Regulation (EC) No 1370/2007 of the European Parliament and of the Council of 23 October 2007 on public passenger transport services by rail and by road is of major importance for the organisation and financing of public transport services by bus, tram, metro and rail in the Member States. Its Article 1 states that its purpose “is to define how, in accordance with the rules of Union law, competent authorities may act in the field of public passenger transport to guarantee the provision of services of general interest which are among other things more numerous, safer, of a higher quality or provided at lower cost than those that market forces alone would have allowed.” For this purpose competent authorities may define public service obligations for the operation of public transport services.
Regulation (EC) No 1370/2007 aims to create an internal market for public passenger transport services while confirming Member States' competence to defining public transport services according to the needs of the population. The Regulation achieves this by complementing the general rules on public procurement. It also lays down the conditions under which compensation payments stipulated in public service contracts and concessions for public service obligations in public passenger transport services shall be deemed compatible with the rules of the internal market in the EU and exempt from prior State aid notification to the Commission, which would be otherwise required.