In Germany the law makes the carriage of passengers by regular service vehicles subject to the issue of a licence. The licence is granted to an undertaking in order to guarantee a particular type of transport. The licence requires the carrier to comply with certain public-service obligations, such as fares or time-tables.

Since 1996 German law has distinguished between services run as commercially independent undertakings and those run in accordance with public-service rules. "Commercial services" means transport the costs of which are met by the undertaking's revenue. German law provides for public services to be subject to the 1969 Community regulation on "public-service obligations", whereas commercial services are excluded from that regulation.

In 1990 the undertaking Altmark was granted licences for the carriage of passengers in buses in the administrative district of Stendal. In 1994 the German authorities renewed Altmark's licences and rejected the application for licences submitted by Nahverkehrsgesellschaft Altmark ("the NVGA"). The NVGA brought an action before the German courts, alleging that Altmark was receiving subsidies contrary to the Community rules on State aid.

The Oberverwaltungsgericht (Administrative Court of Appeal) revoked the licences granted to Altmark. It considered that, inasmuch as Altmark clearly needed subsidising, it could no longer guarantee the commercial services at issue. In consequence, those services had to be run in accordance with the public service rules and, by the same token, had to be subject to the Community regulation on "public-service obligations". In addition, the German court found that the subsidies paid to Altmark were State aid contrary to Community law.

The Bundesverwaltungsgericht (Federal Appeal Court), with which an appeal on a point of law was lodged, has made a reference to the Court of Justice in order to ascertain:

-    whether the subsidies granted to Altmark by the administrative district of Stendal State are aid prohibited by the EC Treaty, and

-    whether the German authorities are entitled to provide that commercially operated transport services should not be subject to the 1969 "public-service obligations" regulation.

Advocate General Léger considers that Germany is perfectly entitled to exclude commercially run transport services from the scope of the 1969 regulation. He points out that the regulation is optional for urban, suburban and regional services. In respect of those transport services, the Member States are therefore free to impose public-service obligations on undertakings and to grant them aid. However, the Advocate General considers that the Member States must comply with the general Treaty rules on State aid.

On that point, Advocate General Léger notes that subsidies granted by the Member States with a view to offsetting the cost of the public-service obligations which they impose on passenger transport undertakings constitute State aid caught by the prohibition laid down by the general rules of the EC Treaty.

Advocate General Léger states that the subsidies granted to Altmark by the administrative district of Stendal are advantages liable to distort competition. Moreover, he believes that those subsidies may affect trade between Member States since several Member States have already opened up their markets to undertakings established in other States. Accordingly, the local or regional nature of the transport services cannot exclude the application of the rules of the EC Treaty on State aid.

Advocate General Léger points out that the Member States which wish to grant such subsidies are required to notify their planned aid to the Commission and wait until the latter has given its consent before paying the aid.

Consequently, according to Advocate General Léger, it is in this case for the Bundesverwaltungsgericht to establish whether the administrative district of Stendal has notified the aid to the Commission. If it has not, the German court will have to draw the appropriate conclusions from that infringement and order the aid to be recovered.

Reminder: the Judges of the Court of Justice are now beginning their deliberations in this case. Judgment will be delivered at a later date.

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