports and the railway operator is still obliged to Regional 0% 52.38% 0% 47.62% the Authority for Mobility and Transports. reimburse the price of the ticket, but Long 0% 12.88% 56.06% 31.06% 8. Calculation of the level of has a right of recourse against the rail distance The Institute for Mobility and Transports compensation infrastructure manager on the basis of supports the Government in exercising Article 16-A, paragraph 8, of the same its powers to order and grant rail public No further input. Decree-Law. transport services, e.g. monitoring the Rolling stock in service including rented rolling relevant contracts including concessions stock: and service contracts. 9. General payment conditions 10. Duration of public service contract <10 years >10<20 >20<30 >30 years old years old years old old This regulatory body is also in charge CP is providing a transport service which of promoting the development and is vital to the economic development, No provision is made as to the Lisbon 0% 25.49% 41.18% 33.33% updating the regulatory framework territorial cohesion and social welfare duration of the public service lines Oporto 0% 100% 0% 0% for the land transport sector. More without receiving any payments from the operated by CP. Regional 0% 44.0% 0% 56.0% specifically, it is in charge of any sort state since 2015. Long 0% 12.88% 56.06% 31.06% of technical regulations, licensing, distance coordination, supervision and planning

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in the land transport sector. Moreover, 1. Organisation of public service it supports the Government in drafting operations in Romania legislation and regulations and in preparing and conducting pre-contractual procedures. Finally, it participates in the Romania Public service operations in the rail implementation of the adopted tariff sector are regulated in Romania by policy in public transport, while also Government Decision No 74/20121 and authorising, licensing and supervising the Government Decision No 1668/2008, performance of operations that form part as amended and supplemented in light of land transportation. of the implementation of Government Emergency Ordinance No 12/1998 The Authority for Mobility and on Romanian railway transport and the Transports is entrusted with the task reorganisation of Romanian National of safeguarding the coherence of the Railways. In addition, Government Decision legal framework (national, European No 74/2012 provides that CFR Călători and international), dealing with issues is part of the PSO framework contract for related to regulation, supervision and 2012-2015, which is a 4-year contract. The protection of the competitive process. PSO framework contract is updated yearly Moreover, it sets the rules and general with annexes delineating the public service principles concerning the cost structures, obligations and the compensation awarded the pricing and the imposed tariffs in the for the respective year. regulated sectors, ensuring access to the railway infrastructure on fair, reasonable In Romania, public service transport is and non-discriminatory terms. To that organised in a centralised manner. As effect, it functions as a mediator in order foreseen in Government Emergency to resolve disputes that may arise within Ordinance No 12/1998, the national these sectors. It is also in charge of authority granting the public service following and monitoring the activities on contracts on behalf of the Romanian state the railway market with the objective of is the Ministry of Transport. promoting and enhancing competition in the land transport sector overall. Finally, it Since the reorganisation of Romanian acts as an appeal body for matters related National Railways (SNCFR) by field to network directory and delineates of activity, according to Government the applicable tax regime for the use of Emergency Ordinance No 12/1998, railway infrastructure.

1 Government Decision No 74/2012 has been replaced by Government Decision No 231/2016 for public service contract approval, valid between 1 January 2016 and 2 December 2019, for public railway passenger transport.

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public passenger railway transport is The traffic generated by regional and established in 2010, which has as its • Astra Trans Carpatic S.R.L. Bucureşti provided as a public service for which inter-regional trains is covered by the main activity domestic and international – as of February 2017 provides an the competent authorities conclude compensation granted according to the railway passenger transport. T.F.C. inter-regional night service between public service contracts with railway applicable public service contract. There ensures passenger transport both on and Arad. undertakings for a period of maximum are no urban/suburban transport services non-interoperable lines (Galaţi – Bârlad, 5 years. These public service contracts on the CFR network. Buzău – Nehoiaşu, Slănic – Ploieşti are approved by the Government and Sud, Titan Sud – Olteniţa, Oradea – 3. Definition of public service updated annually, following the approval Cordău) as well as on the interoperable requirements of the state budget. 2. Operators on the market for public infrastructure with connections between passenger service transport Cluj Napoca and Oradea, Bucharest Public service obligations are defined International passenger traffic has been North and Buzău, Bucharest North and in the aforementioned legislation, opened up to competition since January In Romania the railway undertakings are: Galaţi, Bucharest North and Slănic. according to which the approved public 2010, in light of the implementation of service contract is concluded for a Directive 2007/58/EC. Up till now and • CFR Călători, the national passenger • S.C. InterRegional S.R.L. Cluj Napoca 4-year period between the state, i.e. the to CFR’s knowledge, no request to enter railway undertaking, which operates (former SC Regional S.R.L.) is part of Ministry of Transport, and the railway the Romanian market in order to operate regional and inter-regional trains. As of the Vai Terra Spedition companies undertakings. international traffic, including cabotage, 2011, the legislation, no longer being group and operates on lines in the has ever been received. restrictive in this respect, allowed for Transylvanian area. It began its The public service contract regulates private railway undertakings to operate activity in 2007, operating trains the relationship between the passenger Moreover, it should be noted that regional and inter-regional trains on the both on interoperable lines and non- railway undertakings and the Ministry legislation does not prohibit the interoperable mainlines as well as on the interoperable ones. Its trains pass daily of Transport, covering the specificities development of competition on the non-interoperable lines. through the cities of Oradea, Holod, of the rendering of the social public domestic market. Satu Mare, Bistriţa şi Ilva Mică. service, the rights and obligations of the • S.C. Regiotrans S.R.L. (former S.C. Keolis parties to the agreement, as well as the All traffic falls under PSO except for S.R.L.) is a railway passenger operator • S.C. Softrans S.R.L. Craiova is a freight adequate level of compensation granted touristic and international trains. established in 2004, which operates railway operator established in 2002, for the discharge of the services. Currently, CFR Călători holds 89.4% trains on the non-interoperable which entered the passenger railway in terms of passenger-kilometres and infrastructure managed by RC-CF Trans market in the beginning of August The obligations include: 82.2% in train-kilometres of the domestic and also on some interoperable lines. 2014, when it started operating traffic covered by PSO. The remaining The Regiotrans trains pass daily through passenger services with a pair of trains • obligations on tariffs and discounts percentage is shared by four private Bucharest, Braşov, Craiova, Constanţa, on the Craiova – Bucharest North – for certain social groups of the railway undertakings. International traffic Iaşi, Arad, Timişoara, Reşiţa, Sfântu Constanţa route and return. During the population; is not covered by a public service contract. Gheorghe, Botoşani, Bacău, Ploieşti and winter season, these trains travel on the • having trains of a certain rank for Buzău. Craiova – Bucharest North – Braşov national services; Currently, there is no cross-border route and return. The company also • service frequencies throughout the railway undertaking offering cabotage • S.C. Transferoviar Călători S.A. (T.F.C.) operates a pair of regional trains on the country; services on transit in Romania. is a railway operator with private stock, Craiova – Motru route and return. • qualitative criteria.

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As foreseen in the public service of the massive loss in passengers, who Both the level of compensation and 7. Contract negotiation contract, the provided services have do not switch back to rail transport once the obligations imposed are revised to meet the minimum requirements these works are completed. once a year depending on the economic The railway company determines its foreseen in the Order of the Minister and financial situation in Romania. business case with regard to the extent of Transport and Infrastructure Government Emergency Ordinance (GEO) of public service operations to deliver on No 153/2011, which establishes the 4. Scope of public service transport No 12/1998 has been recently amended a yearly basis and submits a detailed cost quantitative and qualitative criteria for by rail by GEO No 83/2016 of 29 November assessment to the Ministry of Transport. the passenger rail services. The main 2016, ensuring enhanced conformity The parties then negotiate the level of criteria refer to commercial speed, on- Public service transport by rail in Romania with the provisions of Regulation (EC) compensation in line with the public board services and comfort. covers the entirety of the domestic traffic. No 1370/2007 as follows: services to be provided under the public The international cross-border activities service contract. The qualitative criteria are established are not covered by a public service • According to the provisions of through normative documents and are contract, on the contrary, these are Regulation 1370/2007, public service the subject of discussions between the provided by national railway undertakings contracts mentioned in Article 5 are 8. Calculation of the level of competent authority and the railway on a commercial basis. concluded between the Ministry of compensation undertaking, which is actually more Transport, for and in the name of the aware of the customers’ needs. In numerical terms, CFR Călători operated state, and the railway undertakings The contract is paid through financial approximately 1 132 daily trains in 2016, which provide public railway passenger influx depending on the volume of train- The quantitative obligations stipulated carrying about 53 million passengers, transport and according to the public kilometres and passenger-kilometres in the contracts are measured in global which totalled 4 459 957 588 passenger- service obligations. for each type of service (regional and parameters like train-kilometres or kilometres. It should be noted, though, that inter-regional), meaning that there are no passenger-kilometres. these figures are provisional. • These public service contracts must be exclusive rights on the territory. drafted according to the provisions of The quality of infrastructure Article 4 of Regulation 1370/2007. According to Article 9 of Government considerably affects the quality of 5. Contract Decision No 584/1998 regarding the transport services. Speed limitations, The current contract with CFR Călători, establishment of the National Company maintenance works scheduled during The public service contract is awarded which was directly awarded, entered into for Passenger Railway Transport CFR day time intervals with increased on the basis of the multiannual contract force at the beginning of 2016 and will Călători S.A. through the reorganisation passenger traffic, failures to meet concluded between the Ministry of remain valid until 2 December 2019. of the National Company of the prolonged deadlines, modification Transport and the railway undertaking, Romanian Railways, public railway of routes, significant train delays for which is approved by a Government passenger transport has a social public which the railway undertaking does not Decision. Taking into consideration the 6. Awarding of public service service trait. For these services, CFR receive any reimbursement are some fact that the compensation value for the contracts Călători should receive from the state of the examples reflecting the way in public service contract is updated on a budget (or from the local budgets) the which defects in infrastructure lead to yearly basis, these Government Decisions The public service contracts are awarded difference between the fares established a pronounced drop in revenues on top are also updated on a yearly basis. directly. with the approval of the competent public

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authorities and the actual transport costs, renegotiated in case the revenue service compensation. Reports on activity Delays in national traffic can be regarded on top of which a profit share of at most generated by ticket sales is lower than indicators are submitted on a monthly from case to case as being eligible for 3% of the respective cost is added. foreseen. According to data from 2016, basis and are taken into account for the commercial compensation. The railway the degree of compensation granted calculation of the level of compensation, undertaking must compensate the It should be noted however, that the to CFR Călători covered 75% of the given, of course, that the maximum passengers according to the Passenger contract is a ‘net’ contract. In other words, generated costs (minus the revenue earmarked amount is not exceeded. Rights Regulation if the delay occurred on the railway undertaking bears all the risks accumulated from the sale of tickets). international services. Then, the railway associated with the ticket revenue. Due to The granting of compensation is approved undertaking can sue the infrastructure objective reasons, e.g. the state policy on The calculation of the overall costs for the by the National Authority through the manager based on national law or based transport modes, the economic crisis, the service in question as a whole is generally national budget. It should be noted that on the concluded access contract. For critical state of railway infrastructure etc., based upon the following usual costs: audit controls safeguarding the accuracy other cases, the COTIF–RU CIV or over the past years, the volume of ticket and justifiability of the alleged incurred national legislation, depending on the sales has decreased, and the same applies • staff; costs and accumulated revenues also take type of transport contract, are applicable. for revenues. However, this development • energy; place annually. has not yet been reflected in the annual • infrastructure charges; In the case of delays due to external revision of the contract. Thus, financial risks • maintenance and repair of vehicles; The compensation is not subject to VAT. factors, such as failures or deficiencies are often the result of under-compensation • rolling stock; in infrastructure, the compensation of the services or delayed payments. • installations necessary for operating The state of the infrastructure negatively for any delay is paid by the railway passenger transport services; affects the achievement of the indicators undertaking (eventually recovered from This is where the problem lies in • historic debt payment; agreed to in the public service contract the infrastructure manager based on the Romania as the calculation of the level • amortisation; by the railway undertakings. The Infrastructure Access Contract). The of revenues is largely estimated in a • other fixed costs (sanitation, taxes paid heavy maintenance works and repairs same applies if the delay is caused by a vague way, leading to overestimations to the Romanian Railway Authority – undertaken during daytime, without third party. In the case of force majeure, and accordingly to a lower level of AFER, auxiliary services offered by the an exact multiannual schedule, cause until this year, compensation for delays public compensation. Eventually, the infrastructure manager etc.). losses to all railway undertakings. Thus, had not been required. However, recent railway undertaking is bound to cover programming regular train circulation jurisprudence has imposed on railway the losses ‘in full application of the The average level of track access charges is a difficult endeavour, as a result some undertakings a different treatment of contractual obligations’. These losses in Romania is EUR 2.10 per train- services cannot be provided on a regular such matters. have been accumulated on a yearly basis kilometre. basis. The average yearly influence of and have been piling up for many years traffic changes imposed by the quality now, thereby increasing the company’s of the infrastructure is estimated at 10. Duration of public service historic debt and affecting its overall 9. General payment conditions approximately 2% of the total planned contract competitiveness on the European market. train-kilometres. It is impossible to make Compensation payment is made on a any predictions due to the lack of any The current contract has been concluded Compensation levels are determined monthly basis. It is reviewed according to long-term planning of these maintenance for a 4-year duration. This duration would in advance. The compensation is not a regular estimation of the annual public works. be satisfactory if the payment scheme

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was valid for the entire period (through In the next three years CFR Călători activity of the railway services markets, the provision of a 4-year budget). intends to purchase at least: handles complaints and adopts decisions However, as the public service contract assuring non-discriminatory tariffs and is reviewed on a yearly basis, it does • EMUs and DMUs (hybrids) – 120 access to the railway infrastructure. not allow for any long-term plans or for trainsets; any valuable investment strategy that • new diesel-electric locomotives – 4 The Ministry of Transport, which is one would improve the quality of services. locomotives; of the contracting parties signing the Investments in the railway sector are • new electric locomotives – 4 public service contract as the National commonly made within a timeframe of locomotives; Authority, and which is also the ultimate at least 10-15 years. Due to the short • new sleeping coaches – 40 coaches. owner of CFR Călători, the other signing duration of the contract payment scheme, party, is solely responsible for the the current system does not encourage Acquisition of the aforementioned rolling definition, conclusion and functioning of sustainable investments in rolling stock stock will be done in a proportionate the public service contracts. or a powerful system of rail passenger way depending on the identification and services. allocation of the necessary funding for making these investments.

11. Rolling stock In the case of Regiotrans most of its rolling stock fleet is over 30 years old but In general, the railway undertakings refurbished. own, and ultimately finance, the rolling stock they use for the discharge of public services. 12. Involvement of the regulatory body or other authority Currently, the majority of CFR Călători’s rolling stock fleet is over 30 years old, The National Railway Supervision Council but it is being refurbished. In more detail, performs the functions of the railway 65.4% of the coach fleet is of recent regulatory body in Romania. In 2011 build or modernised and 34.6% is not it was transferred from the Ministry modernised and has to be replaced in of Transport and Infrastructure to the the next 4 years, while 63% of the motor Romanian Competition Council as an rolling stock fleet is modernised and 37% independent authority from the Ministry. is not modernised and thus has to be The National Railway Supervision Council replaced in the next 5 to 6 years. – among other tasks – monitors the

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1. Organization of public service 2. Operators on the market • ARRIVA, operating on the Nitra – operations in Slovakia for public passenger service line. transport Public passenger railway transport in ZSSK, a company fully-owned by the Slovakia Slovakia is regulated by the Act of the To date, two public service contracts have state, is however the main rail passenger National Council of the Slovak Republic been concluded: company operating on the domestic No 514/2009 Coll. on operating market holding a market share of 98%. transport on railway infrastructure, • between ZSSK and the Ministry of which came into force on 1 January Transport and Construction of the 2010 and was later amended (by the Slovak Republic; and 3. Definition of public service laws No 433/2010 Coll., 547/2010 • between RegioJet and the Ministry requirements Coll., 313/2011 Coll., 393/2011 Coll., of Transport and Construction of the 547/2011 Coll., 133/2013 Coll., Slovak Republic for the line Bratislava – The aforementioned Act No 514/2009 352/2013 Coll., 402/2013 Coll., Dunajská Streda – Komárno, covering defines the general conditions and content 432/2013 Coll., 259/2015 Coll., 91/2016 3.5% of rail passenger traffic. of the public service contract, as well as Coll., 351/2016 Coll.). the duties of the transport operator. There are also a few railway undertakings These texts specify the terms and operating international lines that also The following elements must be included conditions, as well as the content of public carry passengers on domestic routes, in the contract for operating public service contracts and are fully in line with without, however, having any cabotage passenger railway services: Regulation (EC) No 1370/2007. rights. This practice can be justified by the fact that open-access operation is fully • extent of the transport performance; Public service transport is managed and liberalised in Slovakia and thus there is no • timetable general requirements; financed centrally by the Ministry of actual need to request cabotage rights. • territory specifications; Transport and Construction of the Slovak • subcontracting of transport services (if Republic. The timetable is however As far as regards international rail possible) and its extent; discussed both with the Ministry of passenger transport, it is provided on • tariff conditions; Transport and the regional authorities. a commercial basis by private railway • exclusive rights – if awarded; undertakings including: • rules for calculation of the Both domestic and international compensation; passenger rail markets are open to • RegioJet, operating on the Bratislava • rules for inspection of the transport competition between railway operators – Prague, Košice – Prague and Zvolen – operator (fulfilment of obligations, or operate on an open-access basis. Prague lines; calculation of costs); • LEO Express, operating the Košice – • penalties – if required; Prešov – Prague line; • validity period of the contract.

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The basic duties of the transport operator 4. Scope of public service transport 2020). The volume of train-kilometres • other reasons, i.e. scarcity of state according to the law are: by rail required and the budget are revised on resources. a yearly basis. • obligation to carry, which commits the The vast majority of domestic and operator to transport passengers in a international traffic in Slovakia, 7. Contract negotiation non-discriminatory way under the valid approximately 93.6% of train-kilometres, 6. Awarding of public service tariff conditions; falls under public service obligations. contracts In the case of ZSSK, the level of • obligation to operate, which commits The few exceptions to the norm are the compensation and the calculation the operator to provide transport intercity trains (since 1 January 2012) Slovak law provides that it is possible method is stipulated in the public service services in line with the legal provisions running on the Bratislava – Košice line to award public service contracts contract. However, it should be noted and the awarded licence. (operated by ZSSK), trains operated either directly or through a competitive that ZSSK has continuously suffered from by private companies (RegioJet, LEO tendering procedure. under-compensation due to budgetary In the past few years the average ticket Express and ARRIVA) on the Bratislava shortages in the state budget. In the price for PSO traffic has decreased. – Prague, Košice – (Prešov) – Prague, As mentioned above, there are two current public service contract there Zvolen – Prague and Nitra – Prague lines, public service contracts concluded in is a provision for a ‘reasonable profit’ Detailed quality criteria are included and trains that are ordered by private Slovakia. Each of them was granted that could be invoked in the future. This in the contract between ZSSK and the individuals or companies. directly to the railway operator. remains however theoretical due to state Ministry of Transport. They cover: budget cuts. In numerical terms and according to According to the contract concluded • reliability and punctuality of trains; data form 2015, the total transport between ZSSK and the Ministry of Every year the state sets a maximum • safety; volume on the territory of Slovakia was Transport, the latter may deallocate amount for the overall compensation of • cleanliness; 34.6 million train-kilometres, out of part of the transport services and public service obligations, regardless of • functionality (proper functioning) of which 31.2 million were operated by put them up for tendering or directly the actual costs incurred. Thus, ZSSK heating, lighting, opening of windows ZSSK under a PSO and 1.2 million by award them to another operator. The has to cover this gap through loans. and doors, etc.; RegioJet. In more detail, ZSSK operated volume of ordered train-kilometres Uncovered loss is the main area for • following the required train 1 434 trains per day in 2015 covering may decrease by up to 35% during consideration in the future. Negotiations composition; 2 980.4 million passenger-kilometres the contract period in comparison in practice are therefore rather limited • other requirements (space for carriage during that year. to 2011. The decrease between two due to major budgetary constraints. of bicycles, free Wi-Fi access, etc.) successive years can be up to 10%.

The quality criteria are the object 5. Contract The following justifications for any 8. Calculation of the level of of negotiations between the public decrease are possible: compensation authority and the operator. Up until recently, one single contract was concluded between ZSSK and the • deallocating to tender or directly ZSSK Ministry of Transport for the entirety award; According to the law, the passenger of public service transport. The current • moving competencies to regional transport operator is entitled to one is concluded for 10 years (2011– authorities; compensation (including ‘reasonable

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profit’) for demonstrable loss. However, • overheads; on PSO fulfilment is signed and the final affects the quality of passenger services the compensation is limited to the level • financial charges. clearance is settled. provided and deepens the gap in modal of financial means allocated in the state share, thus warranting attention. It should budget for the given year. The revenues depend mostly on the The compensation is not subject to VAT. be noted that if, due to exclusions from transport performance (number of the tracks (by ZSR, the infrastructure The demonstrable loss in passenger passenger-kilometres) and the tariff As foreseen in the public service contract manager), the carrier needs to put transport is the difference between policy for the given period. There is a (Attachment 5 to the contract), a malus supplementary bus transport in place, economically eligible costs incurred possibility to have a ‘reasonable profit’ in system is established delineating the the costs of the bus transport qualify as by the operator when fulfilling the the contract, but it has never been applied sanctions and penalties that will be economically eligible costs. obligations resulting from the public in practice. The accuracy and justifiability imposed in case of non-observance service contract and the revenues that of incurred costs and accumulated of the stipulated qualitative criteria. Finally, the Passenger Rights Regulation the operator has accumulated from the revenues are subject to independent Representatives of the Ministry of is applicable in Slovakia with certain same obligation, including a ‘reasonable audits. Transport and Construction perform exemptions from several articles on long- profit’. Thus, the concluded contract is of regular checks on the ZSSK trains. distance domestic traffic (Art. 13, 17, 18 the ‘gross’ type. The average level of track access charges The scope of applicable sanctions is para. 2a, 21, 22 and 23, as well as from all was EUR 1.50 in 2015. reviewed and approved by the ordering non-mandatory articles regarding urban, Public service transport has never been party and the carrier on a monthly basis. suburban and regional services. compensated in realistic terms since the RegioJet Each standard in the contract has its accession of Slovakia to the EU or even In relation to RegioJet, there is a fixed exact sanction set – i.e. the sanction before that. ZSSK has been accumulating compensation per train-kilometre in the that would be executed in case the 10. Duration of public service debt due to the constant shortage of contract, which increases every year in prescribed standard is not met. Within contract financial means in the national budget. accordance with inflation measures. the standards, the minimum percentage of GVD (railway operation schedule) The ongoing contracts are concluded: The calculation of the overall costs for the fulfilment is also set. If the reasons for not service in question as a whole is generally 9. General payment conditions fulfilling the GVD are objective reasons • between ZSSK and the Ministry of based upon the following costs: (such as -outs by the infrastructure Transport for a duration of 10 years In practice, advance payments are subject manager ZSR), The Ministry of Transport (2011-2020); • traction fuel; to negotiation every year. There are no and Construction does not necessarily • between RegioJet and the Ministry of • traction electric energy; problems or implications due to delays in execute the sanctions on ZSSK. The Transport for a duration of 10 years • material; payments, however, there are deficiencies sanctions between the Ministry and ZSSK (operation 9 years 2012-2020). • direct wages; stemming from shortages in the state are settled once a year (within the context • direct depreciation/amortisation; budget. The advance payments to ZSSK of the public service contract assessment • direct maintenance and repairs; for the discharge of PSOs are made for the given year) and executed as a 11. Rolling stock • levies; on a monthly basis (1/12 each month, decrease of the recognised loss. • fare; according to the agreed overall advance ZSSK is currently operating public service • track access charges; payment plan). After the year is closed, The issue of minor or major deficiencies transport with its own rolling stock. • other direct costs; the real loss is measured, the protocol in the state of the infrastructure directly Depreciation of rolling stock is taken into

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account in the calculation of the level of 1. Organisation of public service compensation foreseen in the contract. operations in Slovenia

The average age of the rolling stock Public service is is 22 years old. In more detail, 33% of Slovenia regulated by the Railway Transport Act and ZSSK’s fleet is older than 30 years old, the Decree on public service obligations in 9% is newer than 20 years old and 42% is inland and cross-border regional railway newer than 10 years old. passenger transport (Official Gazette of the Republic of Slovenia, No 99/2008) Part of the modernisation of ZSSK’s which has incorporated the content of the rolling stock (purchase of new vehicles) EU public service regulation. Regulation was completed with financial support (EC) No 1370/2007 is fully reflected in the granted by EU funds. Decree.

Public service operations are in general 12. Involvement of the regulatory defined in the above-mentioned Decree. body or other authority Public service transport is organised The transport regulatory body plays centrally in Slovenia by the state, through a certain role with regard to railway the Ministry of Infrastructure. public service operation. It regulates the maximum price charged for passenger Public service transport is provided railway transport as well as the maximum throughout the country, covering almost track access charges. In addition, it is the entirety of inland and cross-border the authority awarding licenses and regional passenger transport; 95.6% of conducting inspections. rail passenger transport in Slovenia is organised under public service obligations. There is no distinction made between regional and long-distance travel given the small size of the country.

The market for international passenger traffic has been open to competition since January 2010 including cabotage. However, the domestic market for passenger traffic is not open to competition yet. To date, there has been no request for international paths including cabotage in Slovenia.

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2. Operators on the market Qualitative criteria constitute an important 5. Contract terminate services that are considered to for public passenger service part of the public service obligations. They be commercially non-viable. On certain transport relate, inter alia, to safety, comfort, speed, Public service obligations are defined rare occasions, the railway operator was transport capability of the rolling stock etc. in a statutory manner in the Railway authorised, on the basis of a decision There is only one passenger rail operator The quality parameters which are specified Transport Act and in its implementing taken by the contracting authority, to active on the Slovenian domestic market: in the contract are those relating to Decree. On this basis, a contract is close down certain limited lines. SŽ-Potniški promet, d.o.o., which is punctuality (calculated in minutes per 100 concluded between the railway operator wholly owned by SŽ, d.o.o. under Article kilometres) and customer satisfaction over and the Ministry of Infrastructure on It should also be noted that as from 2016 8, second paragraph, of the Slovenian aspects which include staff, the schedule, behalf of the State. Traditionally the an integrated public transport system was Railway Company Act (Official Gazette of arrangement of trains and stations. contract covers only transportation by introduced. the Republic of Slovenia, No 106/2010). rail, while other modes of transport are dealt with separately. However, there was 4. Scope of public service transport a plan to integrate all modes of transport 7. Contract negotiation 3. Definition of public service by rail in 2016 into one single framework. requirements Up until now, integration of train and Up until 2010, public service Almost the entirety of domestic bus fare systems for high-school and obligations, their scope and the relevant The public service obligations in railway passenger traffic is provided under university students has been completed, compensation were not subject to transport are defined in detail on a yearly public service obligations. It covers all of while integration with regard to other discussion between the operator and basis in the contract concluded between inland and cross-border regional railway passenger groups is planned for 2017. the state. It is only recently that some the Ministry of Infrastructure on behalf of passenger transport. Overall, 95.6% of discussion and negotiation has started the state and the rail operator. all passenger rail traffic is provided under A single contract is concluded for the taking place, particularly as regards the public service obligations. The other 4.4% entirety of the territory. correlation between the costs and the They include: represents specific trains, for which no transport requirements imposed. subsidy is received. It is a public law contract based on the Act • passenger transport volume, level of on public finances, the Act on executing The compensation of public service public service; In 2016, there were approximately 592 the budget of the Republic of Slovenia obligations is calculated as the net • obligations on tariffs and obligatory passenger trains operated per day on the and the Decree on the manner of financial effect following the methodology discounts for particular social groups of Slovenian territory, transporting 36 700 performing the obligatory public services foreseen in the EU Regulation. the population; passengers (per day). This represented in in inland and cross-border regional Compensation is to be paid in accordance • service frequencies (confirmed 2016 the transportation of approximately passenger transport. with the performance provided by the timetable); 13.4 million passengers, which amounted operator. • financial report (monthly); to the discharge of 10.25 million train- • counting passengers on all trains (once kilometres and 662.5 million passenger- 6. Awarding of public service As compensation is provided through per year); kilometres for inland and cross-border contracts a mixture between direct payments • comparison of prices between public regional passenger transport. and exclusive rights, no ‘cherry picking’ service operators (railways and bus Public service contracts are, for the time is authorised on the national territory companies, once per year or before any The average fare for a PSO journey being, awarded directly in Slovenia. SŽ is so as to avoid any revenue losses to price increase); between 2013 and 2016 totalled obliged to provide passenger services on the operator. However, the contract • quality of passenger services. EUR 2.55. the total network and is not allowed to contains a partial risk for the operator

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as it is based upon the operator’s The level of compensation is the • revenues from ticket sales; and makes payment to the current annual business plan. In other words, result of the difference between the • subsidies (public service); account of the public service operator. if the performance is inferior to what foreseen costs and revenues. • other revenues (promotion, etc.). was foreseen and agreed with the The infrastructure in Slovenia is state, the latter will not compensate The calculation of the overall costs for The accuracy and justifiability of the operable at a sufficient level of quality the losses in revenue. On the other the service in question is based upon submitted costs and revenues are and thus does not affect the provision hand, any exceeding revenues from the following costs: checked and monitored through of passenger services. ticket sales will be accumulated by regular audits and inspections that are the operator (‘net’ contract). • staff; carried out throughout the year by the If the performance of the operator is • energy; contracting authority. insufficient, a penalty for all delays, For many years, however, • infrastructure charges; cancellations or partial cancellations of compensation has been insufficient • maintenance and repair of vehicles; A ‘reasonable profit’ is not taken into services will be imposed, unless these to effectively cover the shortfall • (historic) debt payment – financial account when calculating the adequate occurrences are due to force majeure. in revenues from public service costs for interests on credit for level of compensation, contrary to what This penalty consists in a reduction of passenger transport. As a result, rolling stock and others; is foreseen in Regulation 1370/2007. the actual compensation that will be the operator has seen its historical • other fixed costs include granted, while in the case of a breach debt grow substantially. Servicing depreciation costs, insurance of the terms of the PSO contract, the the historical debt remains an premiums, advertising; 9. General payment conditions entire subsidy might be held back item outside of the public service • maintenance of computer equipment and granted at a later point without contract. In numerical terms, the and facilities, costs for other services Payment is made on a monthly basis. interest, if compliance is ultimately compensation granted in 2015 (sales, payments, administration, In the beginning of every month, the achieved. Moreover, the Passenger covered 50.1% of PSO-related costs, rentals, transport and postal services, estimation of passenger transport Rights Regulation 1371/2007 fully while in 2016 a small increase was cleaning). volumes (number of passengers and applies to public service transport recorded (54%). train-kilometres) is sent to the Ministry in Slovenia. However, when delays Optionally and on a case by case basis, of Infrastructure. are attributed to deficiencies in other costs can be included, such as infrastructure, the compensation 8. Calculation of the level of marketing costs, publicity of specific This is the basis for the calculation foreseen in the Passenger Rights compensation time schedules, etc. of the monthly payment of subsidies. Regulation will be borne by the Every following month the final report infrastructure unit of the company. In The level of compensation is The average level of track access for the past month has to be sent. The any other case, the operator will deal negotiated annually at the end of the charges in Slovenia is EUR 3.30/train- compensation is subject to VAT. In line with all compensations to third parties. previous year. It is based on train- kilometre. with the annex to the PSO contract, kilometres. Compensation levels must the train-kilometres operated by the As regards other costs that may be clearly determined in advance. Overall, revenues from inland and public service operator are billed to the occur and be attributed to operations There is no possibility to renegotiate cross-border regional passenger contracting authority on a monthly basis, handled by the infrastructure manager, the compensation in case of excessive transport public service operations are and include 9.5% VAT, which is deducted the operator is eligible to seek loss compared to the forecast. comprised of: after the authority accepts the invoice reimbursement of the cost incurred

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for rail replacement transport services – years (2010-2019). This is a reasonable 1. Organisation of public service i.e. when a train is cancelled at origin or development for the operator as it allows operations in Spain ‘en route’ and replaced by a road service for more effective and long-term planning (bus/minibus) – in the following cases: of its business activity. Currently, the legal framework regarding Spain the rail public service operations in Spain • due to maintenance or engineering consists mainly of the following pieces of work on the public rail infrastructure; 11. Rolling stock legislation: • in case of emergencies (serious accident or incident); and Rolling stock is entirely owned by SŽ- • the Rail Sector Law, Law 38/2015 of 29 • in special circumstances set out in Potniški promet, d.o.o. A marginal part September 2015; Articles 7 and 8 of the Rail Transport of rolling stock depreciation is taken into • Royal Decree 22/2012 of 20 July Act (i.e. industrial actions or natural account in the calculation of the level of 2012), regarding infrastructures and disasters). the PSO compensation of the contract. railway services; • Royal Decree 2387/2004 of 30 In 2016, a total of EUR 2 385 587.07 In 2016, 72.5% of vehicles and December 2004, regulation on the rail (VAT-inclusive) was received as locomotives were more than 30 years sector; reimbursement of rail replacement old, while 27.5% of the vehicles were • Renfe Statutes: Royal Decree transport costs. newer than 20 years old. It should be 2396/2004 of 30 December 2004; noted that public service compensation • Regulation (EC) No 1370/2007, which The awarding authority assesses the covers interests on loans for rolling stock entails direct effect on the Spanish legal fulfilment of the obligations and the and other credits obtained to carry out a system; qualitative criteria stipulated in the PSO, while the main cost for the purchase • Agreement of the Council of Ministers contract on a monthly basis through of rolling stock is not included in the of 30 December 2010, establishing the the submitted reports on passengers’ compensation amount. rail passenger services that are subject comments and complaints. Moreover, to public service obligations. a survey on the level of passenger satisfaction and a ridership count is 12. Involvement of the regulatory carried out annually. body or other authority 2. Operators on the market for public passenger service The Public Agency of the Republic of transport 10. Duration of public service Slovenia for Railway Transport merely contract carries out safety controls with regard In 2012, pursuant to Royal Decree to the implementation of the public 22/2012 of 20 July 2012, Renfe While public service contracts were service contract, therefore it does not Operadora had to reorganise its activity concluded on an annual basis for many interfere with the negotiation process and was forced to split into four different years, the latest contract signed in 2010 or the determination of the level of subsidiary companies. One of which is was concluded for a duration of 10 compensation.

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Renfe Viajeros, S.A., which has assumed • the level of compensation to be paid is competent for the awarding and 5. Contract the role of railway operator in charge of to Renfe by the Government for monitoring of these public service passenger transportation. the discharge of the public service obligations, which were transferred from The aforementioned public service obligations. Such compensation is the competence of the Government contract concluded between the International passenger traffic has capped at EUR 1 507 million; through the Royal Decrees 2034/2009 as Government and for been open to competition since 2010, • Renfe’s duty to perform public service from 30 December 2009 and 1598/2010 the time period 2013-2015, has been according to Directive 2007/58/EC. obligations and manage the operation as from 26 November 2010. Thus, extended for 2016 and 2017. and the commercial use of the stations apart from the contract signed with the To date, Renfe and SNCF have been within the commuter railway network Government, there is a distinct agreement In , Renfe discharges public performing international services in accordance with the agreement concluded with the Government of service obligations on the basis of a between Spain and France as a signed with the Infrastructure Manager Catalonia. distinct agreement concluded with the consequence of a collaboration (ADIF); Government of Catalonia. agreement concluded between the two • the rolling stock to be used in the Long-distance services, which cover companies. However, this service is performance of the contracted services; approximately 6.7 % of railway The PSO contract is a ‘net’ contract, operated on a purely commercial basis on • standards for quality, punctuality and passenger traffic, are not operated under thus Renfe can accumulate revenue the high-speed lines. satisfaction levels. public service obligations. It should be generated from ticket sales bearing, of noted that Renfe is the only railway course, the associated risks. It should undertaking offering those services. be noted that in the contract with the 3. Definition of public service 4. Scope of public service transport Government there is no provision for requirements by rail According to data from 2015 and a ‘reasonable profit’. On the contrary, some provisional data from 2016, in the Community of Catalonia, According to Regulation 1370/2007, Public service obligations apply to all approximately 44.1% of the total which, as explained above has distinct Renfe’s commuter and mid-distance Renfe mid-distance and commuter domestic passenger market was covered competence over the commuter and services, as delineated in the appendixes services on the General Interest Railway by public service obligations, representing regional PSO services, the relevant to the Agreement of the Council of Network of Iberia and under the 93.4% of Renfe’s passengers or, in PSO contract foresees a ‘reasonable Ministers of 30 December 2010, are competence of the Government, as listed numerical terms, 434.39 million profit’ of 3%. declared subject to public service in the appendixes of the Agreement of passengers for 2015 and 440.6 million obligations. the Council of Ministers of 30 December passengers for 2016. 2010, including mid-distance services 6. Awarding of public service To that effect, on 16 December 2013 a on the high-speed lines. The latter cover In total, 10 887 million passenger- contracts PSO contract was signed between Renfe- approximately 1.7 % of the PSO traffic kilometres were rendered under PSO in Operadora and the Ministry of Public and carry 7.4 million passengers per year. 2016, which consisted in the operation The ongoing public service contract Works. of approximately 5 079 trains per day. with the central Government was Public service obligations also apply to granted through a direct negotiation Among other issues, this contract commuter and regional services in the Finally, it should be noted that the process. regulates the following aspects of the Catalonian Community. The Government average ticket price in PSO traffic was requested service: of Catalonia (Generalitat de Catalunya) EUR 1.64 in 2016.

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7. Contract negotiation Thus, there is no possibility for ‘cherry 1371/2007 is applicable with exemptions 12. Involvement of the regulatory picking’. from some articles. body or other authority The contract stipulates the qualitative standards that the service should meet. The various costs that are taken into The Railway Regulating Committee does These standards are foreseen in Annex account when calculating the adequate 10. Duration of public service not interfere with the process of granting VI of the contract and are negotiated and level of compensation to be granted contract and monitoring public service contracts. agreed upon by both parties. They mainly for the discharge of PSO include, relate to punctuality, comfort, security as inter alia, costs related to staff, energy The contract with the central government The only authorities involved are the well as customer care and are assessed charges, infrastructure access charges, was initially signed for a two-year period Ministry of Public Works and the Ministry against an index of perceived quality and maintenance and repair of vehicles, rolling regarding the provision of services from of Economy and Finance. satisfaction levels. stock, necessary installations for operating 2013 until 2015. An extension of the passenger transport services as well as said contract was agreed between Renfe depreciation and other financial costs. Operadora and the Ministry of Public 8. Calculation of the level of Works for 2016 and 2017 A new contract compensation is currently being negotiated that will 9. General payment conditions enter into force in 2018. The compensation for the public service obligations is established in the contract The general payment conditions are between the Government and Renfe established in the contract signed 11. Rolling stock Operadora according to Regulation between the Government and Renfe 1370/2007 and the Agreement of the Operadora. Payments take place on a Renfe Viajeros, S.A. operates public service Council of Ministers. yearly basis, once the annual accounts transport with its own rolling stock. are closed and audited. The public service contract that was The average age of the rolling stock concluded with the central government According to data from 2016, the used for the discharge of public service includes public service obligations for degree of compensation granted for the obligations is 23.7 years old. In more different types of services covering discharge of the public service obligation detail, 14.6% of Renfe’s fleet is over 30 regional traffic, mid-distance and fully covered all the relevant costs years old, while 45.2% is under 20 years commuter traffic Cercanías( ), as well as incurred. old and 34.6% is under 10 years old. parts of the high-speed long-distance network. Naturally, the contract foresees There is a penalty system established Finally, it should be noted that there accounting separation obligations that that foresees a decrease in the level of are no plans for additional purchases or ensure fair remuneration for each type of compensation in case of non-observance refurbishments in the near future. service. of the stipulated qualitative criteria.

The compensation consists in a direct Finally, it should be highlighted that the financial influx as well as exclusive rights. Passenger Rights Regulation (EC) No

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1. Organisation of public service for tendering non-commercial competitively tendered by regional operation in Sweden services crossing regional borders. public transport authorities, which This included both ferry and railway are the contracting parties. However, In 1988, all train operations were services. After 2011, the tasks of local PSO contracts, e.g. the tendered Sweden separated from the infrastructure Rikstrafiken were integrated into the contract for Stockholm’s commuter trains management and thus two separate new government agency Trafikverket (MTR Pendeltagen), face competition legal entities were established: SJ as (the Swedish Transport Administration, from operators offering long-distance the railway operator and Banverket a merger of the previously separate services on a purely commercial basis. In as the main infrastructure manager. Road and Railway Administrations), Stockholm’s case, this is of course justified Sweden’s regulatory reforms in the primarily in charge of road and railway by the fact that Stockholm is the national railway sector were started with the infrastructure. railway hub. However, similar examples transfer of responsibility for unprofitable are a reality in other urban areas in local and regional railway lines to the The main objective for merging three Sweden. It is worth noting that the vast Public Transport Authorities (PTAs) of agencies (Rikstrafiken, Vägverket and majority of passengers transported under the counties. These two fundamental Banverket) into one (Trafikverket) was public service obligations – almost 50% – changes made it possible to put the first the possible synergies stemming from use Stockholm’s commuter train. non-commercial contracts out to tender planning and implementation of road in 1989-1990. Since then, the Swedish and railway infrastructure construction The market for commercial passenger railway system has undergone a complete and maintenance. The restructuring was railway traffic has been completely open adaptation to the liberalisation process. also part of the government’s ambition to competition since October 2010, with to reduce the number of central- full effect from December 2011 as a Passenger rail traffic has been government agencies. consequence of the time-tabling process. progressively deregulated in Sweden since 1990, when it became possible Even though Regulation (EC) No Public service operations are organised in for regional authorities to procure 1370/2007 has a direct effect in the Sweden both at national and at regional train services through competitive Swedish legal system, a Government Bill level. tendering. Until that point, the state- was adopted in 2010 setting up the new owned incumbent operator SJ (Swedish Law on Public Transport (2010:1065). At national level, the Swedish Transport Railways) enjoyed a monopoly over the This law came into force on 1 January Administration (Trafikverket) is in charge entire passenger market. Following the 2012 and thereby superseded the of public service operations dealing, in entrance and establishment of private Law on Responsibility for certain principle, with long-distance traffic. operators in regional traffic, tendering Public Transport (1997/734). Further of non-commercial long-distance lines amendments to other related texts were Certain night train operations mainly started in 1993. also introduced in the course of 2010. covering lines connecting the south and the north of the country are the Between 1999 and 2010, the state Currently, local and regional railway only contracts still tendered by the agency Rikstrafiken was responsible services (as well as bus services) are central government, currently through

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Trafikverket. In addition, Trafikverket operators have been active on the market a wider geographical area. However, this Another example of PTAs grouping provides some central-government for tendered services. development has ultimately shaped the together their activities is the financial support to some of the contracts various local commuter traffic bundles Öresundståg (Malmö Copenhagen area) tendered by the regions. This includes The tasks of the regional PTAs consist in: into de facto monopolies, moving the operation, a cross-border operation Norrtåg, Öresundståg, Mälab and Tåg i Swedish policy framework towards de between Sweden and Denmark. Bergslagen, all providing train services • defining local/regional traffic in the best facto PSO-based systems for regional and The network covers a route of 854 through two or more counties. interest of citizens; shorter inter-regional traffic. kilometres (531 miles) of railway and • awarding and managing public service is tendered by Öresundståg, which is Trafikverket operates under the aegis contracts. One pertinent example of this new state a cooperation between eight different of the Ministry of Enterprise and of play is a recent decision adopted by PTAs, Blekingetrafiken, Hallandstrafiken, Innovation. In terms of railway traffic its The PTAs play an important role on the Mälab, a company owned by the five Kalmar Länstrafik, Länstrafiken tasks consist in: market as they conclude public service counties in the region of Mälardalen Kronoberg, Skånetrafiken, Västtrafik contracts. In that course, they often that handles regional traffic. SJ AB has and DSB. • defining the long-distance traffic that provide operators with the rolling stock been offering regional services on a falls under a public service obligation; for the services required. commercial basis – receiving only a small The trains are operated by DSB Øresund • regulating non-commercial long- subsidy in order to deliver more frequent in Denmark and Transdev in Sweden. distance traffic in the field of rail, sea Some regional PTAs have grouped their services – in that region for over 20 Passengers can purchase their tickets and air travel; services to create larger networks years. After 2012, when the domestic in both countries. On the Danish side, • awarding and managing contracts of an inter-regional nature. They market, including both commercial and trains stop often, about every 4 km, like a concluded with railway undertakings. subsequently tender the services in non-commercial services, was fully commuter train. On the Swedish side, the cooperation and enjoy joint competence opened to competition, Mälab, instead trains stop less often and they function At regional level, the regional PTAs over the contracts. At present Mälab, of negotiating a deal with the incumbent more like intercity trains reaching (Regional Kollektivtrafikmyndighet) are Värmlandstrafik, Tåg i Bergslagen and or with another operator, as would have stations about 300 km from Copenhagen, in charge of local/urban and regional Norrtåg are run as concessions, receiving been expected, ordered its own trains such as Gothenburg, Kalmar and public service traffic. According to the financial support from the central with the objective of offering competing Karlskrona. Most travellers in Sweden new Law on Public Transport, which government and providing services of services for the same regional traffic and use the service as a regional train for came into force in 2012, the regional a wider scope, spanning two or more increasing the service supply. Possible work commuting and shorter journeys. PTAs are more closely linked to the counties. risks for the viability of the commercial Accordingly, local monthly passes are also regional political bodies. In addition, the services that are currently provided issued. implementation of a complementary Act This form of cooperation has substantially stem from Mälab’s alleged leeway to allowed for commercial operators (bus increased recently. It allows for a wider offer services below cost by beefing up Three trains per hour – in each direction and/or rail) to penetrate the local and region to be covered by the PSO contract, ticket revenue with taxes. However, the – use the Øresund Bridge, reaching up regional markets for passenger transport, including both local and cross-regional new trains on order will not be operable to six trains per hour during rush hours. complementing and competing with the traffic. Furthermore, administrative before 2019. In the meantime, SJ AB has Each train consists of up to three sets services procured by the new agencies. burdens are allocated between various been awarded the contract for continuing coupled together, creating 237-metre- However, it should be noted that up authorities, since the railway undertaking operations based on the current platform long trains with 588 seats, thereby until now basically no privately-owned operating the services will be in charge of until 2020. providing a capacity of 1 764 seats per

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hour. Increasingly, this is turning out companies have entered the market. • Arriva Another reason is that passengers prefer to be insufficient and people have to These are typically offering competing • /A-Train AB to travel by lower-speed subsidised local stand up during rush hours travelling services with SJ AB at lower prices, • DSB Uppland AB trains, which are relatively cheaper than to Copenhagen in the morning and mainly using older and lower-speed • Svenska Tågkompaniet AB the faster ones. Another repercussion, Malmö in the afternoon. The differences rolling stock. The first operator that • MTR Express AB is that the increased journey time (since in salaries and house prices between penetrated the Swedish market was • MTR Pendeltågen these trains are slower and have many Copenhagen and Malmö have rendered Transdev (previously ) on the route • Transdev Sverige AB stops between end points) creates an cross-border commuting more between Stockholm and Malmö. • Skandinaviska Jernbanor AB/Blå Tåget economic loss from a socio-economic attractive. However, the trains cannot • Tågåkeriet i Bergslagen AB aspect. be lengthened due to platform length In the early stages of the transition • SJ AB constraints. Initially, the number of trains from subsidising SJ AB, which enjoyed a • SJ Götalandståg was limited to three per hour in each legal monopoly over all commercial and • SJ Norrlandståg 3. Definition of public service direction since they had to reverse at non-commercial domestic services, to • Snälltåget requirements Malmö Central Station (Malmö C) due establishing a competitive open-access to restricted capacity. This restriction regime through the organisation of In case of overlapping commercial and Public service obligations awarded by has been removed by the opening of the competitive tenders, SJ AB won most non-commercial services, the regions the state or by the regional authorities Malmö City in 2010. Still, some of the tendered contracts. SJ AB has have to adapt their strategy to the are mainly limited to tariff obligations, stations restrict capacity because there subsequently changed its strategy and prevailing market conditions and thus quality requirements and traffic are only two tracks shared with other no longer competes for all contracts. offer more competitive prices. This type volumes. trains (mainly Triangeln, Kastrup Airport Another new trend is that companies of competition however might lead to and Nørreport). As a consequence, set up subsidiaries for some of the distortive market results. The qualitative criteria that need to increasing frequency beyond six trains contracts, one example being Västtågen be met are defined by the procuring per hour is not possible. in Göteborg, which is operated by an SJ On a macro level the result is that the authority and constitute prerequisites AB subsidiary. The contract was awarded new public transport, when subsidised, for placing bids in tenders. Such criteria in 2015 and will be running for a nine- renders commercial transport usually relate to punctuality, cleanliness 2. Operators on the market for year period. competition unprofitable. and staffing. public passenger service transport Most passenger service operators in One reason is the extended number of SJ AB is the state-owned passenger rail Sweden are owned by state agencies trains in off-peak hours that provide rigid 4. Scope of public service transport operator. The former Swedish State from Sweden, Germany, Denmark schedules with one or two trains per hour. by rail Railways split into several company and France. Only a small number of For instance, the Stockholm – Uppsala groups in 2001, and SJ AB became operators of passenger services are line is now operated with 80 trains per Urban, suburban, regional or inter- responsible for passenger traffic. privately owned, currently only Tågab, day, compared to the nearly 40 trains that regional traffic, which cannot be run Following the step-by-step market- which does not operate on non- used to run this line a couple of years ago. under normal commercial terms (i.e. opening of the passenger rail market, commercial lines. Examples of operators As a result all operators now have less without subsidies), may be contracted which began in 1990, approximately ten in Sweden: passengers on each train. out in a public service contract.

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In numerical terms, the passenger It is worth noting that approximately 45% 6. Awarding of public service was, apparently, over-optimistic and railway traffic reckoned 12 373 million of PSO contracts are funded through contracts quality quickly deteriorated, thus the passenger-kilometres in 2015, which income from taxpayers in the regions. joint Swedish-Danish PTA had to tender a were operated by 963 916 trains. On Public service transport is normally new more expensive contract. Under this a more general note, 70% of the total organised by the region following contract, Veolia took over the service in passenger railway traffic, calculated in 5. Contract a tender process. Direct award December 2011. train-kilometres, was covered by public is possible, however in practice service obligations. 1 In general, individual contracts are being very unusual as public service PSOs are normally put to tender either concluded for different modes of public contracts are continuously being by the Swedish Transport Administration There is an ongoing project called the transport. Therefore, heavy rail transport granted through a public tendering or by the regional PTAs, thus all railway Doubling Project, seeking to double is dealt with separately from other modes procedure. undertakings are entitled to place a bid. travelling by public transport (all modes) of transport. by 2020 and in the long-run to double The contracting authority has the the market share. Contract design and According to the norm there is only one obligation to clearly state in advance 7. Contract negotiation incentives are discussed as important contractor in each region operating the and in a transparent manner the elements of reaching these goals. This requested local/regional rail services, criteria according to which the In practice the public authority launches project involves representatives of which may consist in a single line or a contract will be awarded. The price a public bid for a specific route or both the tendering authorities and the network of lines, sometimes reaching proposed by the competing bidders network of routes that stipulates the operators. The objective of doubling the into other counties. Long-distance rail is usually the most important relevant quantitative and qualitative traffic will possibly be achieved by the services are usually tendered line by criterion. criteria. Interested railway undertakings mid-2020s. line with separate contracts for each submit their offers for the transport line. Currently, the night train services There have been cases of appeal services requested. On a more general The subsidised local and regional from Stockholm to northern Sweden against the awarded contracts, inter note, the competent authority sets the transport has seen an increase in the constitute the only long-distance PSO alia questioning the way in which requirements and applicants submit their number of passengers. Between 2007 organised centrally by the state, i.e. the quality has been measured. bid; thus there is not much leeway for and 2014 the increase was 18.8%. agency Trafikverket. negotiations. An example of an unrealistic bid The state-owned operator SJ AB VAT is applied to this commercial relates to Öresundståg, a train Contracts for local and regional rail operates about 30% of the tendered rail contract. It is, however, a reduced level operating between the eastern services are generally of the ‘gross’ traffic services measured by turnover. of VAT at 6%, which can be recovered Danish island Seeland and Sweden’s contract type, compensating the operator MTR is a new entrant and covers a afterwards by the payer. southern region using the Öresund for its costs (with some margin) but with significantly large part of the PSO Bridge, which was tendered around no revenue-sharing. On the contrary, traffic compared to its peers. MTR was The diversity and the abundance of the 2008. A consortium consisting of contracts for long-distance services recently awarded the PSO commuter ongoing contracts, makes it very difficult the incumbent Danish operator DSB are usually stipulated as ‘net’ contracts, services in the Stockholm region – the to define their common threads and thus and the private entity FirstGroup meaning that the operator can also largest PSO contract in Sweden. reach general conclusions. won the contract. The winning bid accumulate revenues from ticket fares.

1 According to data from the European Commission’s Fifth RMMS Report (December 2016), the relevant percentage calculated in passenger-kilometres is 50%.

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Sweden

Domestic passenger traffic has been • staff; Railway undertakings determine the penalty system is foreseen in case the opened to on-the-track competition • energy; price they consider adequate in order requisite level of quality is not met due since October 2010 (with full effect • infrastructure charges; to cover the costs incurred for the to deficiencies in infrastructure. The from December 2011). Following • maintenance and repair of vehicles discharge of the PSO. underlying rationale is the unlikelihood the adoption and implementation of (daily maintenance only). of being properly indemnified by the the new public transport legislation Finally, a ‘reasonable profit’ can be infrastructure manager, while it is de facto in 2012, any operator has the right Sweden’s infrastructure manager foreseen in the contract. However impossible to get compensation from to freely start a new local or regional Trafikverket is a non-profit state agency, this will entirely be a result of how the a third party. However, the Swedish commercial line, i.e. the regional public operating under the Ministry of Enterprise railway undertakings have calculated government is finalising the transposition transport authorities will no longer and Innovation. Commercial and non- their bids, depending on the costs that of CUI rules on the right of recourse into be able to block such entry. It should commercial operators are treated equally occur, and thus cannot be taken for national law. also be noted that no exclusive rights in terms of track access charges. In more granted. are granted, thus allowing for ‘cherry- detail, the basis upon which the track It should be noted that the Passenger picking’. A recent example would be the access charges are being calculated covers Rights Regulation 1371/2007 is fully case of MTR, which in 2015 initiated merely marginal costs and includes a fair 9. General payment conditions applicable in Sweden. open-access inter-regional long- assessment of the following components: distance services between Stockholm When the contract is concluded and Gothenburg. Following a tendering • costs for wear and tear of tracks; per following a public tendering procedure, 10. Duration of public service process, MTR was then awarded a gross tonne-kilometre; the level of compensation has to be contracts ten-year concession with an option for • emission charges; per litre of diesel fuel; agreed in advance. a four-year extension to operate on the • track use charges; per train-kilometre; Generally speaking, the public service suburban commuter network serving • time and location-specific charges. Payments are made regularly most contracts for railway services are the Stockholm area with effect from commonly through monthly instalments, concluded for a duration ranging between December 2016. Revenue from passenger services in a frequency that is considered to be 5 to 10 years, with an option to extend 2016 was estimated at SEK 1 083 million satisfactory. the contract for another 1 to 2 years. and from freight at SEK 519 million Such durations are acceptable provided 8. Calculation of the level of (altogether SEK 1 602 million), while In case of deficit stemming from the that the authorities do not require any compensation costs for maintenance and operations operation of the PSO, the national investment in new vehicles. amounted to approximately SEK 9 000 or regional authorities will not be The level of compensation of public million. In total, close to SEK 10 000 called on a posteriori to provide extra service operations varies from million was invested. The balance is compensation. This is part of the risk 11. Rolling stock line to line and service to service. covered by the public budget. railway undertakings are deemed to Renegotiation of the level of take when operating public services. All commercial train operators either compensation is very unusual. Normally there is a ‘bonus/penalty’ own or lease the rolling stock that is system based on performance regimes Contracts usually contain a penalty required for the provision of the relevant Costs typically taken into consideration that is stipulated in the contracts for use system linked to the quality criteria services. Each of the PTAs tendering relate to: of infrastructure. to be met. An exemption from the railway services was originally the owner

136 CER - The Voice of European Railways Public Service Rail Transport in the European Union: an Overview

of vehicles required for supplying the 12. Involvement of the regulatory 1. Organisation of public service services. In 1999, most PTAs franchising body or other authority operations in Switzerland railway services set up a jointly owned subsidiary – Transitio AB – for the The Regulator is not particularly Even though Switzerland is not an EU purchase and ownership of rolling stock. involved in the process of public service Switzerland Member State, it does ensure that its Today, this organisation partly leases, contracting. The Government and the legislation is equivalent to that of the partly purchases rolling stock by way of Parliament are charged with the task of EU in all those fields for which bilateral commercial loans. delineating the general framework for agreements have been concluded. public service ; while, The Overland Transport Agreement is Each regional PTA is charged for leasing local and regional PTAs subsequently one of the seven bilateral agreements the vehicles from Transitio on a cost specify the type of services to be of 1999 (Bilateral I), which aim at recovery basis. Leasing charges may procured (and how) in their regions. integrating Switzerland into the EU be adjusted if and when conditions internal market. Since the agreements for Transitio’s debt/leasing conditions are based on the equivalence of the laws are changed. Besides benefiting from on both sides, it is in the interest of both scale economies in standardisation parties to maintain this equivalence and purchase of vehicles, the company when there are developments in the also handles its own heavy vehicle law covered by the relevant agreement. maintenance, owns spare parts and holds It is generally necessary to adopt a couple of vehicles of each brand as a developments in relevant EU law backup. (acquis communautaire) in order to maintain equally competitive conditions Most of the fleet used in the procured (for example avoidance of technical long-distance traffic is rather old (even barriers to trade). The agreements beyond 30 years old). However, as these and their further development are vehicles have been ‘reconditioned’ administered in collaboration between and modernised rather recently, they the European Commission and the Swiss may not be considered as old by the government, on the basis of at least one passengers. annual meeting of the so-called mixed committees. Almost the entire fleet of vehicles used in the procured local and regional The general legal framework for public services is newer than 20 years old and transport has been largely reformed in a considerable part is newer than 10 the past decade. The latest revision of the years old. legal framework (the so-called Second Railway Reform, second package), which

CER - The Voice of European Railways 137 Public Service Rail Transport in the European Union: an Overview

Switzerland

came into force on 1 July 2013, aimed at between the federal authorities and the 2. Operators on the market by the Swiss government (22%) and bringing the Swiss law more in line with decentralised ones (the Cantons). The for public passenger service the canton of Berne (56%). BLS is the the ‘acquis communautaire’. basic principles are the following: transport sole operator on the Berne S-Bahn, Switzerland’s second-biggest S-Bahn The organisation of public services • Federal authorities determine the There are several fully integrated after . Overall, the BLS passenger is regulated by a whole set of laws general transport policy for the country companies (passenger/freight services and services, including regional express applicable either to the entire sector or and participate in the financing of infrastructure provision) in Switzerland. services as well as regional services more specifically to SBB: public service operations in regional Currently, 12 railway undertakings supply in the Bernese Oberland and , transport. The federal contribution PSO services on the standard-gauge operate on a network of around 700 Applicable to the entire sector: to the financing varies on a case by network (4 of them also on the narrow- km. In 2016, BLS transported 57.8 case basis. The federal authorities gauge network) and a further 29 solely on million passengers on its trains. The • Railways Act of 20 December 1957 are also responsible for awarding the the narrow-gauge network. traffic performance amounted to 981.3 (RailA) – last version in force since concession for the national long- million passenger-kilometres. 1 January 2017; distance transport services. • SBB is by far the largest railway • Federal Act of 20 March 2009 on • Cantons are the leading authorities in company fully owned by the Swiss • SOB operates a major part of the St. passenger transport (Passenger negotiating and concluding – together government. Since 2010, the passenger Gallen S-Bahn and the regional express Transport Act-PTA) – last version in with the federal authorities – public division of SBB holds an exclusive service between St. Gallen and force since 13 September 2016; service contracts with railway concession for long-distance passenger (Voralpen-Express). It is owned by the • Ordinance of 4 November 2009 on undertakings in regional transport. transport valid until 2017. In numerical Swiss government (36%), the canton Passenger Transport (PTO) – last terms, SBB is in charge of providing of St. Gallen (19%), various different version in force since 1 July 2016; According to the law, the competent 64% of the whole passenger rail cantons and communes (totally • Ordinance of 11 November 2009 local authorities (Cantons/Cities) can traffic, covering both long-distance 30%) as well as private individuals or on Subsidies for Regional Passenger decide to award public service contracts and regional traffic. In the regional institutions (15%). SOB transported in Transport (RPTSO) – last version in on the basis of a competitive tendering passenger transport market, SBB is the year 2015 13 million passengers. force since 1 January 2016. procedure, but in practice this possibility responsible for approximately 43% of The traffic performance amounted to has not been used yet. In the year 2000, the market, with the S-Bahn Zürich 251.1 million passenger-kilometres. Specific to SBB exclusively: one call for tender was initiated, but being by far the largest regional cancelled after the awarding authority network in Switzerland. In 2015, On a more general note and on the • Federal Act of 20 March 1998 the reached the conclusion that the the total traffic performance of SBB basis of data from 2015, Swiss public (SBBA) – last corresponding service did not qualify as amounted to 13 226 million passenger- passenger railway services provided version in force since 1 January 2016. a PSO. Nonetheless, it is worth noting kilometres in long-distance and to 20 389 million passenger-kilometres, that 57% of the market share in regional 4 105 million passenger-kilometres in 13 225.6 million passenger-kilometres Public service operations are organised transport services (measured in train- regional passenger transport services. for long-distance services and 7 163.7 both by centralised and decentralised kilometres) is operated by other railway million passenger-kilometres for regional authorities acting jointly. In practice, undertakings than SBB, such as BLS, SOB • BLS AG (BLS) is the second-largest services, transporting 566.1 million there is a clear allocation of competencies (South-Eastern Railways) or Thurbo. fully integrated company owned partly passengers in total.

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Switzerland

3. Definition of public service impact. The federal Act on passenger national train-kilometres, are actually revenues. The estimated revenues are requirements transport comprises the possibility that the organised through an all-encompassing based on the demand estimations and Federal Office of Transport can withdraw concession in which service obligations, the Swiss through-ticketing fare system Public service obligations are defined in the concession in case the concession like the minimum level of services per defined by the Swiss Public Transport different concession contracts concluded owner does not meet the public service line, are imposed. It is currently granted Operators’ Association. for specific transport routes. These requirements defined in the performance to SBB. The Swiss federal administration obligations include: contract or the obligations of the can award a concession for a new It should be noted that the actual concession in essential respects. long-distance service to other railway concessions for rail transport services • service schedule and companies, as long as this new service has within a specific perimeter are delivered • frequencies; In addition to these criteria, SBB has no negative economic impact on existing by the Ministry of Transport based on the • quality criteria; introduced monthly quality reporting, long-distance and regional services. applicable legislation (PTA), specifying • obligation to participate in the ‘direct the content of which can be adapted on a the rights and obligations linked to the service’ (national fare/distribution local basis. In Switzerland, independent international exclusive rights. network with commonly determined rail services are de facto not provided. prices including compulsory discounts Instead, they fall in the realm of national Strictly speaking, the contracts only cover for specific social groups). 4. Scope of public service transport services – covered by a PSO – having an transport by rail. However, cooperation by rail international extension which is operated with other modes of transport (integrated Quality criteria are a key component of by one of the neighbouring incumbents mobility solutions) is well institutionalised public service contracts (punctuality, The entirety of rail passenger transport and/or regional partners. In 2015, there and part of the trans-modal objectives cleanliness, security, customer services is organised through concessions were only a few – rather small – cross- that are set at Federal level. The information, etc.) and constitute an and covered by public service contracts. border PSOs. different public transport companies important element of the negotiation, as The federal government is competent for (rail, bus, , etc.) are legally obliged quality has a price. awarding the concessions. to cooperate. They have to harmonise 5. Contract for example ticketing, distribution and The Transport Ministry has elaborated Regional and inter-regional services are marketing operations. This framework is minimum quality standards (key organised through contracts concluded Public service obligations in regional called ‘Direkter Verkehr’ (direct traffic). parameters) and recommends their with the federal government and the transport are organised through the integration into public service contracts cantons, acting jointly. In total, 64% of conclusion of commercial law contracts Some specificities apply to SBB exclusively. on a nationwide scale. train-kilometres are provided under freely negotiated between the parties to The Federal Council (as the owner of regional transport services. As regards the contract, i.e. the cantons concerned, SBB) defines in its ownership strategy the The level of key performance indicators the level of competition, 57% of this the Confederation and the railway overall political and strategic objectives (KPIs) relating to quality standards is traffic is provided by other railway undertaking. In practice, the railway for SBB, including the public service thoroughly discussed with Zürich Transport undertakings than SBB. undertaking submits to the cantons objectives for the upcoming four years. Authority and the cantons involved in concerned an offer for the services ordering the regional S-Bahn of , as in National long-distance transport requested containing the estimated Overall, most of the PSO contracts in these two cases they have a direct financial services, which represent 36% of costs of the service and the estimated Switzerland run for a ten-year duration.

CER - The Voice of European Railways 139 Public Service Rail Transport in the European Union: an Overview

Switzerland

Their content is in line with the spirit of In public service transport by road, • the level of passenger services required transport is by achieving higher revenues Regulation (EC) No 1370/2007. The all- however, tenders have been applied in by passengers themselves; or by lowering production costs, encompassing concession for long-distance about thirty cases. Bus services have to • the leverage on the correlation compared to the initial costs assumed traffic will expire by the end of 2017. In be tendered in the cases of a new service, between the costs of the obligations in the negotiated contracts. Two-thirds January 2017, the federal authorities when the public service requirements required and the level of compensation of this profit has to be reserved to issued a guideline containing criteria as well are not fulfilled by the existing provider provided; compensate possible future losses, as as a target vision for long-distance traffic. or if there are credible indications of • purchasing of new rolling stock; long as the reserve is lower than EUR 10 The guideline serves as an input document qualitatively better and/or more efficient • marketing requirements; million or half of the annual turnover. for the next PSO contract which is subject offers. • the level of customer information. to ongoing discussions. Unlike today, a split The calculation of the overall costs for the of the concession is being considered. Fulfilment of the aforementioned criteria service in question as a whole is based 7. Contract negotiation is assessed on an annual basis by the upon the following costs: competent authority, which reviews the 6. Awarding of public service Public service contracts are freely reports provided by SBB and conducts • on-board staff (driver and other mobile contracts negotiated between the parties to the various checks, i.e. mystery shopping, staff); contract, i.e. the relevant canton and customer surveys etc. It is worth noting • railway police (safety and security); Swiss legislation provides for the the railway undertaking. In practice, that the S-Bahn services in Zürich and • cost generated from the rolling stock possibility to grant public service contracts the railway undertaking submits to the Basel have been distinguished for their (amortisation and interests 1); through a public tendering procedure. canton (responsible competent authority) outstanding performance. • shunting services; an offer for the public service obligations • assistance to passengers with reduced Concerning regional railway transport requested, containing the estimated mobility; services, the cantons remain free to costs of the service and the estimated 8. Calculation of the level of • distribution: sale services (staff, offices); decide whether to tender or to directly revenues. The estimated revenues are compensation • charges for the use of the infrastructure award a public service contract. Since based on demand estimations and the (track access charges); 1996, date of the introduction of Swiss through-ticketing fare system The level of compensation for public • administrative costs for the this possibility into the legislation, no defined by the Swiss Public Transport service contracts in regional transport management of the public service contract for public services in the railway Operators’ Association. is determined in the contract prior contract; sector has been attributed through a to its effective implementation. The public tendering procedure. If a railway The railway undertaking can be the compensation is the result of the The calculation of the overall revenues undertaking submits an offer for an driving force for the extension or the difference between the foreseen costs generated by the service will be based on existing service in case of a renewal of introduction of new services. All aspects and the expected revenues. The railway the following production data: a concession, the canton in charge and of the contract are discussed in detail. A undertakings are not allowed to include the Federal Department of Transport special focus is provided on discussions a profit or equity yield rate into their • seats offered-kilometres; have to examine this offer before directly relating to: PSO contracts. The only possibility to • passenger-kilometres; awarding the service. • qualitative criteria; make a profit in PSO services in regional • gross revenue per passenger-kilometre.

1 No reserve is provided for the renewal of rolling stock. The rolling stock is however the property of the railway undertaking.

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Switzerland

Optionally and on a case-by-case basis, or cantonal authorities. The only means Contrary to many EU Member States, 10. Duration of public service other costs can be included, such as to compensate potential deficit is the quality of the infrastructure is not contract marketing costs, publicity of specific time through a special fund that will have an issue. Long-term public transport schedules, etc. been constituted by any savings made on policy has constantly been oriented Concessions are normally concluded for previous contracts. Any deficit that may towards massive investments in the a ten-year period, which in the case of Costs incurred for public service not be compensated by the special fund infrastructure. The issue of concern in regional transport services is divided into contracts for regional services are will have to be covered by the company Switzerland is more that of availability biennial service agreements. The ten- compensated through a system of itself. of train paths, since, given the size of year framework agreement is however mixture between direct financial influx the country, the network is largely felt to be too short when the railway and the granting of exclusive rights. The PSO costs and their correspondence saturated. The SBB network shows the undertaking has to make important principle is the following: with the degree of funding capacity highest capacity utilisation worldwide. investments in new rolling stock for which made available by the regional With 100.3 trains per kilometre of amortisation can take between 20 to 30 • The contract is concluded for one or authorities are reviewed on a biennial normal-gauge main-line track per day, years. several specific lines throughout a basis. SBB according to UIC is top of the specified period of time. international ranking. The complex • Exclusivity is granted to the railway The concession for long-distance traffic form of mixed traffic is a big challenge 11. Rolling stock undertaking allowing it to run profitable is, however, only compensated through for operation and maintenance of the services during the said period of time. the granting of exclusive rights. Under Swiss rail infrastructure. The rolling stock used in public service Revenue generated by these profitable Swiss law, long-distance traffic is to be contracts is owned by the operator in services is passed onto the costs of autonomous from a financial perspective. There is a bonus/malus system question and is financed through the the other non-profitable services run This explains the absence of any established measuring the degree of public service contract. during the rest of the day. financial flows. Therefore, the revenues fulfilment of the stipulated qualitative • A calculation of the total costs incurred generated through the exclusive rights criteria, i.e. punctuality, customer Renewal and refurbishment activities (after deduction of revenue generated) must be sufficient to cover the costs of information, cleanliness etc. A bonus take place on a continuous basis. In long- constitutes the amount for which the railway undertaking’s operation of is granted for positive performance distance traffic, SBB, bears the associated financial compensation will be asked. long-distance traffic. and a malus for negative performance costs, while the public service contract accordingly. covers the depreciation of rolling stock The general rule is that of ‘net’ contracts, for regional traffic. i.e. contracts for which the risk is borne by 9. General payment conditions On that point, it should be noted that the operator. The level of compensation the Passenger Rights Regulation has The rolling stock used by SBB for the can be re-negotiated only after a two- The effective payment is made by regular not yet been transposed into Swiss discharge of the PSO is relatively new year period. instalments at pre-determined intervals, law, which is an ongoing legal process; and can be divided into the following as foreseen in the contract itself and it does however apply to international classification: Indeed, any deficit on the service will not is not subject to VAT. This is usually tickets sold by SBB. be compensated a posteriori by national provided on a quarterly basis.

CER - The Voice of European Railways 141 Public Service Rail Transport in the European Union: an Overview

Switzerland

Traction vehicles (531): • Before 2000: 1% • 2000-2009: 58% • 2010 and later: 41%

Coaches (2 292, including driving trailers): • Before 2000: 71% • 2000-2009: 14% • 2010 and later: 15%

12. Involvement of the regulatory body or other authority

Under the current legal framework in Switzerland, the Railways Arbitration Commission is not involved in the awarding of public service contracts, in respect to the corresponding concessions. Awards of concessions are subject to appeal to the Federal Administrative Court.

In light of the revision of the Railways Act in the context of the second step of the Second Railway Reform, the Railway Arbitration Commission has been substantially strengthened. It actively monitors network access and track access charges to check that they are free from discrimination.

142 CER - The Voice of European Railways

The Voice of European Railways

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