Application of rules for services of general economic interest (SGEI)
Communication on the application of the EU State aid rules to compensation granted for the provision of services of general economic interest
Decision 2012/21/EU — application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest
Communication — EU framework for State aid in the form of public service compensation
The communication on the application of the EU State aid rules clarifies the key concepts related to State aid for services of general economic interest (public services).
The decision defines the conditions under which public service compensation is compatible with the internal market and does not need to be notified to the European Commission.
The communication on the framework for State aid sets the conditions for assessing large compensation amounts that do not fall under the scope of the decision. Those cases have to be notified to the Commission and may be declared compatible if they meet certain criteria.
Services of general economic interest (SGEI)
Services of general economic interest are economic activities, such as transport networks and postal and social services, regarded by public authorities as being particularly important to citizens, and that would not be supplied (or would be supplied under different conditions) if there were no public intervention.
Compensation for SGEI
According to the 2003 Altmark judgment of the Court of Justice of the European Union (CJEU), public service compensation does not constitute State aid when 4 cumulative conditions are met:
the recipient service provider must have clearly defined public service obligations;
the method for calculating the compensation must be objective, transparent and set out in advance;
the compensation cannot exceed the relevant costs and a reasonable profit, i.e. no overcompensation; and
the provider is either chosen through a public procurement procedure or the level of compensation is calculated based on an analysis of the costs of an average ‘well-run’ business in the sector concerned.
Where 1 or more of these conditions is not fulfilled, the public service compensation will be examined under State aid rules.
Reform of State aid rules for SGEI
A 4-document SGEI package aims to clarify and simplify State aid rules for SGEI.
Communication on the application of EU State aid rules
- explains two types of notions: general State aid concepts and SGEI-specific concepts;
- clarifies the conditions under which public service compensation does not constitute State aid owing to the absence of any advantage;
It sets out the different requirements for the operation of an SGEI
- the entrustment act, a public service assignment that defines the obligations of the service provider(s) and of the public authority
- the method for calculating the compensation, which has to be established in advance in an objective and transparent manner. No specific formula is required, but how the compensation will be calculated must be clear from the outset
- avoiding overcompensation — the level of compensation must not exceed what is necessary to cover all or part of the costs and a reasonable profit and
- the selection of provider and the calculation of the compensation, either under an appropriate tendering procedure or through a benchmarking exercise.
The decision and the framework referred to below define the conditions under which a State aid measure is deemed to be or can be found compatible with the internal market on the basis of Article 106(2).
The decision allows unlimited spending in the area of social services:
social housing and hospitals;
services meeting social needs as regards health and long-term care;
access to and reintegration into the labour market; and
the care and social inclusion of vulnerable groups.
For all other SGEI activities, the compensation threshold is €15 million per year. Any funding given above this threshold would have to be notified to the Commission under the SGEI framework.
The period of entrustment with an SGEI provider does not exceed 10 years.
In the area of transport, compensation can be given:
for air and maritime links to islands where the average annual traffic does not exceed 300,000 passengers;
to ports where the average annual traffic does not exceed 300,000 passengers; and
to airports where the average annual traffic does not exceed 200,000 passengers.
gives a more precise methodology for calculating the amount of compensation allowable;
requires EU countries to introduce efficiency incentives to encourage the service provider to do so in the most efficient manner;
reinforces transparency requirements;
introduces the requirement for SGEI to comply with EU public procurement rules;
introduces a ‘no discrimination’ requirement — when there are multiple organisations providing an SGEI, the compensation must be calculated in the same way to avoid discrimination.
EU countries must report to the Commission on the implementation of the decision and on the compliance with the framework every 2 years.
EU countries must publish details on funding an SGEI within the scope of the decision (for compensation above €15 million granted to an undertaking that also has activities outside the scope of the SGEI) or the framework on an annual basis:
on the Commission’s State aid transparency website; or
on their national or regional transparency website.
The Commission has prepared guidelines on the application of State aid rules to SGEIs.
De minimis aid for services of general economic interest
Regulation (EU) No 360/2012 — application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest
Article 107 of the Treaty on the Functioning of the European Union
Article 108 of the Treaty on the Functioning of the European Union
WHAT IS THE AIM OF THE REGULATION?
Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) sets out which measures constitute State aid.
Article 108(3) TFEU requires, as a general principle, State aid to be notified to the European Commission so that it can assess whether the aid is compatible with the internal market.
This regulation complements the general EU State aid de minimis regulation*. Both regulations provide that aid below a certain threshold can be exempted from the notification requirements.
However, this regulation applies specifically to aid granted to undertakings providing services of general economic interest (SGEI), which are services that meet social needs such as health and long term care, childcare, access to and reintegration in the labour market, social housing and the care and social inclusion of vulnerable groups. This regulation increases legal certainty and reduces the administrative burden for granting compensation for small SGEI.
Article 2 of Council Regulation (EU) 2015/1588 on the application of Articles 107 and 108 TFEU to certain types of state aid allows the Commission to adopt in a regulation a de minimis rule, under which small aid amounts are considered not to be State aid because they have no effect on competition and/or trade between EU countries; they therefore also do not have to be notified under Article 108(3) TFEU.
Regulation (EU) No 360/2012 complements the general de minimis regulation (Regulation (EU) No 1407/2013) and applies to aid granted to organisations providing a service of general economic interest. Such aid does not need to be notified if the total amount of de minimis aid granted to an organisation providing services of general economic interest does not exceed €500.000 over any period of 3 fiscal years and the conditions on cumulation are respected. The ceiling for exempted aid set out in Regulation (EU) No 1407/2013, in contrast, is only €200.000.
If an EU country intends to grant de minimis aid under this regulation, it must inform the organisation concerned in writing of:
the proposed amount of aid;
the service of general economic interest for which the aid is granted;
the de minimis character of the aid.
Prior to granting the aid, the EU country must obtain a declaration from the organisation in question, in written or electronic form, about any other de minimis aid received under this Regulation or under other de minimis regulations during the previous 2 fiscal years and the current fiscal year. The EU country must check that the new sum will not increase the total amount of de minimis aid granted to the undertaking above the ceiling of €500.000.
Alternatively, EU countries can set up a central register for all de minimis aid granted in their territory.
FROM WHEN DOES THE REGULATION APPLY?
The period of application was to initially expire on 31 December 2018. The Commission considered that the circumstances underlying the regulation had not substantially changed. It therefore adopted Regulation (EU) 2018/1923, which extends the period of application for a further 2 years until 31 December 2020.
Transparency of financial relations between public authorities and public undertakings
Directive 2006/111/EC — clear accounting for state-owned companies
It aims to ensure transparency in financial relations between European Union (EU) countries and state-owned companies so as to ensure there is fair competition with, and no discrimination against, private companies.
Specifically, EU countries are required to ensure the transparency of any public funds which are made available to state-owned companies, how they are used and ensure that the costs and income of such companies are clearly set out in separate accounts.
The kinds of financial relations covered by the directive include the provision of capital, grants or loans on privileged terms and the setting-off of operating losses.
EU countries must ensure that the internal accounts of the companies concerned are kept separate in relation to their different activities, and that all costs and income are correctly set out according to proper cost accounting principles.
Certain kinds of financial relations are excluded from the directive, e.g. between EU countries and central banks, or with state-owned companies involving the supply of services which are unlikely to have a significant impact on trade between EU countries.
EU countries must ensure that the relevant financial information is made available to the European Commission for up to 5 years after the public funds were provided to the company. The Commission, however, must not disclose any information covered by the obligation of professional secrecy.
Regarding the manufacturing sector, this information has to be provided to the Commission on an annual basis and should include the annual report and annual accounts.
State aid — important projects of common European interest
Communication on criteria for analysing the compatibility of state aid for important projects with the internal market
As state aid may give recipients an unfair advantage over their competitors, the objective of state aid control is to prevent such distortions. This European Commission communication aims to give guidance for the assessment under the EU’s state aid (public subsidies) rules in regard to the public financing of Important Projects of Common European Interest (IPCEIs).
IPCEIs tend to be projects that address important market or systemic failures and societal challenges that would not be otherwise addressed.
has to be of common European interest (i.e. meet one or more EU objectives (e.g. European Research Area, Trans-European Energy or Transport Networks, Innovation Union, Digital Agenda for Europe, etc.);
must have a significant impact on competitiveness, sustainable growth, address social challenges or create value across the EU;
must involve more than one EU country and benefits must extend to a substantial part of the EU;
must benefit not simply the parties involved but society and/or economy as a whole through clearly identifiable positive spill-over effects (measurable benefits for citizens and/or other sectors of the economy).
To qualify as IPCEI, a project should either be particularly large in size or scope and/or imply a high level of risk or financial engagement.
Factors such as the following are taken into account:
Necessity and proportionality of the aid
The aid must not subsidise costs of a project that would have been undertaken anyhow and must not compensate for normal business risk.
The project should include a contribution by the beneficiaries and/or other private investors to the financing of the project.
Prevention of undue distortions of competition and balancing test
Aid will not be approved if it is possible to achieve the same result using less distortive policy or aid measures.
Any negative effects of the aid on competition or on trade between EU countries must be limited and outweighed by the positive contribution to the common European interest objective.
The criteria in this communication apply from 1 July 2014 to 31 December 2020.