C-412/96

K A I N U U N LIIKENNE A N D POHJOLAN LIIKENNE

OPINION OF ADVOCATE GENERAL LÉGER delivered on 26 March 1998 *

1. The Korkein Hallinto-oikeus (Supreme in the conditions inherent in the concept of a Administrative Court), Finland, seeks a pre- public service which are imposed on trans- liminary ruling from the Court on the inter- port undertakings by Member States.' 3 It pretation of certain provisions of Regulation recognises, however, that their maintenance is (EEC) N o 1191/69 of the Council of 26 June essential, in certain cases, in order to ensure 1969 on action by Member States concerning the provision of adequate transport services. 4 the obligations inherent in the concept of a public service in transport by rail, road and inland waterway, 1as amended by Council Regulation (EEC) N o 1893/91 2 of 20 June 1991 (hereinafter 'the Regulation').

3. The following three principles reflect the general scheme of this Regulation: In substance, the Court is asked to define the extent of the powers granted to Member States by the Regulation in the case of a request for partial termination of a public ser- vice obligation in the field of regional trans- port by road made by an undertaking entrusted with a public service mission. — Member States must terminate public ser- vice obligations in matters of transport except in so far as the maintenance of these obligations is essential in order to ensure the provision of adequate transport ser- vices; Legal framework

The relevant provisions of the Regulaton — the maintenance of a public service obli- gation entails an obligation on the Member 2. The Regulation seeks to '... eliminate dis- State to compensate the resulting financial parities liable to cause substantial distortion burdens for undertakings;

9. Article 5(1) states that 'Any obligation to operate or carry out shall be regarded as imposing economic disadvantages 6 where the reduction in the financial burden which would be possible as a result of the total or partial termination of the obligation in respect of an operation or a group of operations affected 6. The public service obligations defined in Article 2(1) are those which 'the transport undertaking in question ... would not assume or would not assume to the same extent or 5 — This concept was denned in Case 36/73 Nederlandse Spoor- under the same conditions' if it were consid- wegen v Minister van Verkeer en Waterstaat [1973] ECR 1299. ering its own commercial interests. They com- 6 — Ditto.

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by that obligation exceeds the reduction in solely at issue in the present case, which pre- revenue resulting from that termination.' supposes the grant of a public transport licence. 8

10. Article 6(2) provides that: 'Decisions to maintain a public service obligation or part 13. A scheduled service licence for bus opera- thereof, or to terminate it at the end of a tion is granted on application by transport specified period, shall provide for compensa- undertakings to holders of a public transport tion to be granted in respect of the financial licence by the authority competent to grant burdens resulting therefrom; the amount of such licences. 9 The licence stipulates the traffic such compensation shall be determined in control centre, the route, and, in general, the accordance with the common procedures laid timetable and the date of commencement of down in Articles 10 to 13'. the service. 10

16. The Law also allows the holder of a scheduled service licence to request the par- tial termination of his public service obliga- tions. The competent authority is not how- ever bound to accede to this. It is precisely the application of this latter provision which is at issue in the present case. 19. Kainuun Liikenne and Pohjolan Liikenne thus applied for the partial termination of their operating obligation on the Kajaani- Rukatunturi route, so as to cut back the operation of traffic to Kajaani-Peranka (around 180 kilometres) and to Kajaani-, Factual framework Suomussalmi (about 118 kilometres).

21. By a decision of 9 January 1995 (herein- 24. Moreover, the national court, adopting after the 'contested decision'), the Lääninhal- the reasoning of the contested decision, notes litus rejected the application on the grounds that in the circumstances of the present case that it had not been demonstrated that, cut- the request for partial termination of the ting back the workings in question to Per- public service obligation put forward by the anka and Suomussalmi, an economically better applicants in the main proceedings could only result than that obtained by the continuation have been rejected. According to it, only the of the existing service in full could be achieved. complete termination of this obligation — It added that, in the circumstances of the that is, the withdrawal of the licence — allows present case, the Law did not allow for par- the administration to organise transport in a tial termination of the public service obliga- proper and rational manner while maintaining tion, but only for its complete termination. adequate transport services, with the lowest possible level of subsidies and creating effec- tive competition between the transport under- takings for the operation of the former public service.

22. Kainuun Liikenne and Pohjolan Liikenne brought an appeal against the disputed decision before the Korkein Hallinto-oikeus. In sup- port of this appeal, they submitted that, under the Regulation, the Lääninhallitus was obliged 25. However, the Korkein Hallinto-oikeus, to grant them partial termination of the line uncertain as to the interpretation of the pro- since they had shown that they satisfied the visions of the Regulation concerning the par- requirements of Article 4 of the Regulation, tial termination of a public service obligation, relating to the existence of an economic dis- submits the following questions to the Court advantage within the meaning of Article 5 of for a preliminary ruling: the Regulation.

(2) If the answer to the first question is 28. Moreover, they submit that, contrary to wholly or conditionally in the affirma- the statement of the national court, Finland tive, in which case the Korkein Hallinto- does not possess any special characteristics oikeus may remit the case to the Lään- which would justify the power of the com- inhallitus for a fresh decision, in order to petent authority to reject a request for partial reach a final decision in the case the termination of public service obligations, or question arises whether it also follows, to revoke an operator's licence on its own from the right given to transport under- initiative when the undertaking concerned has takings in the regulation on public ser- requested only a partial termination. vice obligations to have a service obliga- tion partially terminated, that the authorities' power under national law t o revoke a bus operator's licence for the purpose of reasonable reorganisation of transport is precluded or restricted where the need to reorganise results from a 29. They therefore ask the Court to reply to partial termination?' the additional questions annexed to their written observations.

Preliminary remarks 30. In so far as the complaints concerning the incorrect interpretation of the Law by the national court are concerned, it will be recalled that the Court has consistendy held 13 that the national courts and the Court constitute two distinct legal orders and that it is for the national court to provide to the Court the 'factual or legal material necessary to give a useful answer to the questions submitted to 26. The applicants in the main proceedings it.' 14 submit that the account of the national law by the national court is incorrect.

36. It also follows from the order for refer- ence that the Court is asked, by the first question, whether the Regulation requires the competent authority of a Member State to grant to an undertaking entrusted with a 33. However, the Court has on occasion felt public service mission the partial termination it necessary to extract from the order for ref- of its public service obligation as soon as it erence the true subject-matter of the dispute produces proof that its maintenance results in in the main proceedings and the actual economic disadvantage for it. The Court is further requested to state whether the answer to this first question should be qualified and, in particular, if the refusal of such a request 15 — Since Case 16/65 Schwarze v Einfuhr- und Vorratsstelle für Getreide und Futtermittel [1965] ECR 877. is subject to specific rules. 16 — Sec, for example, Case 126/80 Salonia v Poidomani and Giglio [1981] ECR 1563. 17 — Case 26/62 [1963] ECR 1. See also points 27 to 29 of my Opinion in Case C-66/95 R v Secretary of State for Social Security, ex parte Sutton [1997] ECR I-2163 and the cases 18 — See, in particular, Case 35/85 Tuner [1986] ECR 1207, para- cited therein. graph 10.

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37. Similarly, by its second question, regard- 40. It follows from the objective pursued by less in my view of the answer given to the the Regulation and its general scheme, as well first, the national court seeks to know whether as the very wording of some of its provisions, a Member State may decide on its own initia- that while undertakings may apply for the tive to terminate the entire public service termination of a part or the whole of their obligation imposed on an undertaking, when public service obligations — only under cer- the latter has only requested partial termina- tain conditions —, the competent authorities tion, so as to reorganise the service in a of the Member States may reject that applica- rational manner. tion where the specific public interest of trans- port services so requires.

42. Moreover, the second recital in the pre- amble to Regulation N o 1191/69 states that '... it is essential in certain cases to maintain [the public service obligations defined in the Regulation] in order to ensure the provision 39. I am of the opinion, as are the Finnish of adequate transport services ...'. The same and Belgian Governments and the Commis- observation can be found in the first recital in sion, that the Regulation does not require the preamble to Regulation N o 1893/91, which Member States to accede to an application for states: '... while maintaining the principle of termination of a part or the whole of a public the termination of public service obligations, service obligation. However, in my opinion, the specific public interest of transport ser- the rejection of such an application assumes vices may warrant the application of the con- that certain conditions are complied with. cept of public service in this area'.

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43. However, the 11th recital in the preamble 47. However, the right to decide to maintain to the Regulation provides that, where it is public service obligations is subject to obser- decided to maintain any public service obliga- vance of certain rules. tion, the competent authorities must pay com- pensation for the financial burdens which may thereby devolve for transport undertak- ings.

48. Thus, Article 3 of the Regulation obliges the competent authorities to choose, from a number of ways, each capable of ensuring, while satisfying similar conditions, the provi- 44. Those rules reflect the wish of the Com- sion of adequate transport services, that which munity legislature to enable transport under- is the least costly to the community. takings to escape an economic situation weak- ening them compared to their competitors, and thus the priority given to rules capable of facilitating better functioning of the single market.

52. According to the Economic and Social 55. As regards the factors which help to define Committee, since a definition of the concept the parameters of this concept, the second of 'provision of adequate transport services' recital in the preamble to Regulation N o is difficult to formulate by reason of the wide 1191/69 indicates that '... the adequacy of range of circumstances which may exist in the transport services must be assessed in the light various Member States, the proposed regu- of the state of supply and demand in the lation restricts itself to providing criteria for transport sector and of the needs of the com- the assessment of this concept. 20 munity'. 21

53. Before explaining what are the 'criteria for assessment of this concept', it must be 56. Article 3 of the Regulation emphasises, recalled that, according to the fourth recital in moreover, that the provision of adequate trans- the preamble to Regulation N o 1191/69, port services is to be assessed having regard Article 2 of the Regulation defines the various to the public interest, the possibility of having public service obligations in the area of trans- recourse to other forms of transport and the port. ability of such forms to meet the transport needs under consideration, and the transport rates and conditions which can be quoted to users.

54. That article provides that they consist of the obligation to take all necessary measures to ensure the provision of a transport service 57. In my opinion, once the requirements set out in Article 3 of the Regulation are satis- 19 — This article provides that 'In order to ensure adequate trans- fied, the competent authorities of the Member port services which in particular take into account social and environmental factors and town and country planning...'. States retain a wide margin of discretion to 20 — See the sixth recital of the Opinion given on the proposed Council Regulation on action by Member States concerning the obligations inherent in the concept of public service in transport by rail, road and inland waterway (OJ 1968 C 49, p. 15). 21 — My emphasis.

62. To conclude, in my opinion the Regu- lation — and in particular Articles 1, 3 and 4 thereof — must be interpreted as meaning that it does not require the competent auth- 59. In its opinion, the ensuring of adequate ority of a Member State to grant to an under- and appropriate transport services in this type taking entrusted with a public service mission of region with low population density the partial termination of its public service requires, in addition, overall transport plan- obligation, even if it demonstrates that its ning. That is why, according to it, the Kajaani- maintenance results in economic disadvan- Rukatunturi route cannot, as the applicants in tages for it. However, such a refusal may only the main proceedings claim, be split into sev- be based on the need to ensure adequate eral segments without prejudicing the prin- transport services. That concept is to be ciple of equal treatment of public service users assessed having regard to the public interest, and of non-discrimination between the trans- the possibilities of recourse to other forms of port companies -wishing to operate the entire transport and the ability of such forms to line. The Government illustrates this by put- meet the transport needs under consideration, ting forward a number of specific examples. 22 and the transport rates and conditions which can be quoted to users; where there are sev- eral ways of ensuring, while satisfying similar conditions, the provision of adequate trans- 22 — Such as the difficulty, for a transport undertaking, of arranging port services, the competent national auth- economically profitable workings if it can only operate the northern section of the line; or the additional constraints ority is to select the way least costly to the imposed on elderly people living on the northern part of the route if they have to change buses in mid-journey. community.

66. The general scheme and the very wording of certain of the provisions of the Regulation confirm this approach. 65. Even if the Community legislature accepts that the need to ensure the provision of adequate transport services may sometimes justify the maintenance of public service obli- gations, its objective is to terminate such obli- gations since they are likely substantially to distort the conditions of competition. The legislature therefore entrusts to Member States 67. Thus, Article 1(3) of the Regulation states a wide margin of discretion in relation to ter- the principle that Member States are to ter- mination of such constraints and requires minate transport service obligations on their them to compensate undertakings for the own initiative. financial burdens that they suffer as a result of their maintenance. It is in this light that the 5th and 11th recitals in the preamble to Regu- lation N o 1191/69 must be read, which respec- tively provide that:

68. In the present case, the competent Finnish authorities decided that the public bus service on the route in question is actually unprofit- able and that the operation of the public ser- '... it should be left to the Member States on vice, in an economically viable manner for their own initiative to take measures to ter- the transport undertakings and at the least

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cost to the community, necessitated the reor- shown in the examination of the first ques- ganisation of the entire line. tion, it also recognises that they have a wide margin of discretion in the field of organisa- tion — and consequently of reorganisation — of the public transport service. 69. The contested decision can therefore be seen as a decision to terminate a public trans- port service obligation in a region of Finland and to reorganise that public service. 71. I therefore suggest that the second ques- tion should be answered as meaning that the Regulation does not preclude a Member State 70. N o t only does the Regulation recognise from deciding of its own motion to terminate the right of Member States to terminate public public service obligations with a view to reor- service obligations, but, as I have already ganising that service in a rational manner.

ability of such forms to meet the transport needs under consideration, and the transport rates and conditions which can be quoted to users; where there are several ways of ensuring, while satisfying similar conditions, the provision of adequate transport services, the competent national authority is to select the way least costly to the community.

(2) The abovementioned regulation must be interpreted as meaning that it does not preclude a Member State from terminating a public service obligation with a view to reorganising that public service in a rational manner.

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