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Brussels, 23 March 2011

Commission moves towards reform of State aid rules on Services of general economic interest

The communication on the revision of European Union State aid rules on Services of General Economic Interest (SGEI) and the report on their application, adopted today by the Commission, show that these rules, also known as the 2005 post-Altmark package, have brought increased legal certainty for Member States and for the service providers. The principles on which they are based, that the public service obligation is clearly defined and the compensation commensurate with its cost plus a reasonable profit, have proved their worth. The revision of the SGEI package due in November this year shows, nevertheless, that certain aspects would gain from being further clarified and the rules further simplified for what concerns small amounts of aid and regarding compensation for social services. The Commission also considers increasing the link between costs and efficiency and quality of services for large commercial activities, such as those of network industries with a clear EU-wide dimension. Today's Communication launches political debates on these ideas before preparing draft new texts that will be published, and discussed with Member States and stakeholders, by next July.

"Public services are key, even more so during difficult economic times when people come to rely on them more than usual. The 2005 Altmark package can be improved to become even clearer and further simplified for Member States’ authorities. I also believe that especially in these times of constrained public finances greater account must be taken of both efficiency and quality when assessing the State aid going into the services," said Commission Vice President in charge of competition policy Joaquín Almunia.

Member States are largely free to decide which services are to be considered as services of general interest. However the Commission has to ensure that public funding granted for the provision of services of general economic interest (SGEI) does not affect competition and trade in an extent contrary to the EU interest.

Payment by a government to a company for providing a service of general economic interest constitutes State aid unless it is strictly limited to the amount needed to compensate for the public service obligation, the European Court of Justice confirmed in the Altmark ruling of 2003. The ruling gave rise to the SGEI or post-Altmark package of 2005 that comprises the criteria that must be fulfilled so that the compensation does not need to be notified to the Commission – the so-called SGEI Decision –, the SGEI Framework for assessing cases notified or that have been complained of and the Transparency Directive, which provides for separate accounting of services (see IP/05/937 and MEMO/05/258). The SGEI Framework expires in November 2011.

Consultation of Member States and stakeholders over the last couple of years has shown that the existing rules were necessary and appropriate. However, it also showed that there is scope for improvement. In particular, there is a need for clearer, simpler and more proportionate instruments.

To achieve these goals, the Commission proposes:

- to clarify a number of key concepts, related for instance to the distinction operated by the Treaty and the jurisprudence of the Court between economic and non-economic activities or to the limits Member State have when defining an activity as a service of general economic interest;

- to offer a more diversified and proportionate approach to the different types of public services : one element of this strategy could be to simplify the application of the rules for certain types of small-scale public services of a local nature with a limited impact on trade between Member States and for certain social services; at the same time the Commission could take greater account of efficiency and competition considerations for large scale commercial services, with a clear EU-wide dimension.

The current rules do not take into account how the costs incurred by an SGEI provider compare with those of a well-run undertaking which tends to distort the functioning of markets and may ultimately harm service quality as well as the efficiency of public spending.

The SGEI package applies to a wide range of economic sectors although some of them are regulated by specific rules adopted in the context of market regulation. They include transport, energy, postal services, financial services, broadcasting and telecommunications.

The report that accompanies the Communication adopted by the Commission on the Reform of the EU State Aid Rules on the Services of General Economic Interest details the application of the rules sector by sector. Some, like the postal services sector, have been the subject of many decisions: 15 for postal sector alone in five years; 16 for the broadcasting sector. Others, such as waste and water services, less which may owe something to the fact that the services provided are often local in nature and may fall within the thresholds below which there is no need for a notification.

Most of the compensation paid to SGEI providers is cleared either automatically because it complies with the non-aid criteria or after an assessment by the Commission which in some cases can lead to a reduction of the compensation or other changes.

Examples of compensation cleared by the Commission include today's UK Post Office and Danish radio decisions (see IP/11/346 and IP/11/350). In the past, Commission also allowed compensation for the Italian post to fulfil its universal postal service obligations (see IP/08/669), an Irish system of levies and tax relief in the health insurance sector which decreases the risk differentials between young and old customers to promote intergenerational solidarity (IP/09/961) and, more recently, compensation measures in favour of Danish Railways, where incentives for the operator to generate productivity improvements were introduced (IP/10/178). The current review of the SGEI package is part of a broader policy on public services which includes the 2010 communication “Towards a Single Market Act” (see IP/10/1390 and MEMO/10/528).

More information on the 2005 SGEI package and the review process, including the documents adopted today, is available at:

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