EUROPE: Concerns have been raised over the signing of directly awarded train operating contracts in several countries, shortly before the expiry of a provision in the Fourth Railway Package regulation on competitive tendering.
Under EU Regulation (EC) 1370/2007, train operating contracts supported by a public service obligation are expected to be awarded through competitive tendering, but as a transitional measure direct awards could still be made under certain circumstances. Such awards could only be made for up to 10 years, rather than the 15 years permitted for a competitively tendered PSO contract.
‘Article 5(6) of Regulation 1370/2007 was an important transitional measure that ensured the provision of high-quality passenger rail services during a transformative phase for the sector marked by the final opening to competition of the rail market with the Fourth Railway Package of 2016’, the Community of European Railways & Infrastructure Managers explained to Railway Gazette International.
The 10-year transitional exemption expired on December 24 2023, meaning that all contracts should generally be tendered competitively. This was welcomed by the AllRail association of new entrants, which has been lobbying for market opening. It believed the ‘pivotal change’ would lead to ‘a competitive and dynamic passenger rail market’, adding that ‘expectations are high for bidders to offer enhanced services with more frequent schedules, sometimes with state-of-the-art rolling stock, all while maintaining commitments to superior punctuality. This evolution signifies a significant leap in value for both passengers and taxpayers.’
The association noted that French rail regulator ART had found that regions which had introduced competition for contracts had seen significant service improvements and costs reduced by an average of 25%.
Last-minute deals
However, a number of governments and transport authorities signed direct award contracts in the final weeks before the provision expired.
AllRail noted that the Netherlands signed a directly awarded PSO contract with state-owned incumbent NS on December 21 to operate services on the core passenger network from January 1 2025 to December 24 2033. This award had already been challenged by the European Commission, which argued that the one-year delay between signing and entry into force was too long and was aimed at circumventing the principle of competitive tendering.
In Denmark, a directly awarded 10-year PSO contract with state-owned incumbent DSB came into force in December 2023. And in November, Italy’s Lombardia region renewed Trenord’s PSO operating contract until 2033. Meanwhile, the Occitanie region in France terminated its contract with SNCF Voyageurs three years early in 2022, in order to award a new contract running until 2032.
Latvia’s PSO contract with state-owned passenger operator Vivi is due to expire in December 2024, but the transport ministry has proposed a direct renewal in the belief there is ‘not enough time to open the market’. AllRail noted that EU member states have had a six to seven year transition period in which to prepare, and suggested that the legal implications of the Latvian proposal were ‘still unclear’.
AllRail insiders pointed out that the direct award provisions in the Fourth Railway Package included specific conditions, such as using the 10 years as a transition period and undertaking market analysis, as well as ensuring that individual contracts were not unrealistically large. They noted that some authorities had awarded contracts covering almost all of a country with little or no evidence of any market analysis or transitional arrangements. In some cases, PSO support had been introduced for services that had previously been expected to cover their operating costs.
Noting that the Commission had already launched infringement proceedings against the Netherlands, AllRail suggested that some or all of the recent direct awards might be ‘legally invalid in some form’.
Uncertainty ahead
CER believes that ‘going forward, the PSO Regulation will continue to ensure’ an appropriate level of services, ‘provided that it is applied and interpreted as approved by the EU co-legislators’.
However, the European Transport Workers Federation argues that direct awards should still be permitted. ‘ETF believes public transport is a public service that should serve the interest of the public, not that of shareholders trying to make a profit’, a spokesperson told Railway Gazette International. ‘We believe direct awarding to publicly funded and democratically controlled companies is the best way to ensure continuity of service and foster cross-border co-operation.
‘According to the analysis of several independent legal experts, the direct awarding of public service contracts will continue to be possible after the specified deadline. This will require some political will, especially in the face of a European Commission that seems dead-set on pushing for ever more competition on the European railways. There are still good reasons why an authority would want to directly award a contract, including environmental reasons, connecting (remote) communities, maintaining a timetable that allows for a dense network of connections, ensuring accessibility and affordability.’
