Vice-President European Commission responsible for Competition policy
« Postal services: state aid aspects »
Second High-Level Conference on Postal Services
Valencia, 29-30 April 2010
Ladies and Gentlemen,
First of all, I would like to thank the Spanish Presidency, the Ministry of Transport, Postal Services and Infrastructure, and my colleague, Michel Barnier, Commissioner for the Internal Market and Services, for organising this second High-Level Conference on Postal Services.
Postal services play a crucial role in our society, acting as a basic lifeline between citizens.
They are also an essential tool for each one of us, as consumers.
And, of course, they provide a key service to business.
In all these respects they are evidently a vital instrument of European competitiveness and social cohesion.
For all of these reasons, I fully agree with the objective of guaranteeing efficient, high-quality postal services to companies and consumers in Europe.
As the European Commissioner responsible for competition policy, I am determined to ensure that public services, including postal services, are affordable to all, under the best possible conditions, and are top quality.
Thus public services must, with new entrants or alternative providers, be a real motor for innovation and efficiency without undermining the principle of fairness.
The EU state aid rules are important in guaranteeing this. The main purpose of these rules is to monitor State behaviour in the economy in order to ensure a level playing field for companies – whether incumbents or new entrants – and to guarantee that service providers have appropriate incentives to deliver a high quality service efficiently.
State aid issues arise in particular in relation to state funding of public service obligations, therefore we must avoid funding arrangements which have the potential to distort competition between companies active on the same market.
Before turning specifically to the postal sector, I would like to refer to the fundamental concepts underlying our assessment of public service obligations under European competition rules.
State aid and public services
The application of EU state aid rules to Member State funding for public services is a complex issue.
First, what is meant by public service in this context?
Essentially, a public service is a service that a State chooses to make available to its citizens.
Public services are usually services that are available to all – obvious examples are education and health services. If access is restricted, this is done on the basis of objective criteria.
The types of service that constitute "public services" vary from country to country, and depend on national traditions and expectations. There is no one definition or European "list" of public services.
The existence of guaranteed public services – even though in concrete terms the nature of the services is often different across Europe – is one of the things that the EU Member States have in common. Public services are fundamental to our European model of society, and to our vision of a social market economy.
In some cases, the concept of a public service has been harmonised under European law because this is necessary to create a really integrated and common European market. Postal and telecommunications services are examples of this.
The Lisbon Treaty has taken a step further in this direction and, under Article 14 of the Treaty on the Functioning of the EU, has provided a new legal basis for the Council and the European Parliament to harmonise what we understand by "economic" public services across Europe.
Any activity that involves offering goods and services on the market is an economic activity. So that, for instance, managing an airport might be regarded as an economic activity subject to the competition rules, while providing air traffic control services might not.
These "economic" services are not necessarily profitable, so that they may need to be funded by the State even though they are being managed in a market economy.
That state funding may, where appropriate, be subject to scrutiny by the European Commission under the EU state aid rules so as to ensure that it does not have the effect of distorting competition. The next question then is which public services have to be assessed under the EU state aid rules?
Not all public services need to be assessed under competition rules. It is only the provision of those public services that are economic in nature – "services of general economic interest" – that need to be assessed under the competition rules and, in particular, the state aid rules. This is provided for in Article 106 of the Treaty on the Functioning of the EU, which stipulates that companies that provide services of general economic interest are subject to EU competition rules unless the application of those rules would prevent them from providing the service in question.
Non-economic services fall outside the scope of the EU state aid rules because by definition there is no market for such services and no competitor who could be harmed as a result of State funding.
In sectors where there is actual or potential competition, as in the postal sector, and in those where service providers may be required to discharge public service obligations in return for state funding, the nature and conditions of that funding must comply with the EU state aid rules.
This brings me to the third question, which is: how do we assess State funding for public services that are "of general economic interest"?
Not all state funding, even for services of general economic interest, is regarded as state aid under the Treaty on the Functioning of the EU.
There is no state aid where (1) the beneficiary company is actually entrusted with the discharge of public service obligations, and they are clearly defined; (2) the parameters used to calculate the compensation are established in an objective and transparent manner; (3) compensation for the public service merely covers costs and a reasonable profit; (4) compensation is determined, where the company is not chosen by a public procurement procedure, on the basis of an analysis of the costs which a typical company, well-run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations.
These conditions were laid down in the 2003 Altmark judgment by the Court of Justice of the European Union.
If the strict conditions laid down in this judgment are not met, the state subsidy may be regarded as state aid and therefore require notification to the European Commission. It will then be assessed and may, where appropriate, be approved under Article 106(2) of the Treaty.
Complying with state aid rules
In order to clarify under which conditions state aid can legitimately be used to compensate for the provision of a public service, in 2005 the Commission adopted the so-called "package of services of general economic interest" (or SGEI package) consisting of a Decision and a Framework.
The 2005 Decision exempts Member States and public authorities from having to notify many public service compensation payments to the Commission for approval: for instance, the exemption relates to payments of less than 30 million euros per year, where the turnover of the relevant company is less than 100 million euros per year or where the aid relates to social housing or hospitals.
The Decision and the Framework both provide that 100% of the extra costs of providing the SGEI can be compensated, as long as certain conditions are met: there must be a clear act by the State entrusting the company with an SGEI and there must be no over-compensation.
This means that the amount of compensation must not exceed what is necessary to cover the costs actually incurred in discharging the public service obligations, taking into account the relevant receipts and a reasonable profit on any own capital necessary for discharging those obligations.
Finally, the company must ensure transparency in its accounts so that it is possible to assess the costs relating to the provision of the SGEI and avoid cross-subsidisation.
As long as these conditions are met, it is fair to say that Member States enjoy a wide margin of discretion in identifying SGEI and in organising and financing their provision. The Commission's role is limited to checking that the Member State has committed no manifest error of assessment or violated EU law.
Going forward, we are about to carry out an evaluation of how the SGEI package is working in practice. We have received reports from the Member States, and plan to launch a public consultation of all stakeholders very soon.
On the basis of the reports by the Member States, the results of the public consultation and any relevant source of information, the Commission will prepare and adopt the evaluation report. If appropriate, this evaluation could lead to a revision of the rules applicable to the payment of compensation for public services.
More broadly, President Barroso undertook, before the European Parliament in February, to develop a quality framework for services of general interest. Our objective here is to ensure that Member States retain the possibility of guaranteeing certain public services to all citizens on the basis of affordable conditions.
The EU Directives on postal services have opened up the provision of postal services to competition. At the same time they provide a common definition at EU level of the public service obligation in the postal sector.
In particular, they set up a universal postal service, conceived as a right of access to postal services for users, encompassing a minimum range of services of specified quality which must be provided in all Member States at affordable prices for the benefit of all users, irrespective of their geographical location. To this end, they set a common maximum limit to the postal areas which each Member State may grant to its provider or providers of the universal service in order to ensure the economic and financial viability of the provision of the universal service.
Member States remain free to decide how to organise the funding of these public service obligations – and it is of course our responsibility to ensure that this funding is compatible with the EU state aid rules.
Our overall priorities are clear:
to ensure that public funding for public services in the postal sector is well targeted and creates the right incentives, so that we can help ensure a high quality and efficient universal postal service at affordable prices for all Europeans;
at the same time, to ensure that fair competition can develop in commercially-viable sectors of the postal market.
From the point of view of state aid control, we must pursue these objectives by allowing only targeted public financing to fund the extra costs of universal service obligations in postal services.
That is to say, we must ensure that the compensation granted does not exceed the actual net cost of discharging the public service obligation, together with a reasonable profit, and that it does not cross-subsidise commercial activities.
In this way, we can ensure that state support for public service obligations does not serve to maintain dominant market positions by incumbent postal operators on markets that are commercially viable.
How are these principles being applied in practice? We have not for example allowed aid for commercially viable postal services which have taken the form of state guarantees for postal operators that lower their financing costs and consequently distort competition.
We recently prohibited a state guarantee for the new DHL hub in Leipzig which affected the most profitable postal market – international express parcels.
We are also looking into aid granted to relieve incumbent postal operators of excessive pension burdens. In this case, the aim is to ensure that this aid does not exceed what is necessary to create fair competition between incumbents which bear the burden of the past civil servant status of their employees and competitors.
I hope I have made it clear that the EU state aid rules do not shape or limit in any way the public services offered by Member States.
Public services, whether provided directly by the State or on the basis of a market economy, are an essential element in our model of society. Regardless of the broad margin which the Treaty leaves to Member States to define the perimeter of these services, they are protected by the EU. Existing regulation and the improvements to be made in the near future as a result of the Commission's work programme guarantee that the perimeter of public services will not be reduced.
On the contrary, EU state aid rules serve to ensure that public funds are properly targeted at the provision of high quality, efficient services to all its citizens at affordable prices, saving taxpayers' money.
This principle and this conviction are without a doubt being effectively applied to postal services, which will emerge strengthened from the modernisation process they are undergoing as a result of the European Directives.