Public Service Obligation

In transportation law of the European Union, public service obligation or PSO is an arrangement in which a governing body or other authority offers an auction for subsidies, permit the winning company a monopoly to operate a specified service of public transport for a specified period of time for the given subsidy. This is done in cases where there is not enough revenue for routes to be profitable in a free market, but where there is a socially desirable advantage in this transport being available. The use of PSO can be applied to many mode of transport, including air, sea, road or rail. In many cases the introduction of PSO has been a way to privatize former government owned transport. The infrastructure is often separated from the operation, and may be owned by the governing body or by a third party. The authority may also maintain the ownership of the vehicles, such as ferries or rolling stock.

Traditionally, public transport has been operated through a company wholly owned by the state with monopoly, like a national railway company. Alternatively, private companies were granted privileges (with or without subsidies) granting them an unfair monopoly. In later years many markets have been deregulated, especially in Europe, paying the lowest bidding operator to carry out the traffic at regular auctions.