The European Commission has begun a formal investigation to decide if tens of millions of euro in State subsidies paid to Dublin Bus and Bus Éireann are legal.

In a decision notice published yesterday, the commission said it doubted whether the annual operating compensation payments to the firms respected state aid rules. It also said it doubted whether State grants to upgrade bus stations, garages and maintenance facilities were legal, given they are not available to competitors on an equal basis.

The commission investigation will focus on whether the public service obligation payments worth €69.8 million to Dublin Bus and €26 million to Bus Éireann in 2006 are legal under European rules.

The investigation will also focus on additional payments made to both firms, including €2.6 million in EU and exchequer grants to Dublin Bus and a subvention of €4 million to Bus Éireann made during 2006.

The commission opened its investigation following a complaint made by the Coach Tourism and Transport Council (CTTC), a representative body of private coach operators in the Republic during 2005.

This complaint asked the commission to investigate whether the annual State compensation payments, which include the financing of replacement and new vehicles are compatible with state aid rules.

The decision notice calls on all interested parties to submit their comments on the State aid granted to Dublin Bus and Bus Éireann within two months.

It says the commission cannot yet take a position on the training subsidies provided to both firms, because the Irish authorities have failed to provide the necessary information to it.

The CTTC welcomed the European Commission's announcement yesterday. Chief executive Cora Collins said the council did not have a difficulty with CIÉ companies receiving subventions to fulfil their public service obligations on uncommercial routes. But she said private bus operators were finding that when they started a commercial service on a particular route, the frequency of public bus services on that route increased. This has squeezed private operators out of the market on certain routes, the CTTC believes.

A spokeswoman for Bus Éireann said the company had not received any communication from the commission to date.

It said it was confident that the commission's investigation would confirm that its arrangements with the Department of Transport fell in line with EU rules. It said it would co-operate with the investigation.

The Private Association of Motor Bus Owners also said it would make a submission to the investigation.