Tag: Services of General Economic Interest

Jose Manuel Panero Rivas, LL.M 

MA in Economics for Competition Law candidate, King’s College London

With some fanfare – for Brussels’ standards – the Commission unveiled in December 2011 its highly anticipated Almunia package for the assessment of State support granted to providers of Services of General Economic Interest (SGEIs)[i].

The new set of rules, named after Competition Commissioner Joaquin Almunia, substitutes the ‘post-Altmark package’ also known as ‘Monti package’ or ‘Monti-Kroes package’. Yes, as seen from the nick-names of the documents, paternity and maternity claims in the field seem to be notoriously high[ii].

Even if the reader is most likely familiar with the basics of EU State aid rules, it is worth recalling that it is considered State aid in the sense of Article 107 of the Treaty on the Functioning of the European Union (TFEU), and in principle prohibited “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods”[iii]. However, the fact that a measure constitutes a State aid is not the end of the story as it can be declared compatible with the Treaty on the basis of Article 107(2) and (3) TFEU, as well as, in the case of SGEIs, under Article 106(2) TFEU.

The concept of SGEI, an EU law concept – but which is not defined by the Treaties – broadly corresponds with the notion of ‘public service’, and more precisely of a ‘service of an economic nature whose provision to the general public is considered to be essential’[iv]. Classic examples of SGEIs are basic postal services, energy supply or public transport[v].

In the specific field of the compensation by the State of the extra costs incurred by undertakings providing SGEIs there has been some controversy in the past between those who proclaimed the ‘non-aid approach’ (according to which the granting by the State of a compensation limited to the extra cost which an undertakings incurs to provide a SGEI is not a State aid) and the ‘aid-but compatible-approach’ (the support constitutes a State aid but is compatible insofar as it does not exceed the compensation of the extra costs incurred)[vi]. In 2003, the judgment of the Court of Justice of the European Union (CJEU) in the Altmark case[vii] settled the controversy, establishing a kind of ‘third way’ consisting in that when certain strict conditions are fulfilled, the measures adopted by the State cannot be classified as State aid. But these conditions were really strict and it was not that often that all Altmark conditions were fulfilled. In order to close the gap of what happens in these cases and assess the possible conformity with EU law of measures that could be compatible with the Treaties despite not fulfilling all of the Altmark conditions, the Commission issued the original ‘post-Altmark package’, now amended and refined[viii].

The new ‘Almunia package’ is composed of four instruments:

1. A Commission communication (‘the Communication’)[ix] on the application of State aid rules to compensation granted for the provision of SGEIs. The Communication constitutes an innovation regarding the previous package.  Largely building on the CJEU’s case law, the Communication constitutes a useful reminder on essential elements for the assessment of State aid to SGEIs. However, in my view, the most interesting part of the Communication is its third section, where the Commission clarifies the conditions which would need to be fulfilled for a given State support to successfully pass the Altmark ‘non-aid’ test.
2. A Commission horizontal decision (‘the Decision’)[x], declaring ex ante compatible with the Treaty under Article 106(2) TFEU the support granted to those undertakings mentioned in its Article 2.1 provided that all conditions established in the Decision are fulfilled. The Decision extends the ex ante compatibility to a larger range of social services than those covered in the previous package (which only included hospitals and social housing) and reduces and simplifies the threshold that, in general for other kinds of SGEI, triggers the notification even if the conditions of the Decision are fulfilled (reduced up to a compensation of EUR 15 million per year)[xi].
3. A Commission framework (‘the Framework’)[xii] to assess State aid in the form of public service compensation. This provides the necessary conditions that a State aid to a SGEI requires for being declared compatible with the Treaty by the Commission.
4. A proposal for a de miminis Commission’s Regulation for compensation of the provision of SGEI[xiii]. This is also an innovation of the package vis-à-vis the previous rules, which did not provide for a specific de minimis rule. The Regulation is expected to be adopted in spring and mentions a maximum amount of support of EUR 500,000 during three years for SGEI providers outside certain sectors[xiv].

There are multiple ways of evaluating the package. However, thanks to the relative freedom of format given here – do not forget this is a blog – and for readers’ peace of mind, I will here concentrate my brief remarks on some issues that go beyond what can be more or less easily found going through the text.

First, it is worth noting the extremely reduced – if any – space that has been left by the Commission for the legal basis introduced by the Treaty of Lisbon in the last sentence of Article 14 TFEU. Those who expected a reduction on the Commission’s activism in the field following the amendments on the Article by the Lisbon Treaty could well feel disappointed. Indeed, the new package seems a priori even more aggressive than the previous one in the autonomy enjoyed by Member States when organising their support to SGEI and little room – if any at all– seems to have been left to the – still unknown –  ‘Article 14 Regulations’. Examples of this horror vacui[xv] on the side of the Commission could be in Section 3 of the Communication where it specifies the conditions the Commission considers that the State support should meet for fulfilling the Altmark test, the introduction of claw-back mechanisms in the Communication[xvi], the Decision[xvii] and the Framework[xviii], or the ‘gentle’ reminder on the application of the basic principles of the Treaty in selection of the SGEI provider even when public procurement directives do not apply, which can be found, again, in the Communication[xix], the Decision[xx] and the Framework[xxi].

Secondly, as mentioned above, in the new framework claw-back mechanisms are ‘suggested’ – but perhaps required by the Commission for a measure to be considered compatible aid – all across the board to Member States in order to make Member States themselves – and arguably taxpayers – benefit from a ‘fair share’ of the gains in efficiency obtained by the undertakings when providing the services entrusted.  At first sight this seems like a good idea. The obvious bottom line – that quality should not be reduced – is also clearly stated in the new rules. However, it is not easy to imagine how to effectively measure and test in practice that quality is not degraded during the period of provision of the services, when powerful incentives exist for both the undertakings and Member States in a reduction of undertakings costs.  The design of such claw-back mechanisms, something on which the Commission gives little guidance, would therefore be of utmost importance in order not to create incentives that would hamper the provision of high quality public services.

Thirdly, it is interesting – and in my view to be welcomed – to note that, in the Decision and the Framework, the Commission has adopted the criterion that the relevant costs that could be compensated by the State are those net costs (costs less income) which could be avoided by the undertaking if the SGEI was not provided (the so-called ‘net avoidable costs methodology’). However, exceptions could be allowed under certain circumstances. Nevertheless, one can expect that discussions on how to assign joint and common costs (and thus to define which of these would be avoided if the SGEI was not provided) would remain, and these controversies will need to be resolved on a case-by-case basis.

Fourthly, the remark in paragraph 33 of the Communication, mentioning that ‘the granting without tendering, of licences to occupy or use public domain, or other special or exclusive rights having an economic value, may imply a waiver of State resources and create and advantage for undertakings’, is rather interesting. This mention, which the Commission understands comes from the CJEU’s case law in Connect Austria[xxii], reinforces a very interesting link between Article 106(1) TFEU and State aid rules.  According to this theory, the exclusive right might be in itself, and besides its consideration as contrary to Article 106(1) in connection with other Treaty provisions (Articles 101,102, 49, 56…), a State aid, something that entails very different consequences.

Finally, and again even if this is not an absolute innovation, it seems that the Commission is fighting back after Preussen Elektra[xxiii] and trying to fill any possible empty space left by the judgement as regards the question of when State resources are engaged. Indeed, in line with its most recent practice – as well as the old examples provided in the Communication – the Commission considers that all compulsory contributions imposed on private parties by the State and that are managed according to State legislation – irrespective of who manages the funds – would constitute engagement of State resources in the sense of State aid rules.  This is possibly in conflict with what the CJEU said in Preussen Elektra, but this could well be the subject of another post.