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EU framework for state aid in the form of public service compensation

This framework aims to ensure that state aid in the form of public service compensation is compatible with the definition of a service of general economic interest.

ACT

Community framework for state aid in the form of public service compensation [Official Journal C 297 of 29.11.2005].

SUMMARY

Public service compensation covers the costs incurred by operators carrying out public service tasks set by European Union (EU) country public authorities.

Along the years, both the Commission and the European Court of Justice (ECJ) have defined:

  • what state aid is but exempted (see Decision 2005/842/EC);
  • what state aid is not and therefore exempted (see European Court of Justice (ECJ) rulings ‘Altmark Trans GmbH ’ (2003) and ‘Enirisorse SpA ’ (2003)).

The aim of this framework is to define rules and principles which specify the conditions under which public service compensation not covered by Decision 2005/842/EC is compatible with Article 106(2) of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 86 (2) of the Treaty establishing the European Community (TEC)). This framework applies to all activities governed by the TFEU, with the exception of the transport sector and the public service broadcasting sector.

Since EU countries have a wide margin of discretion regarding the nature of services that could be classified as services of general economic interest (SGEI), the Commission’s task is to ensure that EU countries do not stray from the definition of a SGEI laid down in Article 106(2) TFEU.

In this regard, the Commission proposes that EU countries’ national legislation should provide clear indications as regards:

  • the precise nature and duration of public service obligations;
  • the undertakings and territory concerned;
  • the nature of any exclusive or special rights assigned to the undertaking;
  • the parameters for calculating, controlling and reviewing the compensation;
  • the arrangements for avoiding and repaying any over-compensation.

Compensation may not exceed the costs of carrying out public service obligations and may only be used for the functioning of the SGEI. Public service compensation includes all advantages granted by the State in whatever form.

Compensation must be used for the operation of the SGEI concerned. Public service compensation granted for operation outside the scope of SGEI is not justified, and consequently constitutes incompatible state aid. The costs to be taken into consideration include all those incurred during the operation of the SGEI.

The revenue to be taken into account must include at least the entire revenue earned from the SGEI. The undertaking receiving public service compensation may, however, enjoy a reasonable profit. EU countries determine what amounts are to be considered reasonable profit. In this regard, they may introduce incentive criteria relating, among other things, to the quality of service provided and gains in productive efficiency.

Over-compensation constitutes incompatible state aid since it does not serve the SGEI’s function. Regular preventive checks should therefore be carried out by EU countries.

An over-compensation excess of no more than 10 % of annual compensation may however be carried into the next year. Over-compensation exceeding 10 % may exceptionally be justified if the SGEI’s function is served in the context of variable costs. This exceptional situation should be regularly reviewed and not last more than four years.

Transfers of over-compensation may take place where another SGEI is operated by the same undertaking. EU countries must ensure that such transfers are subject to proper account control and transparency according to Directive 80/723/EEC.

Public service compensation is subject to the obligation of prior notification requirement.

This framework will apply for six years following publication in the Official Journal. EU countries must bring their existing schemes regarding public service compensation into line with this framework, within 18 months of publication.

Key terms used in the act
  • Services of general economic interest (SGEI): activities inherently economic in nature, such as postal services, telecommunications, transport, or electricity or gas provision. They have a distinct European dimension and are thus regulated by a specific Community legal framework. They are also subject to internal market and competition rules as laid down in the Treaty on the Functioning of the European Union.
Last updated: 03.11.2011
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