Brussels, 20 November 2013
State aid: Commission takes two decisions on incompatible state aid granted by France to SNCM
Following two judgments by the General Court of the European Union (Cases T-349/03 and T-565/08), the European Commission has concluded that some state aid granted by France to Société nationale Corse Méditerranée (SNCM) as part of its restructuring and privatisation was incompatible with the EU rules on state aid. SNCM benefited from an undue economic advantage, amounting to some EUR 220 million, in relation to its competitors and must therefore refund that amount.
In a separate decision, the Commission has decided to take France to the European Court of Justice for its failure to recover unlawful grants made to SNCM for the 'additional service' on the Marseilles-Corsica ferry link during the tourist season, which was in fact already provided by the private sector. In May 2013 the Commission had concluded that this aid was incompatible with the EU rules on state aid (see IP/13/393 and MEMO/13/396). This aid should have been recovered from SNCM within four months from that decision. More than six months later, France has yet to take any action.
In July 2003 the Commission approved the injection of public funds into SNCM on the basis of a restructuring plan submitted by France (see IP/03/980). The General Court annulled that decision in June 2005 (Case T-349/03, see also CJE/05/58) because the Commission had failed to assess properly whether the public aid was limited to the strict minimum needed.
In July 2008 the Commission approved a package of measures taken by the French State in 2006 as part of the privatisation of SNCM (see IP/08/1115). SNCM received a capital injection of EUR 158 million (by way of the sale of the company at a negative price), a cash advance of EUR 38.5 million for social measures relating to SNCM employees and an additional capital contribution of EUR 8.75 million. At the time, the Commission took the view that these measures did not constitute state aid within the meaning of the Treaty. In addition, the Commission endorsed the 2003 measures (including restructuring aid other than public service compensation of EUR 15.81 million) as being in accordance with the EU rules on state aid.
The General Court annulled this decision in September 2012 (Case T-565/08). It held that the Commission had committed a manifest error of assessment in regarding these measures as free of state aid. The Commission consequently had to adopt a new decision to take account of the General Court's findings.
In its new decision, the Commission has concluded that it had not been established that the French State, in opting for privatisation, behaved like a prudent investor in a market economy nor that it chose the least costly solution for public finances. Moreover, the additional capital contribution of EUR 8.75 million was made under conditions which were not comparable to those governing the contribution of the private purchasers. In addition, the EUR 38.5 million cash advance for social measures covered costs which SNCM should have borne itself.
Since these measures did not correspond to those that a prudent investor would have taken, they procured an economic advantage for SNCM in relation to its competitors, which had to operate without such grants. Consequently, they constituted state aid.
Under the European rules, firms in difficulty, such as SNCM, may receive state aid for restructuring if certain conditions are met: they must offer realistic prospects of a return to viability in the long term, they must make a sufficient contribution to restructuring costs to reduce the burden on the taxpayer and they must limit distortions of competition resulting from public aid through compensatory measures. These conditions prevent inefficient firms from being artificially kept in operation in the market thanks to public aid, and thereby safeguard competition within the single European market to the benefit of other users and taxpayers alike.
The Commission has concluded that the restructuring plan accompanying this aid did not enable SNCM to return to long-term viability without availing itself of further public aid. Moreover, SNCM's own contribution to restructuring costs was highly inadequate. In addition, the compensatory measures put forward were far from sufficient to overcome the aid's distortive effects on competition. The aid, totalling some EUR 220 million, was therefore incompatible with the EU rules, conferred an undue advantage in the market upon SNCM and must now be recovered by France.
SNCM is a shipping company carrying passengers, vehicles and freight on routes between mainland France (Marseilles, Toulon and Nice) and Corsica, as well as Italy (Sardinia) and North Africa (Algeria and Tunisia).
Following the privatisation process launched in 2006, SNCM was owned by Butler Capital Partners (38% of the capital) in partnership with the Veolia subsidiary Connex (28%). The employees owned 9% of the capital and the remaining 25% was held by the State through CGMF. Since November 2008, Transdev, a subsidiary jointly held by Veolia Environnement and Caisse des Dépôts et Consignations, has owned 66% of SNCM's capital.
Public interventions in favour of companies can be considered free of state aid within the meaning of EU rules when they are made on terms that a private operator would have accepted under market conditions (the market economy investor principle – MEIP). If the MEIP is not respected, the public interventions constitute state aid within the meaning of the EU rules (Article 107 of the Treaty on the Functioning of the European Union – TFEU), because they confer an economic advantage on the beneficiary that its competitors do not have. The Commission then proceeds to assess whether such aid can be found compatible with the common EU rules that allow certain categories of aid. Without these common rules, competition within the EU's single market would be distorted by a 'subsidy race' between Member States to the benefit of particular undertakings.
There are rules on state aid to firms encountering financial difficulties which allow such aid to be granted on certain terms (EU guidelines on state aid for rescuing and restructuring firms in difficulty – see IP/04/856 and MEMO/04/172).
The Commission has also adopted rules on aid for the provision of services of general economic interest (SGEI – see IP/11/1571). With respect to SNCM, in May 2013 the Commission approved aid to compensate the cost of Corsica's public shipping service for the period 2007-13 in order to mitigate the constraints of being an island, but it concluded that aid to cover the 'additional service' during the tourist season was incompatible with the EU rules. This aid did not correspond to any public service requirement since private operators provided the same service without public aid (see IP/13/393 and MEMO/13/396). France and SNCM have challenged this decision before the General Court of the European Union, but those proceedings are not suspensive. France is therefore obliged to comply with the Commission's decision and to recover the aid that is incompatible with the EU rules.
Recovery of incompatible aid
Undertakings which have received incompatible aid have benefited from an undue economic advantage in relation to their competitors, which had to operate without grants. This results in a distortion in competition in the internal market. In order to eradicate this distortion it is important to ensure that the incompatible aid is repaid as soon as possible to the Member State that granted it. For this reason, the Commission guidance on the recovery of incompatible aid (see IP/07/1609) stipulates that Member States must recover such aid without delay.
If a Member State does not act on a recovery decision, the Commission can take that State to the European Court of Justice under Article 108(2) of the Treaty on the functioning of the European Union (TFEU), which makes it possible to refer directly breaches of the State aid rules to the Court.
If a Member State does not comply with the Court's judgment, the Commission may ask the Court to impose penalties under Article 260 TFEU.
The non-confidential version of the new decision on SNCM's restructuring will be made available under case number SA.16237 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. The electronic newsletter State Aid Weekly e-News lists the most recent decisions on state aid published in the Official Journal and on the website.