EC Adopts Guidelines for State Aid to Rail Undertakings

May 22, 2008 // Published as a news service by IHS

Rail faces tough competition from other transport modes in Europe, and it is presenting some specific challenges as well in the context of EU state aid law. The April 30 guidelines are intended to give guidance on the compatibility of state aid to railway undertakings with the EC Treaty.

With these new guidelines, the EC wants to help promote the liberalisation of the rail sector, improving its competitiveness and capitalising on its strengths, especially from the environmental angle. The guidelines complement the "PSO regulation" (Regulation (EC) 1370/2007), which deals in particular with aid in the form of compensation for discharging public service obligations.

Jacques Barrot, EC vice president responsible for transport, said, "After the third railway package and the regulation on public service obligations, the adoption of these guidelines is a new stage in the development of a coherent and transparent legal framework for a dynamic and competitive rail industry, as a pillar of sustainable mobility on the European scale."

The new guidelines will make it possible, under certain conditions, to grant regional aid for the purchase and renewal of passenger rolling stock. The EC is thus lifting a prohibition contained in the regional aid guidelines. It will be possible to put such aid towards the modernisation of rail transport, which is urgently required, especially in the new member states, both in the passengers' interest and in that of "greener mobility." Wishing to promote sustainable mobility, the EC is also extending this approach to public transport by road and says it will look into the possibility of giving specific support to the least polluting technologies.

The guidelines also specify the conditions for applying Article 73 of the EC Treaty, which provides that aid that meets the needs of transport coordination is compatible with the common market. It will be possible to apply that article directly for authorising certain state aid once the PSO regulation has entered into force in 2009.

In the interests of transparency and legal certainty, the EC is thus presenting the methodology it will be using to assess the compatibility of aid intended to iron out differences in infrastructure costs or external costs compared with those of other transport modes, to promote interoperability, improve safety, reduce noise or encourage research.

At the same time, these guidelines indicate to member states how to reconcile with the treaty's state aid rules the requirement imposed on them by European Community legislation to assume the debts of railway undertakings in order to allow them to rectify their financial situation.

In addition, the EC is adapting the rules on restructuring firms in difficulty to be able to respond to situations where the freight division of a railway undertaking has serious economic problems but cannot be restructured by the railway undertaking as a whole. The EC says that, for a transitional period up to Jan. 1, 2010, it is willing to derogate from certain aspects of the horizontal rules to take into account the specific situation of rail freight transport.

Thus, the EC is providing for more favourable arrangements to encourage the restructuring of freight operations, which are nevertheless obliged to ensure that their activities are kept legally separate from the rest of the railway undertaking.

Finally, the EC drew attention once again to the general criteria applicable to the public funding of infrastructure, and stressed that, apart from the explicit derogations provided for in the guidelines, the competition rules have to be applied to the rail sector as to all the other sectors. This is particularly the case as regards the unlimited state guarantees still given to certain railway undertakings.

The EC recalled that these guarantees constitute state aid, which is incompatible with the EC Treaty and therefore has to be dismantled within two years at most.

Source: European Commission.