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Brussels, 15 July 2005

State aid: Commission provides greater legal certainty for financing services of general economic interest

A package of measures providing greater legal certainty to the financing of services of general economic interest has been adopted by the European Commission. The measures will ensure that companies can receive public support to cover all costs incurred, including a reasonable profit, in carrying out public service tasks as defined and entrusted to them by public authorities, whilst ensuring that there is no over-compensation liable to distort competition. Member States will be able to grant compensation to small-scale public services, hospitals and social housing without notifying the Commission. The measures take the form of a Commission Decision, a Community Framework for state aid in the form of public service compensation and an amendment to the Commission Directive on financial transparency. These are the first implementing measures of the State Aid Action Plan (see IP/05/680). The measures only apply to undertakings conducting economic activities, as financial support granted to entities not conducting economic activities (e.g basic compulsory social security schemes) does not constitute state aid anyway.

Competition Commissioner Neelie Kroes said: “These new rules will not only ensure that public authorities remain free to define which public services they wish to support financially and the level of support, but also ensure transparency and guard against cross-subsidies for non-public service activities”.

The Commission Decision (based on Article 86(3) of the EC Treaty) specifies the conditions under which compensation to companies for the provision of public services is compatible with state aid rules (a clearly defined public service mandate and no over-compensation) and does not have to be notified to the Commission in advance .The Decision is applicable to compensation of less than €30 million per year provided its beneficiaries have an annual turnover of less than €100 million. Compensation granted to hospitals and social housing for services of general economic interest also benefits from the Decision irrespective of the amounts involved, as does compensation for air and sea transport to islands as well as airports and ports below specific thresholds defined in passenger volumes.

The Commission Framework specifies the conditions under which compensation not covered by the Decision is compatible with state aid rules. Such compensation will have to be notified to the Commission due to the higher risk of distortion of competition. Compensation that exceeds the costs of the public service, or is used by companies on other markets open to competition, is not justified, and is incompatible with the Treaty’s state aid rules.

The amendment to the Commission Transparency Directive (80/723/EEC) clarifies that companies receiving compensation and operating on both public service and other markets must have separate accounts for their different activities, so that the absence of over-compensation can be checked.

The measures help to increase legal certainty about compensation paid for thousands of small, often local, public services following the Court of Justice’s Altmark ruling (C-280/00, 24.7.03). The measures are part of a broader Commission policy ensuring that citizens and companies can benefit from the provision of high-quality services of general interest in an open EU-wide market announced in the Commission’s May 2004 White Paper on Services of General Interest (see IP/04/638), and are without prejudice to other actions announced in the White Paper.

For further details see MEMO/05/258

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