EC Publishes Draft Guidelines on State Aid to Railway Undertakings

December 26, 2007 // Published as a news service by IHS

The new guidelines aim at providing guidance on the compatibility of the European Union (EU) treaty's state aid rules regarding railway undertakings.

Rail transport is a safe and non-polluting transport mode that has many advantages. However, rail transport, which is currently in the process of liberalisation, is confronted by strong competition from other transport modes. This situation raises important challenges regarding European Community state aid law.

The EC's draft guidelines acknowledge the railway sector's specificities and aim at bringing along the liberalisation process of the railway sector, thereby contributing to its competitiveness.

The text published by the EC on Dec. 21 proposes, in particular, to grant regional aid for the purchase and renewal of the rolling stock for passenger transport, by removing a prohibition included in the guidelines regarding regional aid for the period 2007-2013.

Indeed, such aid could favour the modernisation of the railway transport - in particular in the new member states - plus contribute to the regional development as well as to the objectives of competitiveness, interoperability and environmental protection.

In addition, the EC proposes to adapt the applicable rules concerning the restructuring of firms in difficulty to the situation where a rail freight division faces severe economic difficulties and cannot be restructured with the help of the railway undertaking as a whole. These draft guidelines propose to derogate to certain aspects of the horizontal rules in order to take into account this specific situation, but also the situation of freight railway undertakings that recently have been hived off within larger railway groups.

In this respect, the text aims to adapt the decision-making practise of the EC concerning the railway sector to the adoption of the 2004 general restructuring guidelines and to the fact that several railway undertakings have recently hived off their freight divisions.

Moreover, the EC wishes to frame the possibilities for the state to write off debts of the railway undertakings. Such a possibility derives from community legislation, but cannot derogate to the application of state aid rules provided by the EU treaty. The proposed text includes certain conditions under which debt write-off can be considered compatible with the common market.

These draft guidelines also clarify the general legal framework applicable to railway transport. Thus, general criteria applicable to the public funding of infrastructure are recalled. The proposed text specifies the conditions for the application of Article 73 of the treaty regarding aid for the coordination of transport.

In particular, the draft framework proposes, on the basis of the existing decision-making practise, a methodology to assess the compatibility of aid favouring the use of railway infrastructure, the reduction of external costs, interoperability and security or research in the railway sector.

In addition, the text codifies the EC's practise concerning possible elements of aid in public service contracts, for the transitory period until the entry into force of the PSO regulation, adopted recently.

Finally, these community guidelines address the issue of the guarantee that railway undertakings still benefit from in several member states. In general, unlimited state guarantees constitute state aid and are not compatible with the EU treaty. These draft guidelines propose abolishing unlimited state guarantees in the railway sector by Jan. 1, 2010.

The EC will now undertake consultations with member states and stakeholders, who will be able to provide the EC with their comments until Jan. 25, 2008.

In general, these community guidelines should improve the transparency regarding public funding and legal certainty in railway undertakings. These guidelines provide the necessary adaptations, taking in account the specificity of the rail sector, while ensuring coherence with the general applicable state aid rules.

For further information, the draft guidelines are published on the EC web site on Energy and Transport: State Aid.

Source: European Commission.