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Brussels, 20 December 2011

State aid: Commission adopts new package on State aid rules for services of general economic interest (SGEI) – frequently asked questions

A. General Questions

1. What are services of general economic interest (SGEI)?

SGEI are economic activities that would not be produced by market forces alone or at least not in the form of an affordable service available indiscriminately to all. SGEI are carried out in the public interest under conditions defined by the State, who imposes a public service obligation on one or more providers. SGEI range from large commercial activities, such as postal services, energy supply, telecommunications or public transport, to social services, such as care for the elderly and disabled.

2. Why is public service compensation needed for SGEI?

The provision of an SGEI under the conditions imposed by the state may not generate a (sufficient) benefit for the provider. Public service compensation might be needed to offset the additional costs stemming from a provider's public service obligations.

3. What aim do we pursue when controlling compensation for SGEI?

Public funding granted to companies carrying out economic activities may provide an economic advantage to the beneficiaries that their competitors do not have. This may give rise to distortions of competition in the internal market. State aid control of SGEI ensures that public service compensation does not exceed what is necessary for the provision of the public service, that companies have incentives to innovate and compete, and that the internal market is not fragmented.

B. The Communication

4. What is the purpose of the new SGEI Communication?

The SGEI Communication gives a comprehensive and practical overview of the EU state aid concepts relevant for SGEIs and provides explanations of key issues in a single document. The Communication summarises the most relevant case law of the EU Courts and the Commission's decision-making practice. It aims at facilitating the application of state aid rules for national, regional and local authorities as well as public service providers. The Commission has sought to provide as much guidance as possible on key concepts, such as the notion of economic activity, effect on trade or SGEI, as well as on the relation between state aid and public procurement rules. These clarifications have been requested by Member States and stakeholders alike.

C. The SGEI Decision

5. What is the decision about?

The decision specifies the conditions under which compensation to companies for the provision of public services is compatible with EU state aid rules (a clearly defined public service mandate and no overcompensation) and does not have to be notified to the Commission in advance.

6. What are the main changes?

The revised decision extends the scope of the exemption from the notification obligation to social services and reduces the threshold for other measures that do not need to be notified to the Commission for approval, if the conditions of the decision are met. This means that a large set of social services is exempted from state aid scrutiny regardless of the amount of the compensation, while aid directed towards other public service providers will need to be notified if it exceeds a threshold of €15 million, instead of formerly €30 million. Finally, the transparency provisions are strengthened.

7. Why was the compensation threshold under the Decision lowered to €15 million?

This lowering of the compensation threshold has to be seen in the light of the objective to have a more diversified and proportionate approach. Under the 2005 Decision, only hospitals and social housing benefitted from the application of the Decision regardless of the amount of compensation. For other services, a threshold of €30 million applied. This relatively high threshold ensured that most of the social services could benefit from the exemption. The new Decision extends the exemption without threshold to social services; therefore, a high threshold has become redundant. Compensation that exceeds the threshold is not incompatible, but needs to be notified to the Commission for an assessment under the state aid rules. Experience has shown that in areas that are still subject to the compensation threshold, important economic activities are awarded compensations between €15 million and €30 million. Those services can raise important competition concerns and are therefore more appropriately dealt with under the SGEI Framework.

8. Why was the turnover threshold under the Decision eliminated?

There are two main reasons why this threshold, subjecting an exemption from the notification obligation to a company turnover of less than €100 million, was eliminated. First, the turnover threshold was in some cases difficult to apply. This is particularly true for group structures because it is often difficult to identify the appropriate delineation for state aid purposes Secondly, this threshold can lead to different treatment between undertakings of different sizes, even where the impact on competition is the same. Even if a large company typically has more possibilities to compete on other markets, a separation of accounts between public service and other activities can alleviate the concern of possible cross-subsidisation.

9. Why are the exempted social services exhaustively listed in the Decision?

Social services, even if they are provided in an economic environment, have often specific features which distinguish them from other, more commercially oriented services. This justifies that the former are now exempted from the notification obligation regardless of the amount of compensation they receive, provided that they fulfil all the conditions of the decision. To achieve as much legal certainty as possible for granting authorities and beneficiaries alike, the exemption applies to an exhaustive list of social services. The list is very broad and covers the most important areas of social services.

The main impact of this change is a significant reduction of the administrative burden for the authorities granting the aid for social services, as they would no longer have to undergo the process of notifying these measures to the Commission.

10. What are the transitional rules for individual aid and for aid schemes?

Individual aid which was granted before the entry into force of the revised Decision and complied with the 2005 Decision is not affected by the revision. Individual aid that was granted before the entry into force of the revised Decision and was incompatible with the 2005 Decision, but fulfils the conditions of the revised Decision, is compatible aid.

Aid schemes that are put in place before the entry into force of the revised Decision and are compatible with the 2005 Decision continue to be compatible and exempt from the notification obligation for a period of two years from the entry into force of the revised decision.

D. The SGEI Framework

11. What is the Framework about?

The SGEI Framework specifies the conditions under which compensation not covered by the Decision is compatible with EU state aid rules. Such compensation will have to be notified to the Commission due to the higher risk of distortion of competition, so that the Commission can make an in-depth assessment and decide whether the measure is compatible with the internal market.

12. What are the main changes?

The revised Framework introduces a proportionate approach by subjecting large aid cases, with more important cross-border effects, to a closer scrutiny. Moreover, measures granting large compensations will need to contain incentives for the provider to achieve greater efficiency in the delivery of the services.

13. What is the purpose of the requirement of prior public consultation before an SGEI is attributed?

Under the revised Framework, Member States have to carry out a public consultation or use any other appropriate instrument to take the interests of users and providers into account, before entrusting a public service obligation to a certain provider. This will ensure that proper consideration has been given to the public service needs. This requirement does not apply where it is clear that a new consultation will not bring any significant added value to a recently held consultation on the same issue.

14. Why did you introduce a new methodology to determine the amount of compensation?

The primary reason for introducing a new methodology is to better estimate the economic cost of the public service obligation and to fix the amount of compensation at a level which ensures the best allocation of resources.

The choice of this methodology was an important element of the reform. The revised Framework requests Member States to use the net avoided cost methodology (NACM) for calculating the net cost of the public service obligation.

Under the NACM, the cost of the public service obligation is calculated as the difference between the net cost for a company of operating an SGEI and the net cost for the same company operating without a public service obligation.

The new Framework also allows alternative methodologies when the NACM is not feasible or appropriate.

15. Why do the new rules require Member States to introduce efficiency incentives in their compensation mechanisms?

Member States are required to introduce incentives for the efficient provision of SGEI of a high standard, unless the use of such incentives is not feasible or appropriate. Efficiency gains have to be achieved without prejudice to the quality of the service provided. The Commission has introduced this new requirement because incentives to become more efficient in the delivery of a service promote services of a better quality at a lower cost for taxpayers and users.

16. Why has the Commission introduced additional requirements for particularly serious competition distortions and what are they?

The Commission has to ensure that trade and competition in the internal market is not affected to an extent contrary to the interests of the EU (Article 106(2)(2) of the TFEU). Where an SGEI measure has the potential to create serious distortions of competition, the Commission will therefore carry out an in-depth assessment of its impact on competition. In such cases, the Commission will assess whether the distortions can be remedied through conditions or commitments from Member States.

17. What are the appropriate measures for aid schemes?

Article 108(1) of the TFEU requires the Commission to monitor existing state aid schemes and to propose, where necessary, appropriate measures to Member States to bring those schemes in line with the state aid rules. As regards existing SGEI schemes, the Commission proposes that Member States publish a list of all existing aid schemes concerning public service compensations that are not in line with the revised Framework by 31 January 2013 and that they bring those schemes in line with the Framework by 31 January 2014.

E. The draft SGEI de minimis Regulation

18. What is the de minimis Regulation?

The de minimis Regulation exempts small subsidies from the obligation to notify them in advance to the Commission for clearance under EU state aid rules. Under the current general de minimis Regulation, public funding of up to €200,000, granted over a period of three years are not considered as state aid. This is because their impact on cross-border competition is deemed inexistent.

19. Why does the Commission propose a specific SGEI de minimis Regulation?

The Commission intends to adopt a specific SGEI de minimis in order to achieve a genuine simplification for local services. The new SGEI de minimis threshold would be higher than the currently existing general de minimis threshold. This is justified because the beneficiary of the SGEI de minimis Regulation incurs net costs linked to the public service obligation that beneficiaries of the general de minimis Regulation do not have. The potential advantage for an SGEI provider is thus lower than the compensation amount actually granted, while under the general de minimis Regulation the advantage from the same amount would be higher. Therefore, the ceiling below which there is no impact on competition and trade between Member States can be higher for compensating for an SGEI.

20. What would be covered by the new de minimis rule?

Following a consultation of Member States and other stakeholders in October 2011, the current draft proposes to find public support for the operation of a service of general economic interest as de minimis when its amount does not exceed €500.000 over a period of three years. However, this text is not final and the conditions are subject to further discussions.

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