_ü_ ROYAL NORWEGIAN MINISTRY OF TRANSPORT AND COMMUNICATIONS

EFTA Surveillance Authority (ESA) Rue Belliard 35

Your ref Our ref Date: 11/1708 29.01.2013

Service concessions for the supply of passenger transport by bus in the county of Aust-

Dear Sir/Madam.

Reference is made to the EFTA Surveillance Authority's (the Authority) letter of 29 November 2012, the Reasoned Opinion of 27 June 2012, and to the reply from the Norwegian Government of 11 October 2012. Further reference is made to previous correspondence in the above mentioned case. Reference is also made to the discussions between the Norwegian authorities and the Authority at the Package Meeting in Oslo on 26 October 2012.

The Government is pleased that the Authority, following the recognition of the breach of EEA-law from Norway in this case, expresses its hope to reach a mutually satisfactory outcome. The Norwegian Government shares this goal.

The Government respectfully submits that there is no obligation to terminate the public service concession contracts in this case. Arguments to this effect were presented under Section 2 in the Government's letter of 11 October 2012 and will be further explained in Section 1 below.

As requested by the Authority in its letter of 29 November 2012, a description of the negative consequences of a termination of the contracts will be given, cf. Section 2.

As described in Section 3 below the Government has already taken measures as a consequence of the relevant breach of EEA-law. Further measures will be taken.

Postal address Office address Department of Public and Rail Our officer PO Box 8010 Dep Akersg. 59 Transport Anne-Iise Junge Jensen 0030 Oslo +47 22 24 81 29 http://www.sd.dep.no/ [email protected] Telephone +47 22 24 90 90 Vat no. 972 417 904 In section 4 the Government will comment on the Authority's proposals for amendments in Norwegian law.

1. There is no obligation to terminate the contracts The measures described under Section 3 below clearly illustrates that the Norwegian Government is fully committed to its EEA obligations in the field of public service concessions and that we take the breach very seriously. However, the Government is of the firm opinion that there is no obligation to terminate the contracts in question.

The Government considers that the Grand Chamber judgment in Case C-91/08 Wall is relevant to the case at hand. The fourth question from the national court clearly concerns the duties of the national authorities as a result of a breach of EU law, not the rights of individuals (para. 28):

"Are the principles and duties of transparency mentioned in Question 1 to be interpreted as meaning that in the case of service concessions, in the event of a breach of duty, a contract concluded as a result of the breach and intended to create or amend a continuing obligation must be terminated?"

This was also how the Grand Chamber interpreted the fourth question (para. 61):

"By its first, second and fourth questions, which should be.examined together, the referring court essentially asks whether the principles of equal treatment and non-discrimination on grounds of nationality enshrined by Articles 43 EC and 49 EC and the consequent obligation of transparency require the national authorities to terminate a contract entered into in breach of that obligation and the national courts to give a tenderer whose offer has not been accepted the right to a restraining order to prevent an imminent breach or to put an end to an existing breach ofthat obligation." [Emphasis added]

The Grand Chamber held that there is no general obligation for national authorities to terminate contracts in breach of the principles of equal treatment and transparency, cf. para. 65 (repeated in section 3 of the conclusion):

"It follows that the principles of equal treatment and non-discrimination on grounds of nationality enshrined in Articles 43 EC and 49 EC and the consequent obligation of transparency do not require the national authorities to terminate a contract or the national courts to grant a restraining order in every case of an alleged breach ofthat obligation in connection with the award of service concessions." [Emphasis added]

Both the wording of the question and the wording of the answer clearly indicate that the Grand Chamber considered this as a question of the obligations of national authorities, and that there is no general obligation to terminate contracts entered into in breach of the principles of equal treatment and non-discrimination.

The Government holds that there is no obligation to terminate the contracts in the present case.

Page 2 First, the relevant breach of EEA law concerns the lack of transparency - not an illegal direct award under the public procurement rules. The public service concession contracts in question could, at the relevant time, be awarded without any competitive tendering procedure, cf. Regulation No. 1370/2007.

Second, as noted by AG Bot in his advisory opinion in Case C-91/08 Wall, penalties in the field of public service concessions are above all intended to "ensure the proper functioning of the public services and to preserve the public interest which is to be met by the contract" (para. 142). This seems to rule out sanctions which jeopardize the proper functioning of the public services in question. In this case an obligation to terminate the relevant contracts might leave the people of Aust-Agder without a bus service, and thus not be compatible with the rationale behind such sanctioning.

Third, the public service concession contracts in the present case are all of a relatively short duration and, in a European-wide context, represent relatively small values.

Fourth, termination of the contracts would have serious adverse effects both for the County and the bus companies. This will be further elaborated on in Section 2 below.

The Authority seems to base an obligation to terminate the contracts in this case on the case against Germany, C-503/04 Commission v. Germany. However, as demonstrated above, the facts of the present case differ radically from the case against Germany, C-503/04 Commission v. Germany. That case concerned an illegal direct award under the procurement rules, which is considered one of the most serious breaches of the rules on public procurement. Also, the contract was concluded for a period of 30 years from 1999, which meant mat it would have continued to have effect for decades, cf. the judgment in the case C-503/04 para. 29. Nor did the case against Germany concern a public service concession, where as mentioned, the proper functioning of the public service is of primary importance, cf. AG Bot in case C-91/08 Wall para. 142.

Based on the above, the Government maintains that there is no obligation to terminate the public service concession contracts entered into by the County of Aust-Agder.

2. Negative consequences of termination of the contracts

In its letter of 29 November 2012 the Authority invited the Norwegian Government to consider the measure of termination more fully. In this Section the Government will give a description of some of the adverse effects of termination of the contracts.

As thoroughly described in the Government's letter of 11 October 2012 a termination of the contracts might have significant legal, economic, practical and societal consequences. The bus companies would oppose a termination of the service concessions, and they would probably demand full compensation for their economic loss due to a termination. The potential claims are high, and might influence the County's budgets in a way that may have implications on the services offered to the County's inhabitants.

Page 3 It is the firm view of the Government that a termination of the contracts is not a proportional measure weighed against the consequences the termination might have for the County, its inhabitant, the companies and for the users of public transport.

Termination of the contracts would have a negative impact on coordination across county borders (2.1) and for the process of entering into new contracts (2.2). It would risk disruption of the services (2.3) and have adverse effects on the companies (2.4).

2.1 Negative consequences for the coordination of services Several of the bus routes in question are coordinated across county borders:

• L/LSetesdal Bilruter - Evje - Hovden (Vest-Agder - Aust-Agder) - Äseral - Evje - Kristiansand (Aust-Agder - Vest-Agder) Iveland - Kristiansand (Aust-Agder - Vest-Agder) Engesland - Kristiansand (Aust-Agder - Vest-Agder)

• Birkeland Busser Birkeland - Kristiansand (Aust-Agder - Vest-Agder)

• Telemark Bilruter - - Ämli - Vradal - Fyresdal (Aust-Agder - Telemark)

• Nettbuss S0r - Arendal-Kristiansand (Aust-Agder-Vest-Agder) Lillesand-H0vag-Kristiansand (Aust-Agder - Vest-Agder)

o Kristiansand and Aseral are located in the County of Vest-Agder. Vradal and Fyresdal are located in the County of Telemark.

To illustrate the challenges as regards coordination of routes across county borders, the Government will describe the negative consequences for two routes:

Kristiansand - Evje - Hovden

The route Evje - Kristiansand is partly operated under the contract with the County of Aust-Agder, and partly under the contract with Agder Kollektivtrafikk AS (the County of Vest-Agder). The operation under the two contracts is closely integrated. The County of Aust-Agder covers 41% of the cost, while the County of Vest-Agder covers 59 % of the cost. Both agreements expire 31 December 2016 enabling the route to be tendered out as one contract in the future.

The present operation of the route is optimized. If the contract with Aust-Agder is terminated, the production might become more expensive. In some cases the

Page 4 termination may lead to the same route being operated by two different companies, implying that two bus drivers and two buses are needed to operate a route currently operated by one driver and one bus.

Arendal-Ämli - Telemark (Vrädal - Fyresdal)

The route Arendal - Amli -Vrädal - Fyresdal is currently operated by Telemark Bilruter AS.

The company also operates routes in the western part of Telemark under a contract with the County of Telemark until 30 June 2017. As far as the two different contracts have allowed for it, the company has coordinated the routes to make the operation as seamless as possible. This also entails coordination with other local routes in Telemark, and with express bus operations to Oslo and Vestfold.

Terminating the contract may lead to this route being operated by different operators, entailing potentially increased cost. The passengers may further need to change bus at the county border, and the travel time may increase if the passengers have to wait at the border for a connecting service.

2.2 Negative consequences for the process of entering into new contracts For the County the primary aim is to secure an adequate public service for its inhabitants.

The County has carefully considered the period for the relevant contracts in the process of planning the coming tender procedures for all public services in the county. The timing of the tender procedures is carefully planned to achieve the best possible process and to ensure competition. It is also necessary to coordinate the tender process with other contracts and services in neighbouring counties.

Putting all tenders out at once may also have other negative effects on competition.The county considers that a gradual opening of the market would lead to the most effective competition between potential operators. Accumulation of tenders might restrict competition, as operators may have difficulties taking part in several tender procedures at the same time. Given that the bus market in Aust-Agder as of today consists mainly of smaller enterprises, this is indeed a real concern. An accelerated competition could thus result in reduced competition and more expensive services, a situation neither the County, its inhabitants nor the operators are served with.

In light of the above, if the contracts were terminated, the County might consider entering into new contracts without a tender procedure, as allowed for in Regulation No. 1370/2007. Given the time frame, and the obligation in Article 7 (2) of Regulation 1370/2007 of publication one year before the contracts are entered into, new contracts following a direct award would apply until contracts following the tender procedure would be in place. Hence, a termination of the contracts perhaps 1-2 years before their

Page 5 expiry dates would lead to new contracts being awarded directly for the same period of time until the coordinated tenders were carried out.

2.3 Risk of disruption of the public bus services At least one of the companies has signalled that a termination of the contract might lead to an immediate termination of the service before a new operator is in place. Thus, there is a risk of temporary disruption of services. To ensure the continuation of services, the County's reaction to such a disruption would have to be an emergency measure in the form of a direct award in line with Article 5 (5) of Regulation 1370/2007. Furthermore, there is a risk that no other bus company will be able to conduct the service as from the date of the termination. Therefore, even if one applies the emergency procedure there is a risk of disruption of the service - a situation highly undesireable for the County.

2.4 Negative consequences for the companies The Government also considers that there is a risk that a termination of the contracts might lead existing operators to close down their business. With fewer competitors (or even only one bidder), the price for the services might increase, and the competition in the area may be reduced.

The bus companies are to a large extent dependent on the concession contracts. A termination might lead to big losses for companies that to a large extent have planned for and organized their businesses in confidence that the new situation with an opened market will occur after 2016. As described above the companies might also have difficulties in regard to the coordination of services under other contracts, thus risking further consequential injury.

2.5 General observations In the Government's view the consequences described above represent a risk unproportional to the possible advantages, taking into account that the contracts in question are all of a relatively short duration and, in a European-wide context represent relatively small values. Further, consequences should be weighed against the fact that the relevant breach of EEA-law concerns the lack of transparency - not an illegal direct award under the public procurement rules.

Considering the potential damage a termination of the contracts could have on the county and its inhabitants, as well as on the bus-companies and the users of public transport, and the limited effect a termination would have towards rectifying the breach of the EEA-Agreement, the Government finds that a termination of the contracts would not be a proportional measure to rectify the breach of EEA-law in this case.

Page 6 3. National and county specific measures

3.1 Europe-wide publication The county of Aust-Agder has already taken measures to ensure EEA-wide competition in the coming calls for tender for the contracts on public service by bus within its territory. The Governments respectfully asks the Authority to note that competition will be introduced in Aust-Agder well within the time limit of December 2019 as set out in Article 8 (2) of Regulation No. 1370/2007.

The intention to launch a tender procedure was published in the supplement to the Official Journal of the European Union (TED) on 26 September 2012. The full reference to the publication in the S-series to Official Journal is: OJ/S S187 28/09/2012 308310- 2012-EN L It is also sent for publication in the C-series of the Official Journal and the EEA Supplement thereto.2

To ensure a fair and open competition in the whole EEA, the County will, additionally, see to that the call for tender is published in relevant European public transport magazines. The aim is to ensure a sufficient publication so that potential public transport operators in Europe are aware of the tender.

The choice of magazines will be made after verifying which magazines reach out to the target group. The magazines may include:

• Mobility - The European Public Transport Magazine: hrtp.V/www.mobilitv- mag.com/fib/index.htm • Eurotransport Magazine: http://www.eurotransportmaRazine.com/ • Public Transport International: http://www.uitp.orfi/publications/public-transport- mafiazine.cfm

3.2 Information and training in the County The county of Aust-Agder will offer annual training for its staff on how to comply with EEA law when granting concessions, buying goods and services or granting State aid. The training will be given by external experts in the relevant fields of law. The training will include how to comply with the general principles of EEA law, in particular non­ discrimination and transparency.

The County will also attend training offered by the Government and Kollektivtrafikkforeningen3 (or others) in the same field.

1 See annex 1. The notice is also available here: http://ted.europa.eu/udl?uri=TED:NOTICE:308310- 2012:TEXT:EN:HTML 2 The notice for publication in the C-series of the OJ and the EEA Supplement was sent 17 January 2013, and will probably be published during February 2013. 3 http://www.kollektivtrafikk.no/

Page 7 3.3 National initiatives on information and training Regulation No. 1370/2007 entered into force in Norway on 1 January 2011, cf. the Norwegian regulation of 17 December 2010 No. 1673.

To make sure that all competent authorities are aware of the implications of that Regulation, the Ministry of Transport and Communications (the Ministry) published on 6 July 2011 Guidelines concerning the application of the Regulation addressed to all regional authorities with responsibility for providing local and regional public transport services in Norway, i.e. all Norwegian counties and Oslo municipality.

It is stated in Section 8.2 of the Guidelines that the competent authority shall take the necessary measures to ensure that, at least one year before the launch of the invitation to tender procedure or one year before the direct award, the information mentioned in Article 7 (2) of Regulation No. 1370/2007 shall be published in the Official Journal.

With reference to the case at hand, the Ministry will send a letter addressed to all counties and Oslo municipality to emphasize the obligation following from Article 7 (2) of Regulation No. 1370/2007, as well as to the general obligations and principles laid down in that Regulation and in EEA-law.

The rules on awarding public service contracts in the road transport sector will also be addressed extensively at the Ministry's annual conference for case handlers in the counties and Oslo municipality. The Conference gathers case handlers from all counties and Oslo municipality as well as participants from the industry and relevant authorities. The next conference will take place in Oslo in April 2013. Please find enclosed a preliminary letter of invitation to the Conference of 9 January 2013 which highlights that award of public service concessions in the bus sector will be addressed at the Conference4.

4. Structural measures

The Authority has in its letter of November 2012 invited the Norwegian Government to consider more structural measures to remedy an alleged lack of remedies in Norwegian law for breaches of EEA-law.

The Norwegian Government respectfully submits that the Norwegian system of remedies is in conformity with EEA law, and that consequently there is no obligation to introduce new rules.

The formal enforcement of public procurement legislation is carried out within the Norwegian courts. After the implementation of the Directive 2007/66/EC (Remedies Directive) as from July 2012, the court may consider a contract "ineffective", shorten

4 Annex 2

Page 8 the duration of the contract and/or impose fines. The court may also award damages to persons harmed by an infringement. According to the proposal of 20 December 2011 from the European Commission for a directive on the award of concession contracts, the Remedies Directive will apply to all concessions above the set threshold. The proposal does not apply to public passenger services that are regulated by Regulation No. 1370/2007.

In addition to the court system, the Public Procurement Complaint Board ("KOFA") handles complaints of violations of the law on public procurement. KOFA has no power to impose sanctions, but is an advisory dispute resolution body. Nevertheless, the statements from KOFA are published on www.kofa.no, and they are often given much attention in the media. Statements from KOFA therefore contribute to a greater awareness of procurement rules, and prevent violations of the rules.

The Government is taking measures to promote public authorities' compliance with the public procurement rules. Since 2008, a department for public procurement in the Agency for Public Management and eGovernment ("Difi") is working to improve public procurements, inform and spread knowledge on the legal framework and good public procurement practices. This work consists of giving guidance, the development of methods, handbooks, environmental criteria, step-by-step guides etc. Many of these tools are published on the website www.anskaffelser.no. Further, Difi organises courses and seminars for public procurers, collect, and disseminate knowledge of best practice, build networks and participate in existing networks of public procurers.

All of the proposals indicated by the Authority would imply comprehensive amendments of Acts and regulations, including outside the field of public procurement. Such amendments would imply thorough assessments and require exhaustive procedures in line with national law. In line with the far-reaching nature of the structural measures suggested, the Norwegian Government will confine itself to some initial remarks.

As regards the proposal for the adaption of rules whereby contracting authorities are obliged to introduce a contract clause in public contracts and concessions which provides that the contracts or concessions may be terminated without compensation in case of breach of EEA law, such a contract clause might raise questions regarding fundamental concepts of Norwegian contract law. Furthermore, the Government is concerned that such a clause could be interpreted as an attempt to transfer the responsibility for compliance with the EEA Agreement to private tenderers. Finally, there is a concern that the introduction of such a clause might lead suppliers to adjust their prices accordingly, which would result in generally more expensive public procurement. This would go against one of the purposes of the procurement rules, which is to ensure optimal use of public funds.

Regarding the proposal for the adaption of national rules whereby the State may suspend, withdraw and/or recover subsidies to local authorities or impose financial

Page 9 penalties should they award public contracts or concessions in breach of EEA law, it touches upon vital elements in the organisation of the municipality - state relationship. The local authority structure in Norway consists of 429 municipalities (as of 01.01.12) and 18 counties. The state's economic control of the municipal sector takes place partly through a fixed framework for transfers from the state to the municipalities and partly through regulating the municipalities' opportunities to acquire revenues. The degree of municipal autonomy in different areas is based on carefully balanced considerations. Any amendments in this regard would require further consideration.

5. Concluding remark

The Government is fully committed to its EEA obligation in the field of public service concessions and has started to implement measures that will mitigate the acknowledged breach of EEA-law, both at national and at county level. The Norwegian Government respectfully submits that there is no basis for pursuing this case further.

However, if the Authority finds that the information presented in this letter does not address its concerns in a satisfactory manner, the Government would be pleased to discuss the matter further in a meeting with the Authority. Youis sincerf lyn, rnfinn 0en lead of Department Anne-Lise Junge Jensen Assistant Director General

Page 10 JBL DET KONGELIGE SAMFERDSELSDEPARTEMENT

Alle fylkeskommuner og Oslo kommune

Deres ret Värre£ Dato 13/35- 09.01.2013

Saksbehandlerkonferansen 2013

Samferdselsdepartementet vil igjen avholde konferanse for saksbehandlere og andre som arbeider med saker etter yrkestransportlova. I är legges konferansen til Oslo den 15. og 16. april, og vi ber om at dere setter av disse dagene allerede nä. Det vil ogsä bli brukermote for saksbehandlere som benytter Transportkiyveweb.

Vi vil med dette invitere til ä komme med innspill om tema som er 0nskelig ä ta opp pä konferansen og vi ber om at dette sendes departementet innen 22. februar. Vi ber fylkeskommunene merke seg at denne gangen vil det ogsä bli holdt et innlegg som retter seg mot saksbehandlere som bruker regelverket for kj0p av tjenester i kollektivtransportsektoren. Dersom det er meninger om hvorvidt bransjeorganisasjonene skal inviteres til konferansen, slik de har blitt tidligere, kan dette ogsä meldes tilbake til oss.

Naermere informasjon om pämelding og program kommer senere.

?en avdelingsdirekter PtjCUV^lA- jne Bruvold Hansen seniorrädgiver

Postadresse Kontoradresse Kollektivtransport- og Saksbehandler Postboks8010Dep Akersg. 59 baneavdelingen Lone Bruvold Hansen 0030 Oslo 22248258 http://www.sd.dep.no/ [email protected] Sentralbord: 2224 9090 Org. nr. 972 417 904 OJ/S S187 28/09/2012 European Economic Area - Service contract 1/2 308310-2012-EN - Prior Information Notice - Not applicable

This notice in TED website: http://ted.europa.eu/udl?uri=TED:NOTICE:308310-2012:TEXT:EN:HTML

NO-Arendal: public road transport services 2012/S 187-308310

Prior information notice

Services

Directive 2004/18/EC Section I: Contracting authority 1.1) Name, addresses and contact point(s) Aust-Agder fylkeskommune Postboks 788 Stoa Contact point(s): Plan- og samferdselsavdelingen For the attention of: Hilde Bergersen 4809 Arendal NORWAY Telephone: +47 90881363 E-mail: [email protected] Internet address(es): General address of the contracting authority: http://www.austagderfk.no/ Address of the buyer profile: http://www.doffin.no//search/Search_AuthProfile.aspx?ID=AA3275 Further information can be obtained from: The above mentioned contact point(s) 1.2) Type of the contracting authority Regional or local authority 1.3) Main activity General public services 1.4) Contract award on behalf of other contracting authorities The contracting authority is purchasing on behalf of other contracting authorities: no Section II.B: Object of the contract (Supplies or services) 11.1) Title attributed to the contract by the contracting authority: Bus services in Aust-Agder. 11.2) Type of contract and place of delivery or of performance Service category No 2: Land transport services [2], including armoured car services, and courier services, except transport of mail Aust-Agder, Norway. 11.3) Information on framework agreement 11.4) Short description of nature and quantity or value of supplies or services: Bus services in Aust-Agder (Risar, Gjerstad, Tvedestrand, Vegärshei, Arendal, Grimstad and Liilesand municipalities). The contract includes both scheduled routes and school transport. Lots This contract is divided into lots: no 11.5) Common procurement vocabulary (CPV) 28/09/2012 S187 European Economic Area - Service contract 1/2 http://ted.europa.eu/TED - Prior Information Notice - Not applicable Supplement to the Official Journal of the European Union OJ/S S187 28/09/2012 European Economic Area - Service contract 2/2 308310-2012-EN - Prior Information Notice - Not applicable

60112000 11.6) Scheduled date for start of award procedures 25.9.2013 11.7) Information about Government Procurement Agreement (GPA) The contract is covered by the Government Procurement Agreement (GPA): yes 11.8) Additional information: Section III: Legal, economic, financial and technical information 111.1) Conditions relating to the contract III.1.1) Main financing conditions and payment arrangements and/or reference to the relevant provisions governing them: 111.2) Conditions for participation III.2.1) Information about reserved contracts Section VI: Complementary information VI.1) Information about European Union funds VI.2) Additional information: (NT Ref:269007). VI.3) Information on general regulatory framework VI.4) Date of dispatch of this notice: 26.9.2012

28/09/2012 S187 European Economic Area - Service contract 2/2 http://ted.europa.eu/TED - Prior Information Notice - Not applicable Supplement to the Official Journal of the European Union