Opening of the market for domestic passenger transport services by rail: award of public service contracts

In “Transport and Tourism - TRAN”

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The aim of the proposed amendments to Regulation (EC) 1370/2007 on public passenger transport services by rail is to improve the quality of rail passenger transport services and their efficiency.

In 2001, 2004 and 2007, three legislative railway packages’ were adopted to open up national markets and make railways more competitive and interoperable at EU level. Despite the new EU legislation stemming from these  packages, the modal share of rail in intra-EU transport has remained modest at 6%.

To remove the remaining legal, institutional and technical obstacles, the European Commission published its legislative proposal on 30 January 2013, in the framework of the Fourth Railway Package.

Regulation 1370/2007 sets out a framework for awarding public service contracts and compensating for public service obligations. Given that no common EU rules on the award of such contracts apply, some Member States introduced competitive tendering for these contracts, while others award them directly. This patchwork of regulatory systems in the EU makes it difficult for railway companies to exploit the full potential of operating in an Internal Market.

The impact assessment showed that a combination of proposed measures would have an economic, environmental and social impact and would generate a net present value of between €21 and €29 billion from 2019 to 2035.

The main elements of the proposal are as follows:

  • A flexible and transparent procedure as to how competent authorities define public service obligations and the geographical scope of public service contracts. Competent authorities must: establish public transport plans defining the objectives and patterns of public passenger transport policy; justify the kind and extent of public service obligations they intend to impose on public transport operators and ensure appropriate consultation of stakeholders (e.g. passenger and employee organisations and transport operators).
  • Compulsory provision by competent authorities of operational, technical and financial information about passenger transport covered by a public service contract to be put out to tender.
  • Specific limits for the direct award of small volume contracts.
  • Mandatory competitive award of rail contracts, where the general rule of competitive tendering will apply to rail.
  • Access to rail rolling stock: Member States must ensure effective and non-discriminatory access to suitable rail rolling stock for operators wishing to provide public passenger services by rail.
  • A 10-year transition period up to 2 December 2019 applied to competitive tendering procedures.

The European Parliament (EP) adopted its first reading position at its plenary session on 26 February 2014. The EP proposed giving Member States or competent authorities the choice between competitive tendering and direct award of public service contracts. To improve service quality and to focus on tangible improvements for the passengers, the direct award of public service contracts would be linked to specific quality requirements such as: evolution of passenger volumes, frequency and punctuality of services, cost-efficiency, customer satisfaction, quality of rolling stock. The EP proposed also that the volume of a public service contract for passenger transport, which will be awarded on the basis of competitive tendering, should be set to facilitate competition between small bidders, new entrants and the incumbent operators.

Moreover, the EP insisted that the public service operators that are selected by the authorities should grant their staff working conditions that comply with binding national, regional or local social standards and/or the rules for transfer of staff in the event of a change of operator. They would also have to comply with the relevant collective agreement and ensure decent employment and working conditions. Finally, the EP proposed that public service contracts not complying with the Regulation, directly awarded before 3 December 2022, should expire at the latest 10 years from the entry into force of the Regulation.

Reaching an agreement in the Council on this legislative proposal proved to be quite challenging. Under the Italian Presidency in the second half of 2014, many countries shared the concern that “cherry picking” could lead to the neglect of less profitable rail routes and wished to conserve direct award of contracts. Under the subsequent Latvian Presidency, in parallel with competitive tendering, new exceptions were proposed in particular for Member States whose national rail passenger traffic was less than 1% of all EU rail passenger volume; they were subsequently abandoned. The October 2015 Transport Council which adopted unanimously a general approach reached a compromise and established competitive tendering of public service contracts as a rule. Direct award would still be possible to prevent smaller markets being adversely affected and to ensure the continuity of public rail services. The Council’s general approach justified direct award on the basis of a network’s structure and geographic characteristics.

After a provisional agreement reached between the Council and the EP on 19 April 2016, and a debate in Council in September, Council’s position was published in October 2016. All previous provisions concerning the possibility to directly award public service contracts were reiterated; the transitional period to award them was limited to 7 years after the new rules’ publication. Direct award would also be possible below fixed value or passenger thresholds. The EP Committee on Transport and Tourism adopted the proposal on 5 December. This legislative proposal was finally approved by the EP at second reading in plenary, on 14 December 2016.

Regulation (EU) 2016/2338 was signed by the European Parliament and the Council on 14 December 2016 and published in the Official Journal on 23 December 2016. It entered into force on 24 December 2017.


Further reading:

Author: Damiano Scordamaglia, Members' Research Service,

As of 20/11/2019.