The public service compensations for providing transport services were paid out on the basis of contracts concluded between the Ústí Region authorities and operators listed in recital 96 under (a), (b) and (c) and were paid from the public budget of those authorities. Those compensations are therefore imputable to the State and granted through State resources.

1. (a)

   the recipient undertaking must actually have public service obligations to discharge and those obligations must be clearly defined;

2. (b)

   the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner;

3. (c)

   the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations;

4. (d)

   where, in a specific case, the undertaking which is to discharge public service obligations is not chosen pursuant to a public procurement procedure which would allow for the selection of the tenderer capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant revenues and a reasonable profit for discharging the obligations.

In order to exclude the presence of an economic advantage where compensation is granted to undertakings in consideration for the discharge of public service obligations, the Altmark judgment requires that all four conditions be satisfied cumulatively.

In the Opening Decision, the Commission already noted that the Czech authorities had provided it with the contracts on the basis of which the Ústí regional authorities arranged the provision of public service obligations with the operators. Those contracts define the scope of the public service obligation to provide transport services. More specifically, those contracts define the lines on which the bus transport providers operate, the timetables and the objective estimate of the provable loss. That those lines cannot be operated on a commercial basis is demonstrated through a comparison of the expected provable loss and the actual loss for those lines as provided in Tables 1 to 9 above. Moreover, the operators cannot unilaterally decide to stop the operation of unprofitable lines; neither can they influence the scope and frequency of services on the lines they operate. They therefore bear a certain degree of business risk stemming from the fact that they can face an economic loss if their operating losses are greater than what was established beforehand by the objective estimate of the provable loss. Accordingly, the Commission concludes that, as regards the measures listed in recital 96 under (a), (b) and (c), genuine public service obligations exist which were clearly defined in advance. The first Altmark condition is thus fulfilled.

As regards the second Altmark condition, the parameters that serve as the basis for calculating compensation must be established in advance in an objective and transparent manner in order to ensure that they do not confer an economic advantage that could favour the recipient undertaking over competing undertakings. The need to establish the compensation parameters in advance does not mean that the compensation has to be calculated on the basis of a specific formula. Rather, what matters is that it is clear from the outset how the compensation is to be determined.

In the Opening Decision, the Commission noted that the public service compensation was calculated under the contracts on the basis of an expected price per kilometre and foreseen revenues. The Commission acknowledged that such a methodology could ensure an ex ante calculation of compensation in an objective and transparent manner. However, the Commission had not received sufficient information concerning the methodology used to establish the level of expected prices per kilometre in this case and could therefore not yet conclude whether the second Altmark condition had been fulfilled.

The Czech authorities have since explained that the applicable Czech legislation lays down all the parameters on the basis of which the compensation payments are to be calculated, in particular the costs of the services, revenues and reasonable profit. Subsequently, each contract concluded between the Ústí Region and the operator contained the relevant parameters used for calculating the objective estimate of the provable loss. That estimate is based on the difference between (a) the price per kilometre agreed upon in the contract and (b) the revenues of the operator for the relevant services. The price per kilometre included (i) the costs of the operations and (ii) a reasonable profit.

As regards the differences in price per kilometre for each of the operators, the Czech authorities explained that they reflect the different situation of each operator (e.g. the costs per kilometre are naturally different in rural and suburban areas). In any event, all the parameters for calculating the prices for each of the operators were clearly laid down in advance in the individual contracts. The regional authorities also had the power to check that the data used for such estimates were correct and corresponded to the situation of that particular operator.

The Commission therefore considers that the parameters for calculating the compensation for each operator were established in advance in an objective and transparent manner. The second Altmark condition has thus been fulfilled as regards the measures listed in recital 96 under (a), (b) and (c).

As regards the third Altmark condition, the Commission notes that the final settlement and payment of compensation takes place only once the specific operator has provided documentary proof of actual losses incurred in the performance of the service. At the same time, the maximum amount of the compensation is limited in advance by an objective estimate of the provable loss, which is included in the contract.

This is evidenced by the fact that the actual compensation paid to the operators, as indicated in Table 2, Table 4, Table 7 and Table 9, is in many instances lower than the forecasted losses specified in the contract, as indicated under the heading ‘overall provable loss’ in Table 1, Table 3, Table 6 and Table 8.

An increase of those caps is only possible if there are unforeseeable costs, which was, however, not the case for any of the regional transport contracts examined under this Decision. As regards the notion of ‘unforeseeable costs’, in connection with which the Commission expressed doubts in its Opening Decision, that notion concerns costs which are independent of the companies' management decisions, such as those relating to natural disasters, price interventions by the State, changes in excise duties, VAT, etc. To claim compensation, the operators must prove that those costs were genuinely incurred in the discharge of the public service obligations. The existence of that exception to the maximum cap on compensation does not, however, compromise the ability of the compensation mechanism to ensure that the ultimate compensation received by the operator does not exceed its actual losses.

As regards the determination of the reasonable profit, which forms a part of the calculation of costs and in connection with which the Commission also expressed doubts in the Opening Decision, the Czech authorities demonstrated that the average profit in 2005 amounted to CZK 1,53 per kilometre. With an average price per kilometre in 2005 amounting to CZK 30,60 per kilometre, the average profit margin amounted to around 5 %, which the Commission considers to be reasonable. In 2007, the average profit amounted to CZK 0,97 per kilometre and the average price per kilometre was CZK 30,24 per kilometre. The average profit margin thus amounted to around 3,2 %. The Czech authorities did not provide the average profit figures for the year 2006. However, the average profit margin for 2006 is likely to be in the same range as those for 2005 and 2007 since the other relevant figures (such as the average price per kilometre amounting in 2007 to CZK 31,72, average provable loss per kilometre amounting to CZK 17,49) remained in the same range and the methodology for calculation of the reasonable profit was the same (see footnote 9).

Therefore, the Commission concludes that the third Altmark condition has been complied with as regards measures listed in recital 96 under (a), (b) and (c).

Finally, the fourth Altmark condition requires that the provider of the public services is selected in a public procurement procedure or that the costs for providing that service are limited to the costs of a typical well-run undertaking through benchmarking.

Consequently, the Commission must examine whether the second branch of the alternative stipulated in the fourth Altmark condition is fulfilled as regards the contracts in question. According to that alternative, the level of compensation must be determined on the basis of an analysis of the costs of a typical, well-run and adequately equipped undertaking (benchmarking).

The Czech authorities claim that the level of compensation for operators in 2005 and 2006 correspond to the costs of a typical, well-run and adequately equipped undertaking. They argue that this is proven by comparing the prices in 2005 and 2006 with the prices resulting from the open and transparent tendering procedures for services as from 2007. While in 2005, the average price corresponded to CZK 30,60 per kilometre (with average costs of CZK 29,06 per kilometre), the average price resulting from the 2007 tenders amounted to CZK 30,24 per kilometre (average costs of CZK 29,22 per kilometre). In addition, while the range of prices for different operators was between CZK 21,50 and CZK 37,16 per kilometre in 2005, it ranged between CZK 25,48 and CZK 45,79 per kilometre in 2007. The Czech authorities argue that since the average level of the price per kilometre and the range of individual prices did not differ materially between 2005 and 2007, the prices in 2005 should be considered as corresponding to the costs of a typical undertaking, well-run and adequately provided with means of transport. In addition, the Czech authorities submitted an expert opinion testifying that, with the exception of exceptionally high costs of the complainant, all other operators' costs corresponded to the costs of a typical undertaking, well-run and adequately provided with means of transport.

As regards the measure referred to in recital 96 under (c), the Czech authorities have not provided the Commission with any information indicating that the level of compensation for the contracts in the period from 9 September 2006 to 31 December 2006 was determined on the basis of an analysis of the costs of a typical, well-run and adequately equipped undertaking.

Accordingly, as not all of the requirements of the second alternative of the fourth Altmark condition have been fulfilled, the Commission cannot conclude that the amount of compensation resulting from measures referred to in recital 96 under (a) and (c) was established at a level which guarantees that no advantage was conferred to certain operators. The Commission therefore considers that the public service compensations granted as a result of measures referred to in recital 96 under (a) and (c) have conferred an economic advantage upon the regional public transport operators referred to in that same recital.

As regards the measure referred to in recital 96 under (b), the public service contracts concluded for the period between 9 September 2006 and 2 June 2007 were concluded following a tender procedure. That tender procedure divided the Ústí Region into 15 areas on which operators could bid separately. The tender announcement was published on a website, on the public announcements board of the Ústí Region and in two daily newspapers covering the whole of the Czech Republic. Twenty-three interested parties collected the tender documentation. The allocation criteria were made known in advance: the selection was to be made solely on price, no qualitative parameters were evaluated and the winner of the tender was the operator which offered the lowest price per kilometre. The tender procedure was thus sufficiently well-publicised, open and transparent.

According to the Czech authorities, the offered price was in the range of CZK 27,57/km and CZK 43,73/km. Eliminating the bid made by DPÚK, the offered price range would be between CZK 27,57/km and CZK 33,5 CZK/km. The prices per km were offered by operators for the areas in which they decided to bid. ČSAD Česká Lípa won in all 15 tender procedures. Since that operator could not ultimately provide the service, the Ústí Region concluded public service contracts with the bidders who came second in those cases where this was possible (that was the case in nine areas). Selecting the second highest bidder in a case where the highest bidder fails to perform the services does not invalidate the finding that the bid ultimately selected in these nine areas was selected pursuant to a sufficiently well-publicised, open and transparent tendering procedure in line with the first branch of the fourth Altmark condition.

Accordingly, the Commission finds that the public service compensation granted by the Ústí Region as a result of the measure referred to in recital 96 under (b) does not confer an advantage upon the operators listed in that recital and therefore does not constitute State aid within the meaning of Article 107(1) of the Treaty. Since a finding of State aid under that provision only follows if all four conditions listed in recital 95 are present, there is no need to continue to examine the measure listed in recital 96 under (b) in the absence of an advantage.

The advantage granted as a result of measures listed in recital 96 under (a) and (c) is selective as only certain undertakings benefit from those compensations.

Aid granted to operators in a market or a sector which has not yet undergone a process of liberalisation through the opening of that market to outside competition is deemed not to constitute State aid within the meaning of Article 107(1) since it does not affect trade between Member States. As noted in the Altmark judgment, with effect from 1995 several Member States started to open certain transport markets to competition from undertakings established in other Member States, so that a number of undertakings are already offering their urban, suburban or regional transport services in Member States other than their State of origin. As explained in recital 14, under Czech Legislation in force since 2004, regional bus services provided under a public service contract can be ensured by any operator who has a licence for a particular line, has obtained a general authorisation (‘koncese’) under the Trades Licensing Act (‘živnostenský zákon’) for public bus transport activities and respects an agreed timetable. As further noted in that recital, regional bus transport services were fully liberalised in the Ústi Region during the period under investigation since any operator from another Member State which fulfilled the conditions for obtaining a license could provide regional bus transport services in the Czech Republic during the period under investigation.

Accordingly, any compensation granted to providers of regional bus services should be considered liable to distort competition for the provision of passenger transportation services by bus.

The increase of the equity capital of DP Ústí was carried out by the Municipality of Ústí nad Labem. Hence, State resources were involved in that operation.

As regards the capital increase, the Czech authorities argue that its purpose was to provide financing for the last stage of the construction of a trolley-bus network which had been under construction since 1984. That additional investment into electrification of the municipal transport network of Ústí nad Labem would, according to the Czech authorities, improve the environmental conditions in the municipality.

In the absence of evidence that DP Ústí would have been able to obtain similar financing from other sources or that a hypothetical private investor would have provided such a capital increase as well, the capital increase should be considered to provide an advantage to DP Ústí.

The capital increase is selective insofar as it was granted to only one company, DP Ústí.

A measure granted by the State is considered to distort or threaten to distort competition when it is liable to improve the competitive position of the recipient compared to other undertakings with which it competes. For all practical purposes, a distortion of competition within the meaning of Article 107 of the Treaty is thus assumed as soon as the State grants a financial advantage to an undertaking in a liberalised sector where there is, or could be, competition.

Therefore, the Commission concludes that the capital increase in favour of DP Ústí is liable to distort competition and affect trade between Member States.

In light of the foregoing, the Commission concludes that the increase of the equity capital of DP Ústí by the Municipality of Ústí nad Labem constitutes State aid within the meaning of Article 107(1) of the Treaty.

The Commission recalls that the transport sector is affected by negative externalities due to the fact that different modes do not pay the real cost they impose on society. It follows that intermodal competition is distorted and entails market failures. Accordingly, the Commission considers that it may be necessary for the State to intervene by coordinating measures in the transport sector.

The capital increase at issue was provided exclusively to finance DP Ústí's construction of a trolley-bus route (Ústí nad Labem — Střekov) with the aim of improving traffic flows between those two geographical points and reducing environmental pollution. The aid thus seeks to promote intermodality and improve environmental standards of transport in the Ústí region, which is in line with the general interest of the Union. Therefore, the Commission concludes that the measure helps to achieve a clearly defined objective of general interest.

The Commission considers that the measure is necessary to achieve the objective of transferring a part of the activity of transport from a standard bus line to a trolley-bus line, encouraging intermodal and more environmentally-friendly public transport. In the absence of aid, such a shift would not take place and transport on the line in question would continue to be carried out by less-environmentally friendly bus transport.

The Commission notes that DPÚK claimed in its comments that it had proposed to the authorities a significantly cheaper alternative for an environmentally friendly form of local transport on the line Ústí nad Labem — Střekov (based on CNG-buses instead of the trolley-buses of DP Ústí), but that that alternative was rejected. However, the Czech authorities have no official record of any formal submission by DPÚK of an alternative project for ensuring a more environmentally-friendly transport in the municipality. The project attached to DPÚK's submission is dated June 2001 and was thus not relevant at the time of the assessed capital increase. In addition, the Czech authorities claim that the line Ústí nad Labem — Střekov was an integral part of the trolley-bus system gradually being constructed since 1984 and operated since 1988.

Therefore, the line Ústí nad Labem — Střekov was constructed as an integral part of the existing trolley-bus system built, owned and operated by DP Ústí. In addition, there is no clear evidence that any reasonable and available alternative existed at the time of the capital increase. Therefore, the Commission considers that any alternative solutions for this particular part of the network by competing providers were not a reasonable alternative that would need to be taken into account by the Municipality of Ústí nad Labem.

• Contrary to aid in the form of a direct grant, the aid in question was granted through a capital increase. This means that the actual aid amount involved in the operation is significantly lower than the value of the capital increase, since the Municipality of Ústí nad Labem is the sole shareholder of DP Ústí both before and after the capital increase. As a 100 % shareholder in DP Ústí, the Municipality of Ústí nad Labem retains an indirect ownership of the trolley-bus line financed from the capital increase and will be able to reap profits from its operation or from its eventual sale since the value of DP Ústí would be increased due to this investment. Therefore, the provision of financing in the form of a capital increase ensures that the actual aid intensity is lower than the one resulting from a simple comparison of the capital increase and total costs of the project.

• As regards the incentive effect, due to the amount of the investment in this project it seems unlikely that DP Ústí would be able to carry out these investments without additional capital. The Commission notes in this respect that the construction of other, less significant parts of the trolley-bus system network in Ústí nad Labem were financed by other means (e.g. bank loans amounting to CZK 5 million and CZK 35 million in 2004 and 2005 or to CZK 40 million in 2007 — see above section 7.1.2). However, the trolley-bus line Ústí nad Labem — Střekov was the last outstanding significant part of the trolley-bus network system under construction in Ústí nad Labem since 1984.

• Furthermore, the Commission notes that the resources from the increase of equity capital of CZK 160 million are strictly bound for exclusive use in the financing of the construction of the trolley-bus line Ústí nad Labem — Střekov. The resources from the capital increase are kept on a separate account of DP Ústí, from which payments are made for the construction of the trolley-bus line. The money thus cannot be used for possible cross-subsidisation of the transport operation of DP Ústí.

• Finally, the remaining amount of the construction costs for the trolley-bus line of CZK 19,3 million was financed from the own resources of DP Ústí. Thus, the aid has been limited to the minimum amount necessary to close the funding gap of the project.

Accordingly, the Commission considers the aid to be proportionate to achieve the stated objective of general interest.

As a part of the public transport system, the use of the trolley-busses will be open to all passengers on a non-discriminatory basis.

Transport by trolley-bus requires certain basic infrastructure in order to constitute a viable alternative to road transport. Given that that the capital increase is limited to the additional costs necessary for the construction of the trolley-bus line and does not cover the operational costs of DP Ústí, the measure referred to in recital 96 under (e) will not result in the distortion of competition vis-à-vis transport by bus to an extent contrary to the general interest.

Accordingly, the Commission concludes that the State aid resulting from that operation can be deemed compatible with the internal market on the basis of Article 93 of the Treaty.