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Commission proposes new rules to increase legal certainty for services of general economic interest

European Commission - IP/04/235   18/02/2004

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IP/04/235

Brussels, 18 February 2004

Commission proposes new rules to increase legal certainty for services of general economic interest

Following the Altmark judgment of the Court of Justice, the Commission has commenced the widely anticipated overhaul of the regulatory framework applicable when Member States compensate undertakings that provide services that are deemed to be in the general economic interest. Today, the Commission has decided to begin consultations on a decision which will establish instances in which prior notification of envisaged payments to the European Commission will no longer be required. The draft will now be transmitted to the European Parliament, the Member States, the Economic and Social Committee and the Committee of the Regions for further consultation. In addition, the Commission services will start consultation on a new Commission Framework which will set out clear criteria for the assessment of such compensation payments which are not automatically exempted under the above decision.

These drafts follow the general practice of the Commission which is to approve all compensation necessary for the provision of public services. Contrary to claims that are sometimes made, the Commission is not opposed to the payment of aid to finance public services. It limits itself to preventing abuses; such as the payment of excess compensation payments that are used to cross-subsidise activities in competitive markets. The role of the Commission is thus to safeguard the proper functioning of public services while preventing unfair competitive practices, such as predatory pricing in activities open to competition.

"The aim of this new regulatory framework is to improve legal certainty in favour of all undertakings who are providing services in the general interest. We need to urgently increase legal certainty for these providers of services that are of crucial importance for so many consumers throughout the Union." Competition Commissioner Monti stated on Wednesday. He added: "Our state aid policy must take into account that services of general economic interest are a cornerstone for social cohesion across the Union. It is our firm intention to create an environment conducive to solidifying their crucial role."

The consultation on the Green Paper on Services of General Interest has revealed a high degree of uncertainty in this area and the need for clarification. In this respect the consultation which the Commission now starts on the draft text in fact adds to the broader consultation on the Green Paper. The adoption of the final legal instruments on public service compensation, after this additional consultation process, will be part of the follow-up on the Green Paper.

The Commission decision exempting small scale public funding from the obligation of prior notification

The first proposed measure is a Commission decision on relatively small-scale public funding of certain enterprises that are entrusted with the provision of a service in the public interest. This funding, as long as it does not exceed a yearly threshold of public funding and as long as its beneficiaries do not achieve yearly sales beyond a certain threshold, shall be exempt from the obligation of prior notification. The funding of public services provided by hospitals and social housing would also be exempt from notification, irrespective of the amounts involved. Furthermore, the exemption covers compensation payments for maritime transport to islands, granted in accordance with sectoral regulation, and when annual traffic does not exceed 100 000 passengers.

Why exempt small scale funding from prior notification?

With respect to smaller undertakings that receive not more than a certain amount of annual subsidies and with respect to hospitals and social housing independent of the amount of compensation received as well as with respect to maritime transport to islands (if traffic does not exceed 100 000 passengers) the Commission does not think that prior notification of compensation is necessary for the functioning of the internal market. The relatively small scale of this funding does not distort competition and trade to a degree that would be contrary to the EU goal of creating an internal market for goods and services. Therefore, the proposed decision on small scale funding seeks to exempt States that seek to compensate such mostly locally active undertakings from the obligation of prior notification.

Why does the Commission not set out the precise thresholds for small scale funding?

In light of the heterogeneous situation in the different Member States the Commission feels the need to consult the Member States on the exact thresholds that apply to the locally active undertakings who should not be obliged to notify their compensation payments to the Commission. In order not to prejudge the consultation the Commission decided not to propose in its draft decision precise thresholds.

The Commission expects the level of these thresholds to be one of the major items of the consultation with the Parliament, the Member States, the European Economic and Social Committee, the Committee of the Regions and all interested parties. The Commission is looking forward to receiving comments from all of these stakeholders. This will allow the Commission to better determine the appropriate thresholds.

In addition, a draft framework for large scale funding that is subject to prior notification

The second measure, which is at the current stage a working document of the Commission services, is a draft framework on public funding for the remainder of undertakings that are not exempt from the obligation of prior notification by the Commission decision, this means for the larger public service companies.

The draft framework sets forth the criteria for the assessment of compensation which, due to its amounts and the size of the beneficiary, remains subject to the principle of prior notification.

Why have new provisions for public service funding become necessary?

According to the Altmark jurisprudence compensation for the provision of services of general interest does not amount to State aid and is therefore not subject to prior notification and approval by the Commission only if four conditions are met:

  • The beneficiary must be entrusted with a clearly defined public service mission;

  • The parameters for calculating the compensation payments must be established in advance in an objective and transparent manner;

  • Compensation must not exceed the cost incurred in the discharge of the public service minus the revenues earned with providing the service (the compensation may, however, include a reasonable profit);

  • The beneficiary is chosen in a public tender or compensation does not exceed the costs of a well-run undertaking that is adequately equipped with the means to provide the public service.

On this basis, compensation for public service provision is not a notifiable form of State aid if the beneficiary is chosen by virtue of an open and transparent tender procedure. There is also no aid involved if the State can show that the beneficiary of public compensation receives no more than the net extra cost after subtracting revenue that any well-managed and reasonably equipped company would incur in providing the service.

According to this Court judgement, all other forms of compensation remain State aid and are thus subject to the rule of prior notification. The proposed Commission decision aims at exempting smaller public service companies from this notification obligation.

What rules do the new draft provisions set forth?

If a compensation scheme does not comply with the above-mentioned "Altmark" criteria, the payments must not over-compensate the cost of providing public interest services. In this respect the draft texts sets forth the rules on how the cost attributable to the discharge of public services are to be determined. The aim of this is that none of the public funds should be employed in a way which is distorting competition in the competitive activities. But of course all the financing necessary for the functioning of the public service is compatible with the Treaty.

Will the Commission publish the accounting figures submitted by the public interest operators?

Past Commission decisions approving compensation payments in favour of providers of services in the public interest have contained tables on the accounting figures which form the basis of the decision. Nevertheless, Member States have the right to require the Commission to identify confidential information that they wish not to see published. In addition, Member States can also notify not only individual cases but also public service compensation schemes, which are then applicable to several individual cases without further Commission involvement.

How does the proposed financing framework tie in with the Green Paper on services of general interest?

Both the proposed Commission decision and Commission framework for the financing of public interest services are complementary to the wider debate launched with the Green Paper. The Green Paper touches upon essential issues such as the respective roles of the Community and the Member States in the field of public services or the possible definition of public services at the Community level. Contrary to this broad scope of the Green Paper, the current proposals only aim to eliminate legal uncertainty that currently persists in the area of the State financing of public services as defined by the Member States. The consultation to be started now in fact extends the consultation on the Green Paper on the specific aspect of public service financing.

The measures proposed today are indispensable to ensure a higher degree of legal certainty on the financial means that Member States can grant to the providers of services of general economic interest.

Why is the issue of financing so urgent that it cannot wait until the follow-up to the Green Paper becomes clearer?

The proposed provisions on public service funding which is not compliant with the "Altmark" criteria aim to enhance the legal certainty that is necessary for States to grant these payments. The measure proposed by the Commission aim to avoid the risk of litigation on the issue. In the absence of such provisions for public service financing, litigation could arise for the following reasons:

First, apparently there are many providers of services of general interest that do not fulfil the above-mentioned "Altmark" criteria.

Secondly, in most cases these compensation payments have not been notified prior to implementation. In these circumstances, operators of services of general interest face the risk of litigation on the legality of these payments.

The Commission must therefore act now in order to create the requisite level of legal certainty. The proposed provisions attempt to achieve this purpose.

What happens next?

The draft decision will now be submitted to the European Parliament and the Member States as well as to the European Economic and Social Committee and the Committee of the Regions for further consultation. It will also be published for public consultation. At the same time, DG Competition will start discussing with experts from the Member States the draft Commission framework for larger public service compensations.


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