PUBLIC UNDERTAKINGS AND SERVICES IN THE EUROPEAN UNION
ECONOMIC SERIES W-21
SUMMARY

PART II: PUBLIC SERVICE MISSIONS ATTRIBUTED
TO UNDERTAKINGS IN THE MEMBER STATES

The concept of 'public service' is not to be confused with that of 'public undertaking' since it concerns only some public undertakings and may also apply to many private firms. It therefore has to be studied as a separate concept.

CHAPTER I: THE BASIC MECHANISM OF PUBLIC SERVICES

I. The concept of public services

Although this expression is mostly used in continental European countries, essentially the same concept is found elsewhere under different names such as 'public utility' or 'public interest'. It exists in the Treaty of Rome as a 'service of general economic interest'. It can thus be regarded as common to all countries in the Union.

A. Definition

A public service is an economic activity of general interest defined, created and controlled by the public authorities and subject, to varying degrees, to a special legal regime, irrespective of whether it is actually carried out by a public or private body.

1. As an activity, a public service differs from other forms of state intervention in the economy which do not involve production activities.

(a) the first difference relates to the regulations imposed on economic activities, for instance, to protect safety, health or the environment, but which do not cover how the economic activity is carried out. The public service is designed to make sure that an activity will be carried out on a permanent basis since it is considered essential for the public good: it is outside the scope of free enterprise since it stems not from private initiative but from the will of the public authorities.

(b) it is also different from state intervention in the general interest which does not entail production activities, in particular intervention to ensure a balanced economy and assistance to sectors in difficulty.

2. As an economic activity, a public service provides goods or services at a price and thus differs from administrative, social or cultural public services which are generally delivered free of charge.

3. It is based on a general interest requirement which is common and essential for all but which the private sector cannot or is unwilling to meet and therefore has to be taken over by the public authorities. Even when the authorities do not provide the service themselves but delegate the task to an external body, for instance a public or a private firm, they retain the responsibility for defining its substance and indeed its very existence since they may abolish it when the corresponding need has disappeared.

4. When a public authority contracts out a public service task, it generally imposes specific obligations on the body concerned and, as a quid pro quo, grants special rights such as exclusivity, the right to expropriate private landowners or access to public property.....

B. Principles

On the basis of this definition, the three fundamental principles of public services are generally said to be:

(1) equality or universality: it must be available to all under the same conditions; this generally takes the form of a requirement to provide a universal service at uniform prices;

(2) continuity: the service must be provided on an uninterrupted and regular basis (supply obligation);

(3) adaptation: it must be modified as needs change and, ultimately, abolished if it is no longer required.

C. Variability of the content

Although the definition of public services is more or less universal, their content is essentially variable.

1. What is understood by general interest, or rather the activities classified as such, varies in space and time depending on the conception one has of society, which may be more or less liberal/collectivist. In theory the following two extremes might be envisaged:

The reality is made up of a wide variety of situations that lie somewhere between these two extremes.

2. The substance of public service also varies depending on the economic level of society, since a given society will meet its citizens' needs by providing services proportionate to its resources.

3. The public service also responds to technical advances. Technical progress may lead to the creation of new public services, historical examples are the railways and the telephone which were not immediately perceived as being of public interest. But the reverse is also true, for instance, new telecommunications services provided by the market on a vast scale and at low cost are not regarded as requiring state intervention.

4. Finally, the principles of the public service apply differently to the various sectors concerned.

II. Definition of and responsibility for public services

A. Definition

In principle, the activities classified as public services are determined exclusively by the State, and, more specifically, the legislator. In a federation, however, the initial power to do so may be vested in the federated states.

B. Responsibility

The power to actually establish the service (creation, organization, control) may lie with different public authorities:

III. How public services are managed

A public authority that sets up a public service can always opt to manage that service itself; this is known as 'direct management'. Very often, however, it prefers to delegate the management to a public or private operator: this is 'indirect management' or 'delegation' of public service. In such cases, the public authority will determine the 'public service mission' of the operator and impose detailed 'public service obligations' to that effect.

A.

Delegation of public services can be done by unilateral decisions of the public authorities, in other words by statute or regulation. This is generally the case where the operator is a public undertaking. In other cases, it is done by contract: the mission and obligations are included in an agreement between the authority and the operator.

1. In the most common contractual situations, the operator is a genuine contractor running the service for his own benefit and at his own risk. His income does not come from the public authority but from fees paid by customers. This situation has two variants:

(a) in the first (usually known as a 'public service concession'), the operator has a duty not only to provide the service but also to set it up, i.e. to build all the facilities required (for instance, pipes for water distribution);

(b) in the second (contracting out or 'affermage' in French), the operator only has to manage the service, the plant and equipment being provided by the public authority.

2. In less common situations, the operator is only a manager directly remunerated (in the form of a fee or a percentage of turnover) by the public authority which itself collects the fees charged to users.

3. Other contractual arrangements involve legislation giving a public undertaking a public service mission with various contractual instruments setting out detailed obligations.

B.

A distinction must be drawn between the delegation of public services and public procurement.

(1) In public procurement the public authority buys goods (vehicles, office equipment, etc.) or services (studies, leasing of equipment, etc.) primarily to meet its own operational requirements. No service is provided for the public as such. What matters is the best use of public money and consequently there are strict procedures for the award of contracts and public calls for tenders to ensure that the authority selects the firm which makes the lowest bid.

(2) In the delegation of a public service, the authority does not normally buy anything but delegates to the co-contractor responsibility not for the administration as such but for providing a service to the public sometimes for a long period. Traditionally this has justified the authority having complete freedom of choice of its co-contractor. There is a recent tendency, however, to impose some prior publicity requirements to ensure a degree of competition between interested firms.

IV. Public services and public undertakings

An analysis of the way in which public services are organized confirms the distinction between the two concepts.

(1) On the one hand, some public undertakings operate in areas which are entirely market based and where the public authorities play no part, for instance car manufacturing, aeronautics, steel, banks, insurance. These are clearly outside the scope of public services and not relevant to this study.

(2) On the other hand, quite a number of private firms do carry out public service missions and, with the current drive towards privatisation, this is becoming more and more frequent.

(3) The concept to be borne in mind is therefore that of 'public service undertaking' or 'public service operator'.

CHAPTER II:PUBLIC SERVICES IN THE MAIN UTILITIES

I. Scope of the study

The study examines the position of public services in the Member States (Union of the Twelve). It focuses on the utilities which are characteristic of the public service sector by virtue of their major infrastructures, often entailing land use privileges and 'natural' monopolies, and the fact that they are used by the overwhelming majority of citizens. The study looks at the seven most important networks, which are mostly organised at national level and as 'public services', with variations depending on the services provided and the Member States. They are:

For each sector in the 12 countries, the study provides a monograph, detailing:

II. Results of the survey

A. Diversity of organisation

1. The organisation of these public service networks varies considerably from country to country and sector to sector in terms of:

(a) the level of public authorities responsible:

(b) the method of regulation by these authorities:

(c) the type of operator:

(d) the framework of missions, obligations and special rights. These may be substantial and detailed or weak and vague, formal or implicit, based on public decisions (statutes, regulations, contracts), private agreements or simply on custom.

On the basis of these criteria, one could establish a sort of 'national typology' consisting of:

(a) countries (Belgium, France, Greece, Italy, Luxembourg, Spain, Portugal) where the idea of public service is well established and where, in most of the network sectors, there is one large public undertaking with a national monopoly and strict statutory obligations;

(b) countries (Ireland, United Kingdom) where up until about ten years ago the idea of public service was not substantially different, although not traditionally formalised, but where the recent drive towards privatisation and deregulation, particularly in the United Kingdom, has considerably changed the picture. Now the sector is essentially made up of private operators subject to regulators who are independent of the public authorities although substantial areas of public ownership, general interest considerations and special rights still exist;

(c) countries (Denmark, Germany, the Netherlands) where public operators, which were often the government administrations themselves (direct management), used to have an important role, although a good many sectors were the responsibility of the local authorities with a variety of operators but where the current trend is to privatise the activities concerned while maintaining a fairly high degree of public service.

B. A common concept

Despite the differences of organisation, these 'network' activities have one thing in common - nowhere are they subject to the statutory provisions applying to the production of ordinary goods and services.

1. Ordinary economic activities are subject to the principle of 'free enterprise' or 'freedom of trade and industry'. This means that the public authorities do not intervene to create or define such activities, they leave the initiative in private hands, confining themselves to issuing regulations to ensure compliance with certain requirements such as safety, environmental protection and the health and safety of workers. To put it simply, none of the twelve countries has legislation aimed at ensuring the production of steel, shirts or chocolate. If there is no private initiative, the goods will not be produced. At the same time anyone is free to start up such an activity and to carry it out as he sees fit, provided he abides by the relevant legislation.

2. However, all EU countries have specific state intervention to ensure the existence of utilities such as electricity, gas and water distribution, railways, urban transport and postal and telecommunications services. Furthermore, this intervention almost always involves a degree of regulation of access to the activity and the way in which it is performed: ultimate control over investments and prices, imposition of general interest missions and objectives, granting of special rights. The effect of such intervention is to put the activity outside the market and competition to a greater or lesser extent.

3. There is undoubtedly a general trend, the pace of which may vary from one country to another, towards making the system less rigid and reducing public authority control by moving:

4. However, in all countries these activities are still governed by special rules giving the public authorities a certain role. For instance, the 'regulators', appointed by the public authorities, exercise control in the public interest, which is not really different in principle from the control formerly exercised by the government that they have replaced and which sometimes gives them considerable powers over operators. There is no 'regulator' for the production of cars or biscuits. Nowhere have the network activities become just like any other economic activities. Even if the term itself is not used, the idea and principle of public service still applies.


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