22.7.2008   

EN

Official Journal of the European Union

C 184/13

1.

The railways have unique advantages: they are a safe and clean mode of transport. Rail transport therefore has great potential for contributing to the development of sustainable transport in Europe.

2.

The White Paper ‘European transport policy for 2010: time to decide’ (1) and its mid-term review (2) underline to what extent a dynamic railway industry is necessary for establishing an efficient, clean and safe goods and passenger transport system that will contribute to the creation of a single European market enjoying lasting prosperity. The road congestion plaguing the towns and certain areas of the European Community, the need to face up to the challenges of climate change, and the increase in fuel prices show how necessary it is to stimulate the development of rail transport. In this respect it should be pointed out that the common transport policy also has to pursue the environmental objectives set by the Treaty (3).

3.

However, rail transport in Europe has an image problem, having declined steadily from the 1960s to the end of the 20th century. Both goods and passenger traffic volumes have fallen in relative terms compared with the other transport modes. Rail freight has even shown a decline in absolute terms: loads transported by rail were higher in 1970 than in 2000. The traditional railway undertakings were unable to offer the reliability and good timekeeping their customers expected of them, which led to a shift of traffic from rail to the other modes of transport, chiefly road (4). Although passenger transport by rail might have continued to grow in absolute terms, this increase seems very limited compared with that of road and air transport (5).

4.

This trend seems to have reversed recently (6), but there is still a long way to go for rail transport to become sound and competitive. Particularly in the rail freight transport sector there continue to be major difficulties which call for public-sector action (7).

5.

The relative decline in Europe's railway industry is largely due to the way transport supply has been organised historically, essentially on national and monopolistic lines.

6.

First of all, in the absence of competition on the national networks, railway undertakings had no incentive to reduce their operating costs and develop new services. Their activities did not bring in sufficient revenue to cover all the costs and investments necessary. These essential investments were not always made and sometimes the Member States forced the national railway undertakings into making them when they were not in a position to finance them adequately from their own resources. The result was heavy indebtedness for these undertakings, which itself had a negative impact on their development.

7.

Secondly, the development of rail transport in Europe was hamstrung by the lack of standardisation and interoperability on the networks, while road hauliers and air carriers had been able to develop a whole range of international services. The Community has inherited a mosaic of national rail networks characterised by different track gauges and incompatible signalling and safety systems, which do not allow the railway undertakings to benefit from the economies of scale which would result from designing infrastructure and rolling stock for a large single market rather than for 25 (8) national markets.

8.

The Community is conducting a three-pronged policy to revitalise the rail industry by:

9.

The Community has thus gradually opened up the rail transport markets to competition. An initial liberalisation package was adopted in 2001 including Directive 2001/12/EC of the European Parliament and of the Council of 26 February 2001 amending Council Directive 91/440/EEC on the development of the Community's railways (9), Directive 2001/13/EC of the European Parliament and of the Council of 26 February 2001 amending Council Directive 95/18/EC on the licensing of railway undertakings (10), Directive 2001/14/EC of the European Parliament and of the Council of 26 February 2001 on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification (11). That package was followed by a second package in 2004 the main instruments of which were Regulation (EC) No 881/2004 of the European Parliament and of the Council of 29 April 2004 establishing a European Railway Agency (12), Directive 2004/49/EC of the European Parliament and of the Council of 29 April 2004 on safety on the Community's railways and amending Council Directive 95/18/EC on the licensing of railway undertakings and Directive 2001/14/EC on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification (13), Directive 2004/50/EC of the European Parliament and of the Council of 29 April 2004 amending Council Directive 96/48/EC on the interoperability of the trans-European high-speed rail system and Directive 2001/16/EC of the European Parliament and of the Council on the interoperability of the trans-European conventional rail system (14) and Directive 2004/51/EC of the European Parliament and of the Council of 29 April 2004 amending Council Directive 91/440/EEC on the development of the Community's railways (15). A third package was adopted in 2007 comprising Regulation (EC) No 1370/2007 of the European Parliament and of the Council of 23 October 2007 on public passenger transport services by rail and by road and repealing Council Regulations (EEC) No 1191/69 and (EEC) No 1107/70 (16), Regulation (EC) No 1371/2007 of the European Parliament and of the Council of 23 October 2007 on rail passengers' rights and obligations (17), Directive 2007/58/EC of the European Parliament and of the Council of 23 October 2007 amending Council Directive 91/440/EEC on the development of the Community's railways, and Directive 2001/14/EC on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure (18) and Directive 2007/59/EC of the European Parliament and of the Council of 23 October 2007 on the certification of train drivers operating locomotives and trains on the railway system in the Community (19). As a result, the rail freight market was opened to competition on 15 March 2003 on the trans-European rail freight network, then on 1 January 2006 for international freight and finally from 1 January 2007 for rail cabotage. The third railway package sets 1 January 2010 as the date for opening up international passenger transport to competition. Some of the Member States, such as the United Kingdom, Germany, the Netherlands and Italy, have already (partially) opened up their domestic passenger transport markets.

10.

The relevant provisions of Council Directive 91/440/EEC of 29 July 1991 on the development of the Community's railways (20), put in place a new institutional and organisational framework for the players in the railway industry, involving:

11.

Alongside this liberalisation process, the Commission has undertaken, on a second level, to promote the interoperability of European rail networks. This approach has been accompanied by Community initiatives to improve the safety standard of rail transport (24).

12.

The third level of public intervention in favour of the railway industry lies in the area of financial support. The Commission considers this support to be justified in certain circumstances in view of the substantial adaptation costs necessary in that industry.

13.

The Commission notes, furthermore, that there has always been considerable injection of public funds in the rail transport sector. Since 2004 the States of the European Union when it comprised 25 Member States (EU-25) have overall contributed funds totalling some EUR 17 billion to the construction and maintenance of railway infrastructure (25). The Member States pay railway undertakings EUR 15 billion annually in compensation for the provision of unprofitable passenger transport services (25).

14.

The granting of State aid to the railway industry can be authorised only where it contributes to the completion of an integrated European market, open to competition and interoperable and to Community objectives of sustainable mobility. The Commission will accordingly make sure that public-sector financial support does not cause distortions of competition contrary to the common interest. Here the Commission will in certain cases be able to ask Member States for commitments on the Community objectives in return for the granting of aid.

15.

The objective of these guidelines is to provide guidance on the compatibility with the Treaty of State aid to railway undertakings as it is defined in Directive 91/440/EEC and in the context described above. In addition, Chapter 3 also applies to urban, suburban and regional passenger transport undertakings. The guidelines are based in particular on the principles established by the Community legislator in the three successive railway packages. Their aim is to improve the transparency of public financing and legal certainty with regard to the Treaty rules in the context of the opening-up of the markets. These guidelines do not concern public financing intended for infrastructure managers.

16.

Article 87(1) of the Treaty provides that in principle any aid granted by a Member State which threatens to distort competition by favouring certain undertakings or the production of certain goods is, in so far as it affects trade between Member States, incompatible with the common market. Nevertheless, such State aid may in certain situations be justified in the light of the common interest of the Community. Some of these situations are mentioned in Article 87(3) of the Treaty, and apply to the transport sector as they do to other sectors of the economy.

17.

Also, Article 73 of the Treaty provides that aids are compatible with the common market ‘if they meet the needs of coordination of transport or if they represent reimbursement for the discharge of certain obligations inherent in the concept of a public service’. This Article constitutes a lex specialis in the general scheme of the Treaty. On the basis of this Article the Community legislator has adopted two instruments specific to the transport sector: Council Regulation (EEC) No 1191/69 of 26 June 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway (26) and Council Regulation (EEC) No 1107/70 of 4 June 1970 on the granting of aids for transport by rail, road and inland waterway (27). Council Regulation (EEC) No 1192/69 of 26 June 1969 on common rules for the normalisation of the accounts of railway undertakings (28) likewise provides that certain compensation may be granted by Member States to railway undertakings.

18.

Article 3 of Regulation (EEC) No 1107/70 provides that Member States are neither to take coordination measures nor to impose obligations inherent in the concept of a public service which involve the granting of aids pursuant to Article 73 of the Treaty except in the cases or circumstances provided for by the Regulation in question, without prejudice, however, to Regulations (EEC) No 1191/69 and (EEC) No 1192/69. According to the judgment of the Court of Justice of the European Communities in Altmark  (29), it follows that State aid which cannot be authorised on the basis of Regulations (EEC) No 1107/70, (EEC) No 1191/69 or (EEC) No 1192/69 cannot be declared compatible on the basis of Article 73 of the Treaty (30). In addition, it should be recalled that public service compensation which does not respect provisions stemming from Article 73 of the Treaty cannot be declared compatible with the common market on the basis of Article 86(2) or any other provision of the Treaty (31).

19.

Regulation (EC) No 1370/2007 (‘the PSO Regulation’), which will enter into force on 3 December 2009 and which repeals Regulations (EEC) No 1191/69 and (EEC) No 1107/70, will put in place a new legal framework. The aspects relating to public service compensation are therefore not covered by these guidelines.

20.

After the entry into force of Regulation (EC) No 1370/2007, Article 73 of the Treaty will be directly applicable as a legal basis for establishing the compatibility of aid not covered by the PSO Regulation, and in particular aid for the coordination of freight transport. A general interpretation therefore needs to be developed for considering the compatibility of aid for coordination purposes with Article 73 of the Treaty. The aim of these guidelines is in particular to establish criteria for this examination and intensity thresholds. In view of the wording of Article 73, the Commission must nevertheless make it possible for Member States to show, where appropriate, the need for and proportionality of any measures which exceed the thresholds established.

21.

These guidelines concern the application of Articles 73 and 87 of the Treaty and their implementation with regard to public funding for railway undertakings within the meaning of Directive 91/440/EEC. They deal with the following aspects: public financing of railway undertakings by means of infrastructure funding (Chapter 2), aid for the purchase and renewal of rolling stock (Chapter 3), debt cancellation by States with a view to the financial rejuvenation of railway undertakings (Chapter 4), aid for restructuring railway undertakings (Chapter 5), aid for the needs of transport coordination (Chapter 6), and State guarantees for railway undertakings (Chapter 7). However, these guidelines do not deal with the rules for the application of the PSO Regulation, for which the Commission has not yet developed any decision-making practice (32).

22.

Railway infrastructure is of major importance for the development of the railway sector in Europe. Whether for interoperability, safety or the development of high-speed rail, considerable investments will have to be made in this infrastructure (33).

23.

These guidelines apply only to railway undertakings. Their aim is therefore not to define, in the light of State aid rules, the legal framework which applies to the public financing of infrastructure. This Chapter only examines the effects of public financing of infrastructure on railway undertakings.

24.

Moreover, public financing of infrastructure development can grant an advantage to railway undertakings indirectly and thereby constitute aid. According to the case-law of the Court of Justice, it should be evaluated whether the infrastructure measure has the economic effect of lightening the burden of charges normally encumbering railway undertakings' budgets (34). For that to be the case, a selective advantage would have to be granted to the undertakings concerned, that advantage originating in the financing of the infrastructure in question (35).

25.

Where infrastructure use is open to all potential users in a fair and non-discriminatory manner, and access to that infrastructure is charged for at a rate in accordance with Community legislation (Directive 2001/14/EC), the Commission normally considers that public financing of the infrastructure does not constitute State aid to railway undertakings (36).

26.

The Commission also points out that, where public financing of railway infrastructure constitutes aid to one or more railway undertakings, it may be authorised, for example on the basis of Article 73 of the Treaty, if the infrastructure in question meets the needs of transport coordination. In this regard, Chapter 6 of these guidelines is a pertinent reference point for assessing compatibility.

27.

The fleet of locomotives and carriages used for passenger transport is ageing and in some cases worn out, especially in the new Member States. In 2005, 70 % of the locomotives (diesel and electric) and 65 % of the wagons of the EU-25 were more than 20 years old (37). Taking only the Member States which joined the European Union in 2004, 82 % of locomotives and 62 % of wagons were more than 20 years old in 2005 (38). According to the information at its disposal, the Commission estimates that the annual rate of renewal of the fleet is around 1 %.

28.

This trend of course reflects the difficulties of the railway industry in general, which reduce the incentives for railway undertakings and their capacity to invest in an effort to modernise and/or renew their rolling stock. Such investment is indispensable to keeping rail transport competitive with other modes of transport which cause more pollution or entail higher external costs. It is also necessary to limit the impact of rail transport on the environment, particularly by reducing the noise pollution it causes, and to improve its safety. Finally, improving interoperability between the national networks means it is necessary to adapt the existing rolling stock in order to be able to maintain a coherent system.

29.

In the light of the above it seems that under certain circumstances aid for the purchase and renewal of rolling stock can contribute to several types of objectives of common interest and therefore be considered compatible with the common market.

30.

This Chapter seeks to define the conditions in which the Commission is to carry out such a compatibility assessment.

31.

The compatibility assessment has to be made according to the common-interest objective to which the aid is contributing.

32.

The Commission considers that in principle the need to modernise rolling stock can be sufficiently taken into account either in implementing the general State aid rules or by applying Article 73 of the Treaty where such aid is intended for transport coordination (see Chapter 6).

33.

In assessing the compatibility of aid for rolling stock the Commission therefore generally applies the criteria defined for each of the following aid categories in these guidelines or in any other relevant document:

34.

In the case of regional aid for initial investment, the Guidelines on national regional aid, ‘the regional aid guidelines’, provide that ‘in the transport sector, expenditure on the purchase of transport equipment (movable assets) is not eligible for aid for initial investment’ (point 50, footnote 48). The Commission considers that a derogation should be made from this rule with regard to rail passenger transport. This is due to the specific characteristics of this mode of transport, and in particular to the fact that it is possible that the rolling stock in this sector may be permanently assigned to specific lines or services. Subject to certain conditions, defined below, the costs of acquisition of rolling stock in the rail passenger transport sector (or for other modes such as light rail, underground or tram) are deemed to be admissible expenditure within the meaning of the guidelines in question (45). However, the costs of acquisition of rolling stock for exclusive use in freight transport are not admissible.

35.

In view of the situation described in points 28 and 29, this derogation applies to any kind of investment in rolling stock, whether initial or for replacement purposes, so long as it is assigned to lines regularly serving a region eligible for aid under Article 87(3)(a) of the Treaty, an outermost region or a region of low population density within the meaning of points 80 and 81 of the regional aid guidelines (46). In the other regions, the derogation applies only to aid for initial investment. For aid for investment for replacement purposes, the derogation applies only when all the rolling stock that the aid is used to modernise is more than 15 years old.

36.

In order to avoid distortions of competition which would be contrary to the common interest, the Commission does, however, consider that such a derogation has to be made subject to four conditions, which have to be met cumulatively:

37.

The Commission will take care to avoid undue distortions of competition, notably by taking account of the additional revenue that the replaced rolling stock on the line in question could procure for the enterprise aided, for example, through sales to a third party or use on other markets. To this end, the granting of the aid may be made subject to the obligation on the recipient undertaking to sell under normal market conditions all or part of the rolling stock it is no longer using, so as to allow its further use by other operators; in this case the proceeds from the sale of the old rolling stock will be deducted from the eligible costs.

38.

More generally, the Commission will ensure that no improper use is made of the aid. The other conditions provided for in the regional aid guidelines, notably as regards the intensity ceilings and the regional aid maps and the rules on the cumulation of aid, apply. The Commission notes that the specific lines concerned may in certain cases pass through regions where there are different intensity ceilings in accordance with the regional aid maps. In this case the Commission will apply the highest rate of intensity of the regions regularly served by the line concerned in proportion to the regularity of such service (48).

39.

With regard to investment projects with eligible expenditure in excess of EUR 50 million, the Commission considers it appropriate, due to the specificities of the rail passenger transport sector, to derogate from points 60 to 70 of the regional aid guidelines. However, points 64 and 67 of those guidelines remain applicable when the investment project concerns rolling stock assigned to a specific line serving several regions.

40.

If the recipient undertaking is entrusted with providing services of general economic interest that necessitate buying and/or renewing rolling stock and it already receives compensation for this, that compensation should be taken into account in the amount of regional aid that may be awarded to this undertaking, in order to avoid overcompensation.

41.

As mentioned in Section 1.1, railway undertakings have in the past experienced a state of imbalance between their revenues and their costs, especially their investment costs. This has led to major indebtedness, the financial servicing of which represents a very heavy burden on railway undertakings and limits their capacity to make the necessary investments in both infrastructure and renewal of rolling stock.

42.

Directive 91/440/EEC explicitly took this situation into account. It is stated in the seventh recital thereto that Member States ‘should ensure in particular that existing publicly owned or controlled railway transport undertakings are given a sound financial structure’ and envisages that a ‘financial rearrangement’ might be necessary for this purpose. Article 9 of the Directive provides: ‘In conjunction with the existing publicly owned or controlled railway undertakings, Member States shall set up appropriate mechanisms to help reduce the indebtedness of such undertakings to a level which does not impede sound financial management and to improve their financial situation’. Article 9(3) envisages the granting of State aid ‘to cancel the debts referred to in this Article’, and provides that such aid must be granted in accordance with Articles 73, 87 and 88 of the Treaty.

43.

At the beginning of the 1990s, following the entry into force of Directive 91/440/EEC, the Member States considerably reduced the debts of railway undertakings. The debt restructuring took different forms:

44.

These three types of action have helped to improve the financial situation of railway undertakings in the short term. Their indebtedness has been reduced compared with total liabilities, as has the share of interest repayments in the operating costs. In general the debt reduction has allowed railway undertakings to improve their financial situation through a reduction in their capital and interest repayments. Such reductions have also helped to lower the rates of interest, which has a substantial impact on the financial servicing of the debt.

45.

However, the Commission notes that the level of indebtedness of many railway undertakings continues to give cause for concern. Several of these undertakings have a level of indebtedness higher than is acceptable for a commercial company, are still not capable of self-financing, and/or cannot finance their investment needs from the revenue from present and future transport operations. Also, in the Member States which joined the Community after 1 May 2004 the level of indebtedness of the companies in the sector is considerably higher than in the rest of the Community.

46.

This fact is reflected in the Community legislator's choice not to amend the provisions of Directive 91/440/EEC when Directives 2001/12/EC and 2004/51/EC were adopted. These provisions therefore fall within the general framework formed by the successive railway packages.

47.

This Chapter seeks to define how, in the light of this requirement of secondary legislation, the Commission intends to apply the Treaty rules on State aid to the mechanisms for reducing the indebtedness of railway undertakings.

48.

The Commission notes first of all that the principle of incompatibility laid down in Article 87(1) of the Treaty applies only to aid ‘which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods’ and only ‘insofar as it affects trade between Member States’. Under established case-law, when State financial aid strengthens the position of an undertaking compared with other undertakings competing in intra-community trade, these undertakings must be regarded as affected by that aid (49).

49.

Any measure attributable to the State which leads to the complete or partial cancellation of debts specifically in favour of one or more railway undertakings and through State resources therefore falls within the scope of Article 87(1) of the Treaty, if the railway undertaking in question is active in markets open to competition and if this debt cancellation strengthens its position in at least one of those markets.

50.

The Commission notes that Directive 2001/12/EC opened up the international rail freight services market to competition over the whole trans-European rail freight network from 15 March 2003. It therefore considers that, generally, the market was opened up to competition at the latest on 15 March 2003.

51.

When the cancellation of a railway undertaking's debt constitutes State aid covered by Article 87(1) of the Treaty it must be notified to the Commission in accordance with Article 88 of the Treaty.

52.

Aid of this kind must generally be examined on the basis of the Community guidelines on State aid for rescuing and restructuring firms in difficulty of 2004 (‘the 2004 guidelines on State aid for restructuring’), subject to Chapter 5 of these Guidelines.

53.

In specific cases where the debts cancelled exclusively concern transport coordination, compensation of public service obligations or the setting of accounting standards, the compatibility of this aid will be examined on the basis of Article 73 of the Treaty, the regulations adopted for the implementation thereof and the rules for the normalisation of the accounts (50).

54.

In the light of Article 9 of Directive 91/440/EEC, the Commission also considers that, under certain circumstances, it should be possible to authorise this aid without financial restructuring if the cancellation concerns old debts incurred prior to the entry into force of Directive 2001/12/EC, which lays down the conditions for opening up the sector to competition.

55.

The Commission takes the view that this type of aid may be compatible in so far as it seeks to ease the transition to an open rail market, as provided for by Article 9 of Directive 91/440/EEC (51). Thus it considers that such aid may be regarded as compatible with Article 87(3)(c) of the Treaty (52), provided that the following conditions are met.

56.

Firstly, the aid must serve to offset clearly determined and individualised debts incurred prior to 15 March 2001, the date on which Directive 2001/12/EC entered into force. Under no circumstances may the aid exceed the amount of these debts. In cases where the Member States joined the Community after 15 March 2001, the relevant date is that of accession to the Community. The logic of Article 9 of Directive 91/440/EEC, repeated in subsequent Directives, was to address a level of debt accumulated at a time when a decision to open the market at Community level had yet to be taken.

57.

Secondly, the debts concerned must be directly linked to the activity of rail transport or the activities of management, construction or use of railway infrastructure. Debts incurred for the purpose of investment not directly linked to transport and/or rail infrastructure are not eligible.

58.

Thirdly, the cancellation of debts must be in favour of undertakings facing an excessive level of indebtedness which is hindering their sound financial management. The aid must be necessary to remedy this situation, insofar as the likely development of competition on the market would not allow them to rectify their financial situation within a foreseeable future. Assessment of this criterion has to take into account any productivity improvements which the undertaking can reasonably be expected to achieve.

59.

Fourthly, the aid must not go beyond what is necessary for the purpose. In this regard, account must also be taken of future developments in competition. It should not, at any rate, place the undertaking in a situation more favourable than that of an average well-managed undertaking with the same activity profile.

60.

Fifthly, cancellation of its debts must not give an undertaking a competitive advantage such that it prevents the development of effective competition on the market, for example by deterring outside undertakings or new players from entering certain national or regional markets. In particular, aid intended for cancelling debts cannot be financed from levies imposed on other rail operators (53).

61.

Where these conditions are met, the debt cancellation measures are contributing to the objective set in Article 9 of Directive 91/440/EEC, without unduly distorting competition and trade between Member States. They can thus be considered compatible with the common market.

62.

Save where specifically provided otherwise, the Commission assesses the compatibility of State aid for restructuring firms in difficulty in the railway industry on the basis of the 2004 guidelines on State aid for restructuring. Those guidelines do not provide for any derogation for railway undertakings.

63.

Generally speaking, a division of an undertaking, namely an economic entity without legal personality, is not eligible for restructuring aid. The 2004 guidelines on State aid for restructuring apply only to ‘firms in difficulty’. They also state, at point 13, that a firm ‘belonging to or being taken over by a larger business group is not normally eligible for restructuring aid, except where it can be demonstrated that the firm's difficulties are intrinsic and are not the result of an arbitrary allocation of costs within the group, and that the difficulties are too serious to be dealt with by the group itself’. It should be avoided, a fortiori, that artificial subdivision allows a loss-making activity within a given company to receive public funds.

64.

However, the Commission considers that the European rail freight sector currently finds itself in a very specific situation making it necessary, in the common interest, to envisage that aid granted to a railway undertaking allowing it to overcome difficulties in the freight operations of that undertaking might, under certain circumstances, be considered compatible with the common market.

65.

In today's railway industry, the competitive situation of freight transport operations is quite different from that which applies to passenger transport. The national freight markets are open to competition whereas the rail passenger transport markets are not going to be opened up before 1 January 2010.

66.

This situation has a financial impact in so far as freight is in principle governed solely by the business relations between shippers and carriers. The financial equilibrium of passenger transport, on the other hand, may also depend on the public authorities taking action by way of public service compensation.

67.

However, several European railway undertakings have not legally separated their passenger and freight transport activities, or have only just done so. Moreover, current Community legislation does not provide for the obligation to make this legal separation.

68.

Furthermore, one of the central priorities of European transport policy has, for many years, been to breathe new life into the railway freight industry. The reasons for this are set out in Chapter 1 of these guidelines.

69.

This specific characteristic of rail freight activities necessitates an adapted approach, as has been recognised in the Commission's decision-making practice (54) on the basis of the Community Guidelines on State aid for rescuing and restructuring firms in difficulty of 1999 (55).

70.

This Chapter is intended to show, in the light of the Commission's decision-making practice and taking account of the amendments made by the 2004 guidelines on State aid for restructuring to the corresponding 1999 guidelines, the way in which the Commission intends to implement this approach in future.

71.

In view of the risks highlighted above, this approach is justified and will be maintained only for the freight divisions of railway undertakings, and for a transitional period, namely for restructurings notified before 1 January 2010, the date on which the rail passenger transport market will be opened up to competition.

72.

Furthermore, the Commission wishes to take account of the fact that, in a growing number of Member States, railway undertakings have adapted their organisation to specific developments in rail freight and passenger transport activities by taking steps to legally separate their freight transport activities. The Commission will therefore require, as part of the restructuring efforts and before awarding any aid, the legal separation of the freight division in question by transforming it into a commercial company under common commercial law. The Commission is of the view that this separation will, with other appropriate measures, help considerably to achieve two goals, namely to exclude all cross-subsidisation between the restructured division and the rest of the undertaking and to ensure that all financial relations between these two activities are carried out in a sustainable manner and on a commercial basis.

73.

In order to avoid any doubt, the 2004 guidelines on State aid for restructuring will continue to apply in their entirety when examining the aid dealt with in this Chapter, except with regard to the express derogations set out below.

74.

The eligibility criteria must be adapted to include the situation in which a freight division of a railway undertaking constitutes a coherent and permanent economic unit, which will be legally separated from the rest of the undertaking through the restructuring process before aid is granted, and faces difficulties such that, if it had been separated from the railway undertaking, it would be a ‘firm in difficulty’ within the meaning of the 2004 restructuring guidelines.

75.

This means, in particular, that that division of the undertaking would be facing serious difficulties of its own, which are not the result of an arbitrary allocation of costs within the railway undertaking.

76.

In order for the division to be restructured to constitute a coherent and permanent economic unit it must comprise all the freight transport activities of the railway undertaking, whether industrial, commercial, accounting or financial. It must be possible to attribute to it a level of losses, as well as a level of own funds or capital, which sufficiently reflects the economic reality of the situation which the division faces in order to evaluate in a coherent manner the criteria fixed in point 10 of the 2004 guidelines on State aid for restructuring (56).

77.

When assessing whether a division is in difficulty as described above, the Commission will also take into account the ability of the rest of the railway undertaking to ensure the recovery of the division to be restructured.

78.

The Commission is of the view that, although the situation described is not directly covered by the 2004 guidelines on State aid for restructuring, point 12 of which excludes newly created firms from the scope of the guidelines, restructuring aid may be granted in this context to enable the firm created by this legal separation to operate in viable market conditions. This is intended to apply only in situations where the firm to be created as a result of legal separation includes the entire freight division, as described by the separate accounting established in accordance with Article 9 of Directive 91/440/EEC, and includes all the division's assets, liabilities, capital, off-balance sheet commitments and workforce.

79.

The Commission considers that, for the same reasons, when a railway undertaking has recently legally separated its freight division, where this division fulfilled the above criteria, the firm in question must not be considered a newly created firm within the meaning of point 12 of the 2004 guidelines on State aid for restructuring, and is therefore not excluded from the scope of these guidelines.

80.

The Commission will make sure not only that the criteria for a return to long-term viability as set out in the 2004 guidelines on State aid for restructuring are fulfilled (57), but also that restructuring will ensure the freight activity is transformed from a protected activity enjoying exclusive rights into one which is competitive on the open market. This restructuring should therefore concern all aspects of the freight activity, whether industrial, commercial, or financial. The restructuring plan required by the restructuring guidelines (58) must make it possible to ensure a standard of quality, reliability and service which meets customers' requirements.

81.

In analysing the prevention of any excessive distortion of competition, as provided for by the guidelines on State aid for restructuring, the Commission will also base itself on:

82.

The provisions of the 2004 guidelines on State aid for restructuring apply when verifying this criterion. To this end the firm's own contribution will include that of the freight division which will be legally separated from the railway undertaking. However, in the Commission's view, the very specific situation of the European rail freight industry, which is described above, may constitute an exceptional circumstance within the meaning of paragraph 44 of those guidelines. It may therefore accept lower own contributions than those provided for in the 2004 guidelines on State aid for restructuring provided that the freight division's own contribution is as high as possible without jeopardising the viability of the operation.

83.

The ‘one time, last time’ principle applies to the legally separated firm, by taking account of the restructuring aid notified as initial restructuring aid received by the undertaking. However, restructuring aid authorised under the conditions set out in this Chapter does not affect application of the ‘one time, last time’ principle with regard to the rest of the railway undertaking.

84.

To avoid any doubt, if the railway undertaking as a whole has already received restructuring aid, the ‘one time, last time’ principle means that aid as provided for in this Chapter may not be granted to restructure the freight division of the undertaking.

85.

As already stated, Article 73 of the Treaty was implemented by Regulations (EEC) No 1191/69 and (EEC) No 1107/70, which will be repealed by the PSO Regulation. The PSO Regulation will, however, apply only to land passenger transport. It will not cover rail freight transport, for which aid for coordination of transport will continue to be subject only to Article 73 of the Treaty.

86.

In addition to this, Article 9 of the PSO Regulation concerning aid for coordination of transport and aid for research and development applies explicitly without prejudice to Article 73 of the Treaty, so it will be possible to use Article 73 directly for justifying the compatibility of aid for coordination of rail passenger transport.

87.

The objective of this Chapter is therefore to establish criteria which will allow the Commission to assess the compatibility, on the basis of Article 73 of the Treaty, of aid for the coordination of transport, both generally (Section 6.2) and as regards certain specific forms of aid (Section 6.3). The Commission notes that, although the general implementing principles of Article 73 of the Treaty are relevant when assessing State aid under the PSO Regulation, these guidelines do not cover the detailed rules for the implementation of the Regulation in question.

88.

Article 73 of the Treaty provides for compatibility of aid which meets the needs of coordination of transport. The Court of Justice has ruled that this Article ‘acknowledges that aid to transport is compatible with the Treaty only in well-defined cases which do not jeopardise the general interests of the Community’ (59).

89.

The concept of ‘coordination of transport’ used in Article 73 of the Treaty has a significance which goes beyond the simple fact of facilitating the development of an economic activity. It implies an intervention by public authorities which is aimed at guiding the development of the transport sector in the common interest.

90.

The progress made with liberalising the land transport sector has in some respects considerably reduced the need for coordination. In an efficient liberalised sector, coordination can in principle result from the action of market forces. As indicated above, however, the fact remains that investment in infrastructure development continues to be carried out by the public authorities. Moreover, even after the liberalisation of the sector, there may still be various market failures. These in particular are the failures which justify the intervention of the public authorities in this field.

91.

Firstly, the transport sector entails major negative externalities, for example between users (congestion), or in respect of society as a whole (pollution). These externalities are difficult to take into account, notably due to the inherent limits to the possibility of including external costs, or even simply direct usage costs, in the pricing systems for access to transport infrastructure. As a result there may be disparities between the different modes of transport, which ought to be corrected by public authority support for those modes of transport which give rise to the lowest external costs.

92.

Secondly, the transport sector may experience ‘coordination’ difficulties in the economic sense of the term, for example in the adoption of a common interoperability standard for rail, or in the connections between different transport networks.

93.

Thirdly, the railway undertakings may not be able to reap the full rewards of their research, development and innovation efforts (positive externalities), which also amounts to a failure of the market.

94.

The presence of a specific provision in the Treaty making it possible to authorise aid which meets the needs of transport coordination shows how important these risks of market failures are and the negative impact they have on the development of the Community.

95.

In principle, aid which meets the needs of transport coordination has to be considered compatible with the Treaty.

96.

Nevertheless, for a given aid measure to be considered to ‘meet the needs’ of transport coordination, it has to be necessary and proportionate to the intended objective. Furthermore, the distortion of competition which is inherent in aid must not jeopardise the general interests of the Community. By way of illustration, aid likely to shift traffic flows from short sea shipping to rail would fail to meet these criteria.

97.

Finally, in view of the rapid development of the transport sector, and hence the need for coordinating it, any aid notified to the Commission for the purpose of obtaining a decision, on the basis of Article 73 of the Treaty, that the aid is compatible with the Treaty has to be limited (60) to a maximum of 5 years, in order to allow the Commission to re-examine it in the light of the results obtained and, where necessary, to authorise its renewal (61).

98.

As regards the railway industry more specifically, aid for the needs of transport coordination can take several forms:

99.

In the following Sections the Commission will specify the conditions which, from the point of view of its decision-making practice, make it possible to ensure, for these different types of aid for coordination of transport, that the aid concerned meets the conditions of compatibility mentioned in Article 73 of the Treaty. In view of the specific nature of research and development aid, the criteria applicable to this type of measure are dealt with separately.

100.

The assessment of the compatibility of aid for infrastructure use, reducing external costs and interoperability with respect to Article 73 of the Treaty is in keeping with the Commission's decision-making practice pursuant to Article 3(1)(b) of Regulation (EEC) No 1107/70. In the light of this practice the conditions which follow appear sufficient for determining whether the aid is compatible.

101.

The eligible costs are determined on the basis of the following.

102.

As regards aid for rail infrastructure use, the eligible costs are the additional costs for infrastructure use paid by rail transport but not by a more polluting competing transport mode.

103.

As regards aid for reducing external costs, the eligible costs are the part of the external costs which rail transport makes it possible to avoid compared with competing transport modes.

104.

In that regard, it should be recalled that Article 10 of Directive 2001/14/EC explicitly allows Member States to put in place a compensation scheme for the demonstrably unpaid environmental, accident-related and infrastructure costs of competing transport modes in so far as these costs exceed the equivalent costs of rail. If there is not yet any Community legislation which harmonises methods for calculating infrastructure access charges within or across land transport modes, the Commission will take account of the development of the rules governing the allocation of infrastructure costs and external costs when applying these guidelines (62).

105.

Both for aid for rail infrastructure use and for aid for reducing external costs, the Member State has to provide a transparent, reasoned and quantified comparative cost analysis between rail transport and the alternative options based on other modes of transport (63). The methodology used and calculations performed must be made publicly available (64).

106.

As regards interoperability aid, the eligible costs cover, to the extent to which they contribute to the objective of coordinating transport, all investments relating to the installation of safety systems and interoperability (65), or noise reduction both in rail infrastructure and in rolling stock. In particular they cover investment associated with the deployment of ERTMS (European Rail Traffic Management System) and any like measure which can help to remove the technical barriers in the European rail services market (66).

107.

The Commission considers that there is a presumption of necessity and proportionality of the aid when the intensity of the aid stays below the following values:

108.

For aid above these thresholds, Member States must demonstrate the need and proportionality of the measures in question (70).

109.

For both aid for rail infrastructure use and aid for reducing external costs, the aid has to be strictly limited to compensation for opportunity costs connected with the use of rail transport rather than with the use of a more polluting mode of transport. Where there are several competing options which cause higher levels of pollution than rail transport, the limit chosen corresponds to the highest cost differential among the various options. Where the intensity thresholds referred to in point 108 are adhered to, it may be presumed that the ‘no overcompensation’ criterion is met.

110.

At any rate, where the aid recipient is a railway undertaking it must be proved that the aid really does have the effect of encouraging the modal shift to rail. In principle this will mean that the aid has to be reflected in the price demanded from the passenger or from the shipper, since it is they who make the choice between rail and the more polluting transport modes such as road (71).

111.

Finally, specifically as regards aid for rail infrastructure use and aid for reducing external costs, there must be realistic prospects of keeping the traffic transferred to rail so that the aid leads to a sustainable transfer of traffic.

112.

Aid for rail infrastructure use, for reducing external costs or for interoperability that is necessary and proportionate and so does not distort competition contrary to the common interest must be considered compatible under Article 73 of the Treaty.

113.

In the area of land transport, Article 3(1)(c) of Regulation (EEC) No 1107/70, adopted on the basis of Article 73 of the Treaty, provides for the possibility of granting aid to research and development. The Commission has recently developed a body of practice in the application of this provision (72).

114.

Article 9(2)(b) of the PSO Regulation adopts the text of Article 3(1)(c) of Regulation (EEC) No 1107/70. Under that provision, aid which has the purpose of promoting research into or development of rail passenger transport systems and technologies which are more economic for the community in general, which is restricted to the research and development stage and which does not cover the commercial exploitation of such transport systems and technologies, has to be regarded as meeting the needs of transport coordination.

115.

Article 9(2)(b) of the PSO Regulation applies without prejudice to Article 87 of the Treaty. Thus, aid for research, development and innovation in the field of passenger transport, if not covered by Article 9 of the PSO Regulation, and aid which only concerns freight, may be considered compatible on the basis of Article 87(3)(c) of the Treaty.

116.

In this regard the Commission has defined, in the Community framework for State aid for research and development and innovation (73) (hereinafter the ‘Community framework’), the conditions under which it will declare aid of that type compatible with the common market on the basis of Article 87(3)(c) of the Treaty. That framework applies ‘to aid to support research and development and innovation in all sectors governed by the Treaty. It also applies to those sectors which are subject to specific Community rules on State aid, unless such rules provide otherwise’ (74). The framework therefore applies to aid for research, development and innovation in the railway transport sector which does not fall within the scope of Article 3(1)(c) of Regulation (EEC) No 1107/70 or Article 9 of the PSO Regulation (following the entry into force of that Regulation).

117.

It is not excluded that the compatibility of aid for research and development may be analysed directly on the basis of Article 73 of the Treaty, if it is aimed at meeting the needs of transport coordination. In this case the abovementioned conditions should be checked, in particular the fact that the aid must be necessary and proportionate to the intended objective, and must not jeopardise the general interests of the Community. The Commission considers that the general principles set out in the Community framework are relevant in analysing these various criteria.

118.

The Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees (75) sets out the legal requirements applicable to State guarantees, including in the rail transport field.

119.

This notice states, in point 2.1.3, that the Commission ‘regards as aid in the form of a guarantee, the more favourable funding terms obtained by enterprises whose legal form rules out bankruptcy or other insolvency procedures or provides an explicit State guarantee or coverage of losses by the State’.

120.

The Commission's consistent practice has been to consider unlimited guarantees in a sector open to competition to be incompatible with the Treaty. In accordance with the proportionality principle they cannot in particular be justified by tasks of general interest. With an unlimited guarantee it is impossible to check whether the amount of aid exceeds the net costs of providing the public service (76).

121.

When the State guarantees are granted to undertakings with a presence on both competitive and non-competitive markets, the Commission's practice is to require the complete removal of the unlimited guarantee granted to the undertaking as a whole (77).

122.

Several railway undertakings are enjoying unlimited guarantees. These guarantees are generally a legacy of special cases of historic monopolies set up for railway undertakings before the Treaty entered into force or before the rail transport services market was opened up to competition.

123.

According to the information available to the Commission, these guarantees do, to a large extent, constitute existing aid. The Member States concerned are invited to inform the Commission of the conditions for implementing the schemes for existing aid as well as of the measures envisaged for removing them, in accordance with the procedure defined in Section 8.3.

124.

The aid ceilings stipulated in these guidelines are applicable irrespective of whether the aid in question is financed wholly or in part from State resources or from Community resources. Aid authorised under these guidelines may not be combined with other forms of State aid within the meaning of Article 87(1) of the Treaty or with other forms of Community financing if such combination produces a level of aid higher than that laid down in these guidelines.

125.

In the case of aid serving different purposes and involving the same eligible costs, the most favourable aid ceiling will apply.

126.

The Commission will apply these guidelines from the date of their publication in the Official Journal of the European Union.

The Commission will apply these guidelines to all aid, whether or not notified, in respect of which it is called upon to take a decision after the date of their publication.

127.

In accordance with Article 88(1) of the Treaty, the Commission proposes that the Member States amend their existing aid schemes relating to State aid covered by these guidelines so as to comply with them at the latest two years after their publication in the Official Journal of the European Union, subject to the specific provisions in the Chapter on State guarantees. The Member States are invited to confirm that they accept these proposals for appropriate measures in writing at the latest one year after the date of publication in the Official Journal of the European Union.

128.

Should a Member State fail to confirm its acceptance in writing by that date, the Commission will apply Article 19(2) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (78) and, if necessary, initiate the proceedings referred to in that provision.

129.

The Commission reserves the right to amend these guidelines. It will present a report on their application before any amendment and at the latest five years after the date of their publication.

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in the case of a limited liability company, where more than half of its registered capital has disappeared and more than one quarter of that capital has been lost over the preceding 12 months, or

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in the case of a company where at least some members have unlimited liability for the debt of the company, where more than half of its capital as shown in the company accounts has disappeared and more than one quarter of that capital has been lost over the preceding 12 months, or

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whatever the type of company concerned, where it fulfils the criteria under its domestic law for being the subject of collective insolvency proceedings’.