4. Application of State Aid Rules to SGEI Funding

Case C-53/00 Ferring SA v Agence centrale des organismes de sécurité sociale (ACOSS) [2001] ECR I-09067 (hereafter the Ferring case).

Case C-126/01 Ministère de l’Économie, des Finances et de l’Industrie v GEMO SA [2003] ECR I-13769 (hereafter the GEMO case).

Case C-280/00 Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH, and Oberbundesanwalt beim Bundesverwaltungsgericht [2003] ECR I-7747 (hereafter the Altmark case).

The debate really started when Advocate General Jacobs formulated the so-called state aid approach compensation approach division in 2002.

It is named after the Commissioner who was responsible for competition. The ‘Monti Package’ includes:

It is named after the Commissioner who was responsible for competition. The ‘Almunia Package’ contains:

The Commission first adopted Guidelines in 1997. After the Altmark case, the Commission updated its Guidelines and also adopted a Communication interpreting the application of Regulation 3577/92, which also contains rules on the application of state aid rules on SGEI funding:

This issue will be dealt with in Sect. 7.​4 of Chap. 7.

The Commission Guidelines were first adopted in 2009 and then updated in 2013:

The Communication was first adopted in 2001 and then updated in 2009:

Prior to the Altmark case, the Jurisprudence of the Court was divided between the ‘state aid’ approach and the ‘compensation’ approach. The former regarded SGEI funding as state aid that might be compatible with the Treaty under Article 106(2). The latter regarded SGEI funding as not constituting state aid and therefore that fell outside the scope of EU state aid law. Sinnaeve 2003; Karayigit 2009; Bovis 2003.

For further elaboration on the issue of direct effect and the role of national courts, see Commission of the European Communities, Study on the Enforcement of state aid Law at National Level. http://​bookshop.​europa.​eu/​en/​study-on-the-enforcement-of-state-aid-law-at-national-level-pbKD7506493/​ accessed 9 October 2014; Commission of the European Communities, Report on the Application of EC state aid Law by the Member State Courts. http://​ec.​europa.​eu/​competition/​state_​aid/​studies_​reports/​application_​ms/​section1.​pdf accessed 9 October 2014.

Case C-53/00 Ferring SA v Agence centrale des organismes de sécurité sociale (ACOSS) [2001] ECR I-09067

See for example Travers 2003; Bartosch 2003.

This point has been expressly mentioned in three Commission Decisions:

This is the merit and real contribution of the Altmark case. Ross 2004.

Muller 2009.

Fratini and Filpo 2006.

Commission Decision of 28 November 2005 on the application of Article 86(2) of the EC Treaty to state aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest [2012] OJ L312/67.

Community framework for state aid in the form of public service compensation [2005] OJ C297/4.

Commission Directive 2005/81/EC amending Directive 80/73EEC on the transparency of financial relations between Member States and their public undertakings as well as on financial transparency within certain undertakings [2005] OJ L 312/47.

Commission Decision of 20 December 2011 on the application of Article 106(2) of the Treaty on the Functioning of the European Union to state aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest [2012] OJ L7/3.

Communication from the Commission: European Union framework for state aid in the form of public service compensation [2012] OJ C8/15.

Communication from the Commission on the application of the European Union state aid rules to compensation granted for the provision of services of general economic interest [2012] OJ C/8/4.

The compatibility of SGEI with EU state aid law is examined under Article 106(2), which includes the following three conditions: (1) there must be a clearly defined SGEI task; (2) the SGEI task must have been entrusted by public authorities; and (3) a necessity test, i.e. the amount of funding does not exceed the costs of SGEI provision.

Until now there are only five Decisions where the Commission concluded all the four conditions of the Altmark criteria have been met. They are:

It is very interesting to note how the Commission interprets the Altmark ruling. The Court in the Altmark Judgment rules that, if four conditions are all met, the state funding measure is not state aid. By contrast, the Commission interprets it in a ‘reverse’ way: if any of the conditions is not met, the measure is state aid.

Another less important aspect of the Commission’s selective approach lies in its application of the second condition of the Altmark criteria. In five of its Decisions, the Commission found that the second and fourth conditions were not fulfilled and that therefore the measures in question were regarded as state aid. These Decisions include:

These decisions are:

Tosics and Gaál 2007.

For example, in the PSB sector, it is usually the public service broadcaster that is entrusted with the task through legislation without public tender procedure. For an overview of its Decisions in the PSB sector, see Mortensen 2008.

Decision N382/2004, para 68. Similar wording can also be found in Decision N 331/2008, para 166.

Decision 196/2010.

Ibid., para 12.

Decision SA.32019.

Ibid., para 14.

In the Decision, the Commission did not conclude whether all conditions of the Altmark criteria were met. It pointed out two reasons: (1) the Danish government did not supply all relevant data on the expected costs of the SGEI task; and (2) the criteria used in the public tender procedure included qualitative elements. Therefore, the Commission argued that it was not in a position to reach a conclusion on whether the measure constituted a state aid or not. Nevertheless, it proceeded to decide if the measure was compatible with the Treaty, which implied that the Altmark exemption was not applicable: Ibid., para 54.

Decision C 3/08, para 75.

Decision NN 24/08 was concerned with funding of universal postal service in Italy. The Commission acknowledged that it was impossible to identify comparable market undertaking for the USO provider, Poste Italiane. Alternatively, Italy government proposed an abstract proxy based on certain economic assumptions as the benchmark undertaking. The Commission rejected it as valid for the purpose of the Altmark criteria.

This is reflected in the Commission Decision concerning State funding for the delivery SGEI tasks by Belgian Post. In the case, no public tender was carried out. The Belgium government compared Belgian Post with 10 other major European postal operators and argued that Belgian Post was the most efficient one. The Commission pointed out this was not enough to fulfil the fourth condition of the Altmark criteria: Decision SA.31006.

A similar approach could be found in Decision N 178/2020 concerning a Spanish funding measure for the production of electricity from indigenous coal. The Spanish government argued that compensation covered exactly the difference between actual costs and revenues on an ex poste basis. The Commission pointed out the amount of compensation would depend on the efficiency of each power plant rather than an efficient undertaking: Decision N 178/2020.

Decision 2009/554.

And in fact it does not undertake any detailed discussion at all but rubber-stamped it. This can be easily observed from the very short wording in its Decision:

In the opening decision the Commission established that the recipient, PI, had public service obligations to discharge and that these obligations were clearly defined. The parameters on the basis of which the compensation was calculated had been established in advance in an objective and transparent manner, notably by means of agreements between CDP and PI.

Decision 2009/554, para 136.

Fratini and Filpo 2006.

Case C-320/91 Paul Corbeau [1993] ECR I-2533. In the context of state aid law, the issue is first discussed by the Court in the FFSA case. Case T-106/95 Federation Française des Societes d’Assurances (Ffsa) and Others v E.C. Commission [1997] ECR II-229.

The Commission first adopted the Guidelines in 1997. After the Altmark case, the Commission updated its Guidelines and also adopted a Communication interpreting the application of Regulation 3577/92, which also contains rules on the application of state aid rules on SGEI funding.

This issue is dealt with in Sect. 7.​4 of Chap. 7.

The Commission Guidelines were first adopted in 2009 and then updated in 2013:

The Communication was first adopted in 2001 and then updated in 2009:

Community framework for state aid in the form of public service compensation [2005] OJ C297/4.

Communication from the Commission, European Union framework for state aid in the form of public service compensation [2012] OJ C8/15.

In the postal sector, the Commission has made 13 state aid Decisions evaluating the SGEI funding. In the public service broadcasting sector, there are 37 state aid Decisions. These Decisions well illustrate the Commission’s approach. For a list and discussion of the Commission’s Decisions in the postal services sector, see Sect. 6.​4.​1 of Chap. 6.

For a list of Decisions in the public service broadcasting sector, see the Commission’s website http://​ec.​europa.​eu/​competition/​sectors/​media/​decisions_​psb.​pdf accessed 9 October 2014.

By contrast, in other areas, the Commission had made fewer Decisions:

In the air transport sector, Regulation 1008/2008 requires PSO air links to be established via an EU-wide public tender procedure. By contrast, EU legislation in the maritime sector does not impose such obligation on the Member States. The Commission has been using the state aid control mechanism to push the Member States to put island PSO links through public tendering. This issue is discussed in Sect. 7.​4.​4 of Chap. 7.

See Sect. 6.​5.​5 of Chap. 6.

In the postal sector, the Commission has not adopted sector-specific rules for the application of state aid rules. Instead, it applies the Monti and Almunia Packages. Its state aid Decisions in the postal sector offer a good example of how rules contained in these two packages are applied in practice.

Directive 2002/22.

For a discussion of the scope and review of USO in the telecommunications sector, see Sect. 5.​4.​2 of Chap. 5.

Koenig and Fechter 2009.

Commission of the European Communities, Community Guidelines for the application of state aid rules in relation to rapid deployment of broadband networks [2009] OJ C235/7.

Ibid., para 1.

2009 Broadband Guidelines.

Commission of the European Communities, EU Guidelines for the application of state aid rules in relation to the rapid deployment of broadband networks [2013] OJ C25/1 (hereafter, the 2013 Broadband Guidelines).

2013 Broadband Guidelines, para 6.

This test is more stringent than that used in the broadcasting sector.

This is a very strict test compared with that adopted in the public service broadcasting sector, where Member States are allowed to intervene in the market to guarantee a service of higher quality than similar market products. In the BBC digital curriculum Decision, there was a very competitive market providing very similar products. The provision of such services by BBC essentially meant competing with private undertakings on the market. The Commission still accepted that the provision of digital curriculum service by the BBC was a valid SGEI because it was free of charge. Similarly, in the BBC 24-h news channel Decision, a very competitive news broadcasting market existed. The Commission did not challenge the UK’s decision to include it in BBC’s PSB remit because it is advertisement free. For a discussion of the Commission’s approach in the PSB sector, see the next section.

2013 Broadband Guidelines, para 20.

On the other hand, financial support for the black area is prohibited, while grey area needs detailed assessment. Koenig and Fechter 2009.

Commission Decision on the measure n° C 35/2005 (ex N 59/2005) that the Netherlands are planning to implement concerning broadband infrastructure in Appingedam, C (2006) 3226 final, 19.07.2006.

Ibid.

The broadband sector comprises three sections/layers of elements that together make the provision of broadband service to final consumers possible. The first layer is the physical infrastructure of the network. It is also called passive network, which involves mainly network construction and ownership. The second layer is to make the network active. It needs a network operator for network management and operation. The third layer is the retail connection service, where operators connect end users to the network. Yábar 2012.

Aide d’Etat N 381/2004—France: projet de réseau de télécommunication haut débit des Pyrénées-Atlantiques, C (2004) 4343 final, 16.11.2004, para 61.

Aide d’Etat nº N 382/2004—France: mise en place d’une infrastructure haut débit sur le territoire de la région Limousin (DORSAL), C (2005) 1170 final, 03.05.2004, para 50.

This is the managing undertaking for the network (active layer), which is a private-sector management service entity (MSE). It is created in the framework of public–private partnership.

State Aid N 284/2005—Ireland regional broadband programme: Metropolitan Area Networks (‘MANs’), phases II and III, C (2006) 436, 08.03.2006, para 39.

For a brief introduction, see Tigchelaar 2003.

Commission of the European Communities, The Digital Age: European Audiovisual Policy, Report from the High Level Group on Audiovisual Policy.

http://​aei.​pitt.​edu/​1592/​1/​av_​oreja_​report.​pdf accessed 9 October 2014; Harrison and Woods 2001; Mendel 2013.

For more information on the evolution of broadcasting in Europe, see Humphreys 1996.

The organisation of broadcasting was the issue in the case law of the Court on the Application of Article 106(1). Case 155/73 Giuseppe Sacchi [1974] ECR-409; Case C-260/89 Elliniki Radiophonia Tileorassi AE (Ert) (Panellinia Omospondia Syllogon Prossopikou Ert intervening) v Dimotiki Étairia Pliroforissis (Dep) and Sotirios Kouvelas (Nicolaos Avdellas and Others intervening) [1991] ECR I-02925. These Judgments are dealt with in Sect. 3.​2 of Chap. 3.

Hanretty 2012.

Cuilenburg and McQuail 2003.

Llorens-Maluquer 2002; Commission of the European Communities, Television without Frontiers: Green Paper on the Establishment of the Common Market for Broadcasting, especially by Satellite and Cable, COM (84) 300 final, 14.06.1984.

Commission of the European Communities, Television without Frontiers: Green Paper on the Establishment of the Common Market for Broadcasting, especially by Satellite and Cable, COM (84) 300 final, 14.06.1984.

Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities [1989] OJ L298/23.

Humphreys 2005; Van Cuilenburg and McQuail 2003.

Iosifidis 2009.

Protocol (No 29) on the System of Public Broadcasting in the Member States, TEU.

Smith 2005.

Harrison and Woods 2001.

Commission of the European Communities, Legal Framework Conditions Applicable to State Aid to Public Service Broadcasting, http://​ec.​europa.​eu/​competition/​sectors/​media/​decisions_​psb.​pdf, accessed 9 October 2014.

Commission of the European Communities, Communication from the Commission on the application of state aid rules to public service broadcasting [2001] OJ C320/5.

Commission of the European Communities, Communication from the Commission on the application of state aid rules to public service broadcasting [2009] OJ C257/1.

Llorens-Maluquer 2002.

See for example in the following Decisions:

Another very interesting Decision is N 109/2010 concerning the provision of live subtitling for main evening news for the benefit of persons with a hearing disability. The Commission did not apply a market failure test but recognised it as a valid SGEI because it contributed to social inclusion and access to media and information sources: State Aid No N 109/2010—Belgium Vlaamse Mediamaatschappij - Subsidie live ondertiteling “Het Nieuws”—Project iWATCH, C (2010) 7679 final, 17.11.2010.

State Aid No N 631/2001—United Kingdom BBC licence fee, C (2002) 1886 fin, 22.05.2002.

State Aid No NN 88/98—United Kingdom financing of a 24-h advertising-free news channel out of the licence fee by the BBC, SG (99) D/10201, 14.12.1999.

State Aid No N 37/2003—United Kingdom BBC digital curriculum, C (2003) 3371 fin, 01.10.2003.

Ibid., para 10.

Ibid.

The same competition-neutrality test can also be found in other SGEI Decisions. For example, in the area of basic financial services, the Commission made the following two Decisions:

Bavasso 2002.

State Aid No NN 88/98—United Kingdom financing of a 24-h advertising-free news channel out of the licence fee by the BBC, SG (99) D/10201, 14.12.1999, paras 82–83.

Donders 2009.

Commission Directive 2006/111/EC of 16 November 2006 on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings [2006] OJ L318/17, Article 1(2).

Depypere et al. 2004.

State Aid No N 37/2003—United Kingdom BBC digital curriculum, C (2003) 3371 fin, 01.10.2003, paras 54, 56–57.

The same approach is used in Decision SA.32019.

2005/217/EC: Commission Decision of 19 May 2004 on measures implemented by Denmark for TV2/Danmark [2006] OJ L85/1.

Depypere and Tigchelaar 2004.

2004/838/EC: Commission Decision of 10 December 2003 on state aid implemented by France for France 2 and France 3 [2004] OJ L361/21.

2004/339/EC: Commission Decision of 15 October 2003 on the measures implemented by Italy for RAI SpA [2004] OJ L119/1.

2005/217/EC: Commission Decision of 19 May 2004 on measures implemented by Denmark for TV2/Danmark [2006] OJ L85/1.