Benoit Le Bret, the chief of staff to transport commissioner Jacques Barrot, said on presenting new state aid guidelines: "We know there is state aid that is being hidden. There are government loan guarantees and aid hidden in national budgets. This is really the final whistle. These activities must cease by January 1 2010."

The Commission wants to boost competition at a time when several rail companies have been acquiring privately owned train operators. It had hoped the new entrants would provide competition for the state-owned operators that still dominate in every European country except the UK and Estonia.

Heiko Fischer, chief executive of VTG, Europe's largest rail wagon leasing company, said concern about such transactions might have motivated the move. "The big, state railways are now, with the help of their balance sheets and strong financial support from their owners, on a buying spree to buy up rail assets, especially the private competition."

The rules aim to stamp out these distortions. While freight services have been liberalised, passenger services will not follow suit until 2010. Then the big operators should no longer be able to use high freight charges to subsidise passenger fares, Mr Le Bret said. Freight operations would be eligible for aid only if they were set up as separate legal entities.

States had spent €7bn ($11bn, £5.5bn) on infrastructure since 2004 and paid companies €15bn a year to maintain unprofitable routes, the Commission said.

"Some operators will have to change their practices and may have a change in their ratings by financial agencies. I am confident they are going to do what is necessary without going through a fight with the Commission," Mr Le Bret said.

See also:

Commission adopts guidelines for State aid to rail undertakings

Infrasite Nieuws: 05-05-2008

Brussels, Belgium -- The European Commission adopted guidelines for State aid to railway undertakings. The guidelines clarify the rules governing public funding of these businesses. This is one way the Commission is boosting the liberalisation of the industry and ensuring that public funding contributes to sustainable mobility in Europe.

Jacques Barrot, Vice-President of the European Commission 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."

These guidelines are intended to give guidance on the compatibility of State aid to railway undertakings with the EC Treaty. A safe and clean mode of transport, rail is also an industry that is undergoing liberalisation; facing tough competition from other transport modes, it is presenting some specific challenges as well in the context of EU State aid law. With this document, which pays due account to the specific features of rail while ensuring convergence of the sectoral rules with the general rules on State aid, the Commission wants to help promote the liberalisation of the sector, improving its competitiveness and capitalising on its strengths, especially from the environmental angle. The guidelines complement the 'PSO Regulation',[1] which deals in particular with aid in the form of compensation for discharging public service obligations.

The text adopted today will henceforward make it possible, under certain conditions, to grant regional aid for the purchase and renewal of passenger rolling stock. The Commission 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 Commission 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 which meets the needs of coordination of transport 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 Commission 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, to improve safety, to reduce noise or to encourage research.

These guidelines at the same time indicate to Member States how to reconcile with the Treaty's State aid rules the requirement imposed on them by Community legislation to assume the debts of railway undertakings in order to allow them to rectify their financial situation.

The Commission is in addition 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 Commission says that for a transitional period up to 1 January 2010 it is willing to derogate from certain aspects of the horizontal rules to take into account the specific situation of rail freight. It is thus 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 Commission draws attention once again to the general criteria applicable to the public funding of infrastructure, and stresses 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 Commission recalls that these guarantees constitute State aid which is incompatible with the EC Treaty and therefore has to be dismantled within two years at most.

[1] Regulation (EC) No 1370/2007 of the European Parliament and of the Council of 23 October 2007, OJ L 315, 3.12.2007, p. 1

See also:

Commission adopts guidelines for State aid to rail undertakings

Euroalert!: May 05, 2008
Internal Market

The European Commission has adopted guidelines for State aid to railway undertakings. The guidelines clarify the rules governing public funding of these businesses. This is one way the Commission is boosting the liberalisation of the industry and ensuring that public funding contributes to sustainable mobility in Europe.

Guidelines

These guidelines are intended to give guidance on the compatibility of State aid to railway undertakings with the EC Treaty. A safe and clean mode of transport, rail is also an industry that is undergoing liberalisation; facing tough competition from other transport modes, it is presenting some specific challenges as well in the context of EU State aid law. With this document, which pays due account to the specific features of rail while ensuring convergence of the sectoral rules with the general rules on State aid, the Commission wants to help promote the liberalisation of the sector, improving its competitiveness and capitalising on its strengths, especially from the environmental angle. The guidelines complement the 'PSO Regulation', which deals in particular with aid in the form of compensation for discharging public service obligations.

The text that has been adopted will make it possible for the European Railway Agency to grant regional aid for the purchase and renewal of passenger rolling stock. 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 Commission 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 which meets the needs of coordination of transport 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 Commission 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 of:

* Other transport modes.
* To promote interoperability.
* To improve safety.
* To reduce noise.
* To encourage research.

What is European Railway Agency?

The construction of a safe, modern integrated railway network is one of the EU’s major priorities. Economic integration and rapid growth in trade have transformed the European Union’s transport needs. In order to service this integrated market, railways must become more competitive and offer high-quality, end-to-end services without being restricted by national borders.

The European Railway Agency was set up to help create this integrated railway area by reinforcing safety and interoperability. Its main task is to develop economically viable common technical standards and approaches to safety, working closely with railway sector stakeholders, national authorities and other concerned parties, as well as with the European institutions.