The Landkreis Emsland (the public administration of the Emsland region) has been the sole shareholder of EEB ever since its founding. As such it has extensive control over the operations of EEB. In accordance with paragraph 10 of the articles of association (Gesellschaftsvertrag) of EEB, the Landkreis appoints EEB's managing director and has the final say on key business decisions (annual accounts, economic plans etc.).

• drafting the Nahverkehrsplan (a local transport scheme, ‘NVP’) for the Landkreis Emsland after hearing the undertakings carrying out the transport;

• establishment and operation of a Mobilitätszentrale (a regional public passenger transport information centre; ‘MCE’ or ‘Mobility Centre Emsland’) and introduction of improved information systems;

• organisation of school transport and integration of the non-integrated school transport into the regular local passenger transport as foreseen in sections 109 and 114 of the Niedersächsisches Schulgesetz as of 3 March 19986 (Lower Saxony School Act; ‘NSG’);

• introduction of tariff improvements;

• cooperation with the railway transport sector.

EEB also engages in rail freight transport, in particular on own railway sidings, and in infrastructure management of these sidings.

Since 1 January 1996, cities and Landkreise are responsible, pursuant to the Nahverkehrsgesetz des Landes Niedersachsen (Lower Saxony Local Transport Act; ‘NNVG’), for ensuring that adequate public transport is on offer. The Landkreis Emsland, therefore, had to ensure the planning, organisation and financing of public transport within the Landkreis were arranged. The Landkreis in turn tasked EEB to realise these tasks, as listed in paragraph 3 of the articles of association of EEB (see recital 14 above).

The public bus transport network is divided into routes for which LVG are granted in accordance with sections 13 and 42 of the German Personenbeförderungsgesetz (national transport act) on a competitive basis. The majority of companies carrying out the public passenger transport in the Landkreis Emsland are from the Landkreis itself.

The local bus transport market in the Landkreis Emsland is divided into two main parts. In the southern part of the Landkreis, private bus undertakings, among them two of the Complainants (Reinhard Bittner and Kalmer) have regrouped their bus transport activities in a tariff association, Verkehrsgemeinschaft Emsland-Süd (transport association Emsland-Süd, ‘VGE-Süd’).

In central and northern Emsland, RegioNetz-Mitte (tariff association RegioNet-Centre; consisting of EEB and three private bus undertakings) and Tarifgemeinschaft Emsland Mitte/Nord (tariff association Emsland Centre/North; of which the other Complainants are part) are the main local transport associations.

EEB arranges school transport across the entire Landkreis Emsland in an integrated and in a non-integrated form.

School transport can be integrated into the regular bus routes. The operators of the respective routes are awarded a contract, by which they are obliged to take the demands of school transport into account. The school tickets are paid by the Landkreis Emsland via EEB.

For those pupils that have a right to school transport, but that do not live along the regular bus routes EEB arranges non-integrated school transport. This service is tendered out to bus undertakings which must respect certain conditions, in particular as regards the routes and time schedules. The Landkreis Emsland reimburses EEB for the amounts invoiced by the operators.

At the time of the opening decision, it was unclear whether the transfer of shares was part of the initial capital endowment of EEB or a capital injection not foreseen when EEB was created. Germany clarified that the major part of the shares, 280 310 RWE shares with a market value of EUR 9 686 523,78, formed part of the initial capital endowment. They had been transferred to the non-separated public agency EE before the creation of EEB.

Nevertheless, 37 630 shares with a market value of EUR 1 689 264,4 were only transferred on 12 October 1998, more than five years after the incorporation of EEB.

The amounts listed under column 2 (dividends) and the amounts listed under column 3 (financial support listed in the budgetary forecasts and revisions of Emsland under No 67.500 ‘Verlustausgleich für ÖPNV-Leistungen’ (‘offset of losses for local passenger transport services’)) were used by EEB to reimburse VGE-Süd for integrated school transport services in southern Emsland.

The dividends in column 2 are the dividends EEB received from the RWE shares mentioned above.

In southern Emsland, school transport was mainly carried out in an integrated form by VGE-Süd, on the basis of a contract signed between VGE-Süd and EE. When EEB was founded in 1997, this contract was substituted by an identical contract between EEB and VGE-Süd. As of 31 December 2005, the contract was terminated by EEB.

The initial contract between EEB and VGE-Süd foresaw a lump-sum compensation of EUR 1 705 362,94 annually. This amount was increased by 10 % on 1 November 2000 to EUR 1 839 116,88.

As the contract between EEB and VGE-Süd ended in 2005, EEB paid back the value of the dividends to the Landkreis Emsland from 2006.

The German authorities explained that the difference between the amount VGE-Süd received according to the Complainants and the sum of columns 2 and 3 results from the fact that VGE-Süd was not only carrying out integrated school transport services covered by columns 2 and 3, but on occasion also carried out non-integrated school transport services which were also compensated by the Landkreis Emsland via EEB.

When opening the formal investigation the Commission had no information at its disposal to ascertain whether the financial resources received by EEB to reimburse the transport undertakings for carrying out this school transport equalled the actual payments by EEB to those undertakings.

The German authorities provided further clarifications and documentation showing that, for integrated school transport falling under column 4, EEB acquired tickets from the bus undertakings for those pupils that travelled via regular bus lines. Yearly settlements with the Landkreis ensured that the amounts paid to EEB correspond to the amounts it transferred to the bus undertakings. The payments were handled through a clearing account. The Landkreis Emsland made the required amounts available and EEB passed these on in the Landkreis' name. The clearance account was verified by an independent chartered accountant on an annual basis to establish that revenues and expenditures match.

The German authorities also clarified that the economic results of EEB contained revenues from integrated school transport carried out by third parties on routes for which EEB has the LVGs and from the non-integrated school transport. The matching of revenues and expenditures relating to these financial posts were also checked by an independent chartered accountant on an annual basis as part of the EEB's end-of-year report.

The financial support listed in the budgetary forecasts and revisions of the Landkreis Emsland under No 71.510 ‘Zuwendungen an die Emsländische Eisenbahn aus dem Verwaltungskostenanteil des Landes’ (‘Subsidies to EEB from the share of Lower Saxony in the administrative costs’) was dedicated to compensate EEB's costs incurred for carrying out tasks that fall within the public policy remit and which the Landkreis Emsland transferred to it

At the time of the opening decision the Commission had doubts whether the entire amount under column 5 was used for costs related to the drafting of the NVP or whether the payments were also used to finance other (economic) activities and whether the reimbursement of administrative costs for the establishment and operation of the Mobility Centre Emsland (MCE) were also covered under column 5.

Germany clarified that the costs listed in column 5 included the staff and material costs for planning public transport, the MCE (until the end of 2004) and the coordination of school transport.

Until the end of 2004 financing the MCE was not separated from the other costs which fall under column 5. From 2005, a separation was introduced following an amendment of the NNVG, and the amounts dedicated to the MCE were shifted to the new budget line covered by column 6 ‘allowances on the grounds of the NNVG’.

The MCE provided local public transport information free of charge. It covered bus and train services in the Landkreis Emsland and provided information regardless of the operator offering the service. The Kreisausschuß (decision making body of the Landkreis) decided to create the MCE in July 1995. At that time, the Landkreis had identified the lack of information about public transport on offer in the region as a significant deficit of the public transport policy.

When EEB was created in 1997, the Landkreis outsourced the MCE's activities to EEB. In paragraph 3 of its articles of association the management of the MCE was attributed to EEB as one of the tasks contributing to the organisation and coordination of transport. Citizens can call the MCE to obtain travel information and since 1999 the MCE has a counter in the train station of Meppen next to the counter of Deutsche Bahn AG.

The lump-sum payment of EUR 3 558,65, agreed between EEB and the Landkreis in 1998 regarding the organisation and financial settlement of the school transport were also covered by column 5. This yearly lump-sum payment served as compensation for the accounting expenses linked to the payments to Deutsche Bahn AG and the regular bus undertakings in northern and central Emsland.

As described above, the MCE was financed under column 5 until 2004, as of 2005 it was financed under column 6. Germany clarified that the amounts received by EEB for the MCE under column 6 were EUR 85 000 in 2005, EUR 98 000 in 2006 and EUR 93 460,87 in 2007.

The Landkreis Emsland also decided to use part of the funds in column 6, which had to be dedicated to the promotion of public transport, to expand its call-a-bus system. This on-demand system makes call-busses available on fixed routes at fixed times if a person calls the Mobility Centre Emsland and introduces a request. The introduction of call-busses aimed at improving the connection to the train stations and between different districts in an efficient manner, without running busses if there is no demand.

The German authorities explained that the Landkreis Emsland financed the acquisition of five new busses by EEB for a total of EUR 685 513,46. EUR 520 989,05 for four busses in 2006 and EUR 164 524,42 for a fifth bus in 2007.

EEB offered the call-busses to transport undertakings at equal conditions dictated by the Landkreis Emsland. They were leased on the basis of a standard form contract, which foresaw that the transport undertakings bear the operation and maintenance costs but do not pay a rental fee. The busses were used by subcontractors on EEB routes and by other transport undertakings on their respective routes. The ownership of the busses remained with EEB, to allow the Landkreis Emsland to retain control over them.

• Column 1: the transfer of shares;

• Columns 2-4: school transport;

• Column 5: administration of local passenger transport (notably the NVP and MCE);

• Column 6: MCE and the call busses.

Should these measures be State aid, the opening decision expressed doubts regarding their compatibility with the internal market.

The German authorities demonstrated that when EEB was created all assets belonging to the former non-separated public agency EE were transferred to EEB. This included the capital endowment of approx. EUR 410 000 and 280 310 RWE shares. Germany therefore argues that neither of them constitute aid. In addition, the German authorities remark that the capital endowment and initial transfer of RWE shares took place before 13 March 1997 and would therefore not be recoverable.

With regards to the 37 630 RWE shares transferred in 1998 the German authorities explained that the transfer took place after a change in voting rights related to the RWE shares eliminating certain benefits. They also confirmed that EEB still holds these shares today.

Germany argued that the Landkreis Emsland acted as a market economy operator trying to optimise its tax structure and that no loss in revenues occurred for the Landkreis Emsland, as EEB had to use the totality of the dividends to pay for school transport until 2005 and had to pay the dividends back to the Landkreis Emsland after 2005.

The German authorities commented that EEB is responsible for the organisation of school transport in the Landkreis Emsland in accordance with paragraph 3 of its articles of association (see also recital 14 and that the payments by the Landkreis to EEB are transferred to undertakings for the school transport services they provide. Thus, the German authorities claim that these transfers do not constitute State aid to EEB as suggested in recital 137 of the opening decision.

EEB received the lists of pupils from all schools and determined which pupils were entitled to public school transport. For pupils that could not be transported via regular bus lines (integrated school transport) EEB arranged non-integrated school transport. For both, integrated and non-integrated school transport, bus undertakings, including the Complainants, received monthly payments by EEB. The German authorities claimed that in this context, EEB spent the entire amount provided by the Landkreis Emsland for school transport. As described in recitals 39 and 40 the clearance account and EEB's accounts were checked annually by chartered accountants to ensure that revenues and expenditures match.

With regards to columns 2, 3 and 4 the German authorities explained that these cover all school transport (integrated and non-integrated) carried out in the Emsland.

For columns 2 and 3 the German authorities provided missing figures and explained that these funds were used to pay VGE-Süd a fixed sum for its services carried out in southern Emsland until 2005 (see also recitals 29 f.).

The German authorities clarified that the payments described in column 4 also include payments for the acquisition of school tickets from Deutsche Bahn AG.

The German authorities explained that the increasing amounts in column 4 are due to tariff increases by the bus undertakings themselves and the fact that the Landkreis granted a rise of 6 to 10 % for non-integrated school transport in 2000 to bus undertakings, including the Complainants.

The German authorities stated that the Mobility Centre Emsland was established by the Landkreis Emsland on 31 July 1995, before the creation of EEB. The MCE provided information on schedules for all bus undertakings and the Deutsche Bahn AG. It updated the schedules in the public information system and provided information to passengers in the information office from Monday to Saturday.

The German authorities argued that the MCE was not an economic activity as there would be no reason for an economic undertaking to set up a mobility centre providing information on behalf of bus undertakings and the Deutsche Bahn AG free of charge. The MCE should be regarded as a public remit duty of the Landkreis Emsland and EEB had simply been charged with its operation.

As explained under recital 46, the financing of the MCE was included in the budget line reflected by column 5 until 2004 and thereafter financed from the new budget line covered by column 6.

According to the German authorities, four staff members carried out the following three tasks: organisation of regional public transport (including the set-up of the NVP), school transport and running the MCE. A comparison with the standard salaries for the concerned salary grades (as provided by the Kommunale Gemeinschaftsstelle) showed that EEB could have requested EUR 169 312,26 instead of EUR 138 015,11 for the staff and material cost. The German authorities also claimed that only material and personnel costs were covered and that no profit margin was added.

Column 6 includes payments to the Mobility Centre Emsland and the financing of rolling stock for the call-a-bus system as explained in recitals 50 f. The German authorities stressed that the payments correspond to real costs incurred by EEB in discharging public duties.

With regard to the call-a-bus system, the German authorities explained that the Landkreis Emsland had invited the bus undertakings in November 2005 to submit proposals for the enlargement of the call-a-bus system.

• the Landkreis Emsland maintains control over the busses because EEB is the owner of the vehicles and puts them at the disposal of the bus undertakings on the basis of a contract (Fahrzeugüberlassungsvertrag);

• the bus undertakings support the current costs of the use and maintenance of the vehicles;

• citizens call the MCE to request a call-bus and the MCE transfers the request to the relevant bus undertakings.

In autumn 2007, an additional bus was acquired which was put at the disposal of the bus undertaking Wessels from Geeste under the same conditions.

The German authorities claimed that EEB cannot make any profits with the call-a-bus system and provided the Commission with a copy of a letter of 16 February 2007 to the bus undertakings operating in the Landkreis showing that all of them had access to the busses at the same conditions.

Nahverkehrsberatung Südwest contested the Commission's conclusion in the opening decision that payments according to §45a PBefG were compensations for public service obligations and fulfil the Altmark criteria. It claims that §45a PBefG does not define public service obligations, that there is no control against over-compensation and that the comparison with a representative economically and efficiently operating undertaking is flawed.

An anonymous commentator expressed doubts whether the amounts listed in column 3 of the above table correspond to payments for school transport. He believed that they are direct subsidies to the bus undertakings in order to obtain other advantages (influence on schedules, membership of EEB in VGE-Süd, better schedules for non-pupil passengers, subcontracts for undertakings originally active in non-integrated school transport).

• As a result of complaints to the Commission by the same Complainants, all contracts for non-integrated school transport were cancelled on 31 December 2005. Consequently school transport was reorganised and certain non-integrated routes were integrated into the regular bus services. The remaining non-integrated school transport was tendered out. This led to cost reductions.

• The lump-sum contract with VGE-Süd was also cancelled at the end of 2005 (see also recitals 29 f.) and the payments to VGE-Süd decreased from EUR 1 840 000 in 2005 to EUR 1 719 000 in 2006.

• In addition advances paid in 2005 turned out to be high which contributed to the fact that the amount listed in column 4 was considerably lower in 2006.

With regard to the overall cost increases between 1997 and 2006, the German authorities caveated that column 4 does not give a precise picture of the real cost evolution as figures for individual years also contain advances for following years.

In 2007, costs went up considerably following important tariff increases for the school bus tickets on the regular bus lines of VGE-Süd. The authorities provided figures on the evolution of tariffs in the area served by VGE-Süd which show increases of up to 45 %. They also explained that the number of eligible pupils increased by roughly 20 % from 1997 to 2003 (15 429 to 18 454). Considering this increase the authorities stated that overall the cost of school transport per pupil actually decreased, mainly due to the integration of school transport into regular bus services.

The German authorities did not dispute that EEB carried out economic activities, but insisted that when it comes to the payments for school transport summarised in columns 3 and 4, EEB did not act as an undertaking but carried out public duties in accordance with paragraph 3 of its articles of association (see also recital 14). EEB merely forwarded the payments received from the Landkreis Emsland to the bus undertakings carrying out the school transport and settlements took place regularly to ensure that there was no over or under-compensation.

According to the German authorities, the claim that the Complainants were not sufficiently consulted in the elaboration of the NVP and that the NVP was adjusted to EEB's advantage is not correct. In 1996 the bus undertakings were invited to participate in a working group to discuss the NVP, which they did. However, in 2002, the undertakings Kalmer, Bittner, Elbert, Wessels, Fischer and Richers-Reisen refused to participate in a similar working group and sent written submissions. These comments were summarised and discussed in the decision making bodies (Gremien) of the Landkreis Emsland. Supporting documents were provided to the Commission.

The German authorities further explained that the NVP did not contain any concrete information on the frequency of individual lines or on the trajectory of the lines (a copy of the NVP has been provided to the Commission). It was unclear to the German authorities in how far the drafting of the NVP could cause a competitive disadvantage to the bus undertakings.

The German authorities also contested the Complainants' claim that part of the drafting of the NVP is an economic activity. They affirmed that the NVP is part of the public duties of the Landkreis Emsland. The articles of association (Gesellschaftervertrag) explicitly imposed the duty of drafting the NVP onto EEB.

With regard to the call-a-bus system, the German authorities stressed that the busses were offered to all undertakings in the Emsland at the same conditions as an additional letter of 16 February 2007 to the bus undertakings shows. The German authorities did not understand how the compulsory call via the Mobility Centre Emsland could lead to the transfer of commercially sensitive data.

The authorities disputed that the undertakings Albers and Elbert were not given access to these busses. They claimed that meetings with the undertaking Elbert showed that they did not agree with the conditions of use of the busses.

With regard to the call busses the German authorities considered that EEB carried out public duties. Following a decision of 8 February 2006, the Kreisausschuß (decision making body) of the Landkreis Emsland instructed EEB to acquire the busses and to extend the call-a-bus system. By maintaining the busses in the ownership of EEB, the Landkreis wanted to ensure that it keeps the decisive power over the use of these busses.

The German authorities stated that if a party would no longer be interested in operating a call-bus it would be offered to other interested parties. If no one could be found, the Landkreis Emsland would decide about their use. One of the five call-busses ceased to be operational in August 2012 and the German authorities explained that this bus would be sold and that the revenues from this sale would be reimbursed to the Landkreis Emsland, showing that the Landkreis maintained control over the buses. The same would happen if other busses would no longer be operational.

The German authorities confirmed that the busses were partially used outside the call-a-bus system, more specifically for school transport. According to the German authorities this happened in coordination with the Landkreis Emsland. EEB's subsidiaries and third parties used the call-busses for school transport purposes between 3,9 % and 24,1 % of the time.

According to Article 107(1) TFEU, aid granted by a Member State or through State resources which distorts or threatens to distort competition by favouring certain undertakings or the provision of certain goods shall be incompatible with the internal market, in so far as it affects trade between Member States, unless otherwise provided for in that Treaty.

• is granted by the State or through State resources,

• favours certain undertakings or the production of certain goods,

• distorts or threatens to distort competition, and

• affects trade between Member States.

Since the RWE shares transferred in 1998 constitute State aid, and it cannot be excluded that the funding provided for the MCE and the call-busses constitute State aid within the meaning of Article 107(1) TFEU, the Commission must therefore next determine whether the aid in question can be considered compatible on the basis of the derogations provided for in that Treaty. It is considered that the measures under investigation all represent the reimbursement for the discharge of certain obligations inherent in the concept of a public service which support the needs of coordination of transport.

For the sake of completeness, the compatibility of the measures at stake will be assessed both in accordance with the rules applicable at the time of the decision as well as the rules applicable at the time the measures were paid. This is why compatibility is assessed according to Article 93 TFEU as well as Article 3(2) of Regulation (EEC) No 1107/70, as explained further below in recitals 172 f. and 212 f.