Master Thesis in European Competition Law and Regulation
Finding the silver lining in the financing of the Services of General Economic Interest: How the Fourth Altmark makes it harder?
by Irene Hadjiyiangou
Supervised by Dr. K.J. Cseres ABSTRACT: The treatment of the Services of General Economic Interest has garnered an increasing number of academic commentary following the Altmark ruling. By creating four broadly defined criteria the Court succeeded not only to put the monitoring of SGEI high up on the list of priorities of the European Commission, but also to create a hype in regards to their interpretation and applicability. This thesis explores the fourth and most challenging Altmark criterion and seeks to clarify its scope of application. What is more, it attempts to shed some light as to the developments that the Commission has adopted throughout the years, and how they shaped the current context of SGEI. Due to the relatively new status of the Altmark criteria, and the evolving nature of the State aid rules on SGEI, there is a shortage of comprehensive analysis that is solely focusing on the unique prominence of the fourth criterion.
Table of Contents INTRODUCTION ...... 4 Chapter 1: SERVICES OF GENERAL ECONOMIC INTEREST: LEADING UP TO THE 2005 ALTMARK PACKAGE ...... 6 1.1 Deciphering the Services of General Economic Interest ...... 6 1.2 The Altmark Judgement ...... 9 1.3 The 2005 Altmark Package ...... 10 Chapter 2: THE PECULIAR CASE WITH THE FOURTH ALTMARK CONDITION ...... 12 2.1 The interrelationship of EU Public Procurement Law and State Aid ...... 12 2.2 The two-tier approach to the fourth Altmark condition ...... 14 2.2.1 Selection of Public Service Operator Pursuant to Public Procurement Procedure...... 15 2.2.2 Efficiency Benchmarking ...... 17 2.3 The Court methodology on the application of the condition ...... 18 2.3.1 The BUPA Judgement ...... 18 2.3.2 TV 2/Danmark A/S and Viasat Broadcasting v Commission ...... 20 Chapter 3: LEGAL AMBIGUITY AND RECENT DEVELOPMENTS ...... 22 3.1 The 2012 Almunia Package ...... 22 3.2 The Courts’ view in Germany v European Commission (Zweckverband Tierkörperbeseitigung) . 24 3.2 The Commission Notice on the Notion of State Aid ...... 27 CONCLUSION ...... 30
INTRODUCTION
The services of general economic interest (SGEI) make up the foundation of the European Union’s socio-economic model of the welfare state, a model that has as its core priority the protection of a minimum income and the access to essential services regardless of wealth or privilege.1 Those fundamental services are largely bestowed through the SGEI. The Treaty on the Functioning of the European Union (TFEU) lays down several provisions regarding the services of general economic interest, most notably with Article 106(2), which is exempting SGEI operators from the Treaty rules insofar as those rules are obstructing the performance of the public service. The TFEU however, fails to provide any definition of the notion, something that is mainly attributed to the unwillingness of the Member States to agree on the economic status of certain services. As a result, the Member States are left with wide discretion to identify SGEI, and apart from established Union rules for certain sectors, their only other constraint was the indication that there is “a manifest error of assessment”.2 The obscurity around the classification of SGEI has proved to be confusing, with the Member States repeatedly failing to apply the state aid rules on SGEI and thus, unable to properly define those services and fund them. The Altmark judgment and the subsequent Altmark Packages, in 2005 and 2012 respectively, have brought a revolution in the treatment of SGEI. The Altmark judgment established four cumulative criteria according to which, if all four conditions are satisfied, then the aid is compatible with Article 107(1) of the TFEU, and hence not a state aid. Despite, being a welcome addition to the murky realm of the SGEI, the judgment had nevertheless, only partially tackled the financing of such services, with the Court being criticised for leaving many questions unresolved and insufficiently answered.3 Particularly, the fourth criterion has been proved to be the most problematic because even if it is not met, an aid can be still found compatible with the internal market based on the exception of Article 106(2).4 This, along with other uncertainties
1 N Boeger, ‘Solidarity and EC competition law’ (2007) European Law Review 319 2 Case T-289/03 British United Provident Association Ltd (BUPA) (2008) ECLI:EU:T:2008:29, para 169 3 A Sanchez Graells, ‘The Commission’s Modernization Agenda for Procurement and SGEI’ (2012) https://poseidon01.ssrn.com/delivery.php?ID=69210200508106909909901210301303007711802002001904400610 502512306407010109302907010512103503703802300404507009408900406407206402508501406101607910602 202101208706807005002200007700209712311111110301607900400400509201109811602008806502207209507 0068022&EXT=pdf accessed 12 June 2017 4 W Sauter, ‘The Altmark package mark II: new rules for state aid and the compensation of services of general economic interest’ (2012) European Competition Law Review 307 deriving from the four conditions, led the Commission to introduce the first Altmark Package which aimed to provide guidance for the cases where SGEI did not meet all four Altmark conditions but fell within the Article 106(2) exemption. Subsequently, the second package, in 2012, implemented a number of modifications to the first Altmark package and adopted a de Minimis Regulation. As a final phase in the State Aid Modernisation initiative, the Commission implemented the much-awaited Notice on the notion of State aid, which intended to navigate the Member States through the appropriate procedures of funding SGEI without contradicting Article 107(1). The Notice aims to clarify the connection of State aid law with public procurement law by rationalising certain procurement practices and models through a State aid approach.5 The message that is being conveyed throughout the Notice is that as long as SGEI are awarded according to the EU public procurement rules then, it is safe to perceive them as State aid free.6 This paper will focus on the important legal and judicial developments that followed the judgment in Altmark. In particular, the paper will be divided into three parts. In the first part, there will be an introduction to the general principles governing the SGEI in conjunction with Article 106(2) TFEU and the complexities arising from its loose definition. Accordingly, the paper will deal with the Altmark ruling and the aftermath, namely the introduction of the first package and what that meant to the treatment of SGEI. The second part will focus on the fourth Altmark and the complex clarifications that the Court has provided on its judgements. The section will break down the fourth condition and examine how it is interpreted and supporting it with established case law. Finally, the last part will focus on the most recent developments by the Commission along with a recent case law analysis focusing on the approach of the Court to the fourth Altmark and what this conveys in regards to the evolution of the rules on SGEI.
5 G Skovgaard Ølykke, ‘Commission Notice on the notion of state aid as referred to in article 107(1) TFEU – is the conduct of a public procurement procedure sufficient to eliminate the risk of granting state aid?’ (2016) Public Procurement Law Review 197 6 Ibid Chapter 1: SERVICES OF GENERAL ECONOMIC INTEREST: LEADING UP TO THE 2005 ALTMARK PACKAGE
1.1 Deciphering the Services of General Economic Interest
The European Commission defines the services of general economic interest as “economic activities that public authorities identify as being of particular importance to citizens and that would not be supplied (or would be supplied under different conditions) if there were no public intervention”.7 Sectors that according to the Commission can be SGEI are among others, the transport networks, the waste sector, the postal services and the health care.8 The access to SGEI is formally recognised in Article 36 of the Charter of the Fundamental Rights of the European Union.9 Article 107 TFEU, in turn, enables Member States from providing financial aid, insofar as this aid has social characteristics and is compatible with the Treaty provisions. Providers of SGEI enjoy special treatment from a competition law perspective since, the general rules are applied to a moderate magnitude, enabling them in a way to provide those services more efficiently. What is more, under Protocol No. 26 of the TEU, national, regional and local authorities play a critical role and enjoy wide discretion in providing commissioning and organising SGEI according to the needs of the users of such services.10 Nevertheless, the Member States, and the local and regional authorities (LRAs) must follow the EU and national rules and regulations on SGEI. The interpretation of an SGEI is fundamentally deriving from a combination of Soft Laws produced by the European Commission, and legally binding judgements of the CJEU. Irrespective, of the lack of a precise definition, SGEI are mentioned twice in the TFEU. Article 14 (ex Article 16 EC) establishes the legal basis for the SGEI and allocates the organisational and financial conditions under which the Union institutions and the Member States must cooperate.11 The
7 European Commission on Services of general economic interest (public services)
12 G Kamaris, ‘The reform of EU state aid rules for services of general economic interest in times of austerity’ (2012) European Competition Law Review 55 13 A Lamadrid, ‘Hotch Potch’ (2014) Chillin’ Competition https://chillingcompetition.com/2014/07/09/hotch-potch/ accessed 06 June 2017 14 Article 106(2) of the Consolidated version of the Treaty on the Functioning of the European Union 15 N Fiedziuk, ‘Services of general economic interest and the Treaty of Lisbon: opening doors to a whole new approach or maintaining the "status quo"’ (2011) European Law Review 226 16 Fiedziuk (n 16) 17 N Fiedziuk, ‘Towards Decentralization of State Aid Control: The Case of Services of General Economic Interest’ (2013) World Competition 36, no 3 to proportionality, entails that the Court uses only the least restrictive measures that will enable the end result. In other words, the use of more restrictive approach will only result to the declaration of a measure as disproportionate. Alternatively, under the flexible interpretation, the Court presumes that the Member States are capable of regulating SGEI according to their domestic needs and the EU regime can only interfere when there is a “manifest error”. In the absence of an established comprehensive definition of what constitutes an SGEI, anywhere in the Treaties, the Court was confronted by two conceptual issues; whether the compensation for the public service was aid and therefore, subject to Article 107 TFEU, and what were the competences left for Article 106(2) TFEU.18 The first issue was touched upon in the Heiser case, where the Court provided that ‘the derogation provided by Article 106(2) of the Treaty does not prevent a measure from being classified as State aid’. 19 Nor could it, once such a classification has been made, allow the Member State concerned not to notify the measure pursuant to Article 108(3) of the Treaty.20 The Court however, was more reluctant to clarify this issue in Altmark Trans.21 As for the second issue, as AG explained in the case of Dusseldorp, the mere performance of an SGEI without this undertaking being entrusted to carry out such performance, is not enough since, the entrustment incentive will be responsible for the establishment of the public service obligations that are required for the performance of the service.22 This solidifies the importance of the ‘entrustment’ objective in defining SGEI. What has been proved to be inadequate with Article 106(2), is its ambiguous wording which in turn grants to the Court a wide discretion to interpret the conditions under which a compensation can be measured as compatible with the Treaty provisions. This comes as no surprise considering the CJEU’s growing competence in regulating the SGEI, and the increasing dependence of the Member States in the Court’s jurisprudence for guidance as to the identification those services. The CJEU followed its most decisive approach with the Altmark judgment where it set the rules under which public service compensation will not fall under the State aid regime.
18 Dashwood, Wyatt and Dashwood’s European Union Law (6th edn, OUP 2011) 862 19 Case C-172/03 Wolfgang Heiser v Finanzamt Innsbruck (2005) ECLI:EU:C:2005:130 20 Ibid 21 Case C-280/00 Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH, and Oberbundesanwalt beim Bundesverwaltungsgericht (2003) ECLI:EU:C:2003:415 22 See the Opinion of Advocate General Jacobs in Case C-203/96 Dossesldorp [1998] ECR I-4075, [1998] 3 CMLR 873, para 103 1.2 The Altmark Judgement
The ruling in Altmark Trans brought an innovation to the treatment of SGEI in relation to the rules on State aid.23 In Altmark the Court had to examine the parameters of the granting of regional bus transport licences by a German regional government. The case arose when a local bus company requested an annulment on the decision to grant Altmark Trans GmbH regional bus licences to operate SGEI, on the grounds that at the time of the granting of the licences Altmark Trans was suffering from financial losses and only the subsidies for the public service operation could have helped in saving the company from insolvency. To support the complaint, the operator claimed that the subsidies were contrary to the Regulation No. 1191/69. The German Court referred the case to the CJEU for a preliminary ruling, requesting for clarifications as to whether the subsidies intended to compensate Altmark for operating the public service were subject to Article 92(1) EC (now 107 TFEU) if the compensation for the services could not affect the trade between the Member States.24 The Court affirmed that in order to evaluate the compatibility of State aid measures with the internal market, only the effects of those measures were considered. As a result, it was delivered that if the financing was a form of restitution for the costs incurred during the offering of the service, then it was not regarded State aid. Four cumulative criteria were generated which if satisfied then the compensation to public service operators should not be treated as state aid for the purposes of Article 107(1) of the TFEU. By cumulative it means that all criteria must be satisfied otherwise, if any of the four Altmark conditions is not met then, the compensation is a State aid. These criteria are the following: 1. first, the recipient undertaking is actually required to discharge public service obligations and those obligations have been clearly defined; 2. second, the parameters on the basis of which the compensation is calculated have been established beforehand in an objective and transparent manner; 3. third, the compensation does not exceed what is necessary to cover all or part of the costs incurred in discharging the public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations;
23 W Sauter, ‘The Commission’s New SGEI Package: The Rules for State Aid and the Compensation Services of General Economic Interest’ (2012) TILEC Discussion Paper No. 2012-018
1.3 The 2005 Altmark Package
The Package provided many clarifications on the various questions circulating the SGEI. What was missing though was the tackling of important issues i.e. the application of Article 106(2) which was also omitted in the Altmark judgment. Furthermore, it failed to provide a satisfactory
25 Ibid, para 95 26 Sauter (n 4) 27 Commission Directive 2005/81/EC of 28 November 2005 amending Directive 80/723/EEC on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings (2005) OJ L 312 interpretation of the fourth Altmark condition and its interrelationship with the public procurement procedures, focusing instead on the three elements of the Article 106(2) which also displayed the Commission’s favouritism to the use of Article 106(2) to define SGEI. The Commission Decision, which in practice was a block exemption, spared undertakings that had received aid below a particular threshold as well as certain economic sectors, from notifying the aid according to the responsibilities conferred under Article 108(3) TFEU.28 Such exemption was permitted provided that the aid was compatible with the internal market on the basis of Article 106(2) TFEU and it was applicable to hospitals and undertakings entrusted with the social housing, irrespective of their turnover or the amount of the compensation they received for the execution of the public service. In order to be eligible for the exemption, the operators of the public service were required to be entrusted with the operation of the service with at least one official act provided that those acts stated: (i) the nature and the duration of the public service obligations; (ii) the undertaking and territory concerned; (iii) the nature of any exclusive or special rights assigned to the undertaking; (iv) the parameters for calculating, controlling and reviewing the compensation; (v) the arrangements for avoiding and repaying any overcompensation.29 The Decision rules obliged the Member States to submit regular reports illustrating the implementation progress of the provisions laid down in the Framework, enabling in this way the Commission to investigate their compatibility notwithstanding, the fact that the data were supplied in mass quantities.30 The Framework was mostly identical to the Decision, but it applied to all the other cases that the Directive did not include in its scope.31 In particular, the ones dealing with the public service obligations and the calculating of the compensation, the costs and the revenue by using the analogy of the reasonable profit.32 The Framework was aimed for large public service providers like the ones operating in transport, postal services, telecommunications, energy, water and waste disposal, which were not subjected to the block exemption of the Decision but instead the same substantive
28 Commission Decision of 28 November 2005 on the application of Article 86(2) of the EC Treaty to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest OJ L 312 29 Commission Directive (n 27), Article 4 30 Sauter (n 4) 31 Community framework for State aid in the form of public service compensation (2005) OJ C 297/04 32 Ibid norms in a case by case basis. This made the analysis of individual cases of state aid and SGEI more straight forward and thereby, their outcomes more foreseeable.33 Finally, the amended Transparency Directive, which is still applicable to date, has a broader scope than the Decision and the Framework but nonetheless plays a significant part in the strengthening of the Altmark Package.34 Specifically, the Directive in an effort to combat overcompensation, it imposes accounting separation for the miscellaneous economic activities, of SGEI operators that operate other economic activities, provided that their turnover is €40 million or more and that those services can impact the cross border trade among the Member States.35 However, those undertakings that were assigned to carry out those services in a transparent and non-discriminatory procedure are exempted from this requirement
Chapter 2: THE PECULIAR CASE WITH THE FOURTH ALTMARK CONDITION
2.1 The interrelationship of EU Public Procurement Law and State Aid
In order to understand the relationship of public procurement law and State aid one has to take a closer look at the last Altmark criterion. According to Matos, it is the most innovative one from the cumulative criteria and that is mainly attributed to the fact that it commences an efficiency test.36 Despite its significance, the abovementioned condition has created much controversy among scholars and Member States who argue that its vague description leaves much room for interpretation and therefore can create trouble in the identification of the SGEI. The Court’s wavering approach does not help in the clarification of the scope of the criterion and the question that has been imposed is as to whether the adherence to the public procurement directives, can be sufficient to eliminate risk of granting State aid.37 Similarly, the public procurement procedure
33 Sauter (n 22) 34 Commission Directive 2005/81/EC of 28 November 2005 amending Directive 80/723/EEC on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings (2005) OJ L 312 35 Ibid; Sauter (n 4) 36 N Albuquerque Matos, ‘The Role of the BUPA Judgement in the Legal Framework for Services of General Economic Interest’ (2011) Tilburg Law Review 16, 83-104 37 Skovgaard (n 5) deriving from the public procurement directives, is reasonably questioned as to its ability to create market conditions.38 To understand the nature of the condition one has to look at the relationship between State aid law and public procurement law. The requirement of using public procurement procedure to select SGEI providers stems from the Altmark judgment.39 Accordingly, where the SGEI provider has been chosen via a public procurement procedure then, the corresponding public authority can be excluded from the notification requirement and the lengthy scrutiny carried out by the Commission, since the measure will be dismissed from the State aid qualification in the first place.40 The Commission is looking for ways to make sure that the public procurement rules have been properly applied, when assessing State aid compatibility under Article 106(2) TFEU. In fact, the level of compliance with the EU public procurement rules is not adequate. This is attributed to the imprecise and vague rules that are proved to be perplexing for average public procurement law enforcers to grasp, while at the same time, the Commission cannot do anything about it since, it only has limited competences to regulate in this area, which means it is also left with limited enforcement power. To address this, the Commission inserted into the Framework for State aid a new clause which enabled State aid for the purposes of Article 106(2) TFEU only where the appropriate EU public procurement rules were followed for the awarding of the service.41 On the surface, the rule seems like an incorporation of the fourth Altmark criterion but, on further inspection it is apparent that the Altmark test is excluded since, the rule is solely intended for residual cases.42 This was asserted in the Communication from the Commission, where an open and negotiated procedure with prior publication, was deemed to be acceptable to satisfy the fourth Altmark whereas, the omission to publicise the contract notice could not ensure the selection of the capable provider to carry out the public service at the least cost of the community.43 Characteristically, this reasoning was adopted by the General Court in the France v Commission.44
38 G Skovgaard Ølykke, ‘The Notice on the Notion of State Aid and Public Procurement law’ (2016) European State Aid Law Quarterly 508 39 N Fiedziuk, ‘Putting Services of General Economic Interest up for Tender: Reflections on Applicable EU Rules’ (2013) Common Market Law Review 50(1) 40 Ibid 41 Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general) OJ C 8/4, para 19 42 Fiedziuk (n 39) 43 Communication from the Commission (n 41), para 66 44 Case T-366/13 France v Commission (2017) EU:T:2017:135 In this case, France was challenging the Commission Decision C(2013) 1926 final by which, the Commission dictated that the compensation paid, to the Société Nationale Corse Méditerranée (SNCM) and the Compagnie Méridionale de Navigation (CNM), for maritime transport services under a public service delegation (PSD) contract, was State aid. France’s main argument was that the State aid rules had been misinterpret, refuting the Commission’s conclusion that the first and fourth Altmark conditions were not fully satisfied. The General Court however, quashed the case explaining in its reasoning that despite, the use of a tender procedure according to the EU public procurement law, the parameters of the procedure, including the short time between the commencement of the service and the awarding of the contract, showed the failure of the public authorities to maintain effective and open competition, sufficient enough to enable them to choose the most cost-effective operator.45 The judgment was of great significance in shedding some light on how the fourth Altmark should be applied in conjunction with public procurement laws since, it demonstrated that the mere use of EU public procurement procedures was not enough to show that the necessary steps to ensure effective competition were taken.
2.2 The two-tier approach to the fourth Altmark condition
The fourth criterion has been branded as the most difficult to meet, among the four criteria.46 The condition lays down a twofold test that stipulates that by establishing either market conditions or market price, is enough to form service parameters, that are compatible with the Treaty provisions, and hence avoid State aid. The conditions substitute the one another therefore, when the one is not applicable then the other has to be satisfied. Thus, when the undertaking responsible for the operation of the public service is not chosen pursuant to a public procurement procedure, then the compensation for the operation of the service must be estimated based on the benchmarking of an efficient operator.47 The test leaves room for interpretation with many regarding it as a free choice as to whether they should follow the public procurement procedure.48 This is also the point that creates much controversy in the application of the fourth Altmark since, it is not against the State aid law to apply one of the two, but it contradicts the public procurement
45 Ibid, para 180 46 P Wemer and V Verouden, ‘Services of General Economic Interest’, EU State Aid Control. Law and Economics (Wolters Kluwer 2016) 47 Skovgaard (n 38) 48 Fiedziuk (n 16) law.49 The CJEU, did not elaborate further in its judgment in Altmark, as to the necessity to tender the public service contract, possibly due to the nature of the case which was dealing with Sate aid.50
2.2.1 Selection of Public Service Operator Pursuant to Public Procurement Procedure. CJEU has always favoured the use of public procurement procedure as the preferable method of selection of a public service operator, in line with Article 107(1) TFEU.51 This preference probably derives from the presumption that it will require the least amount of financial contributions from the State. The Commission has favoured this approach to State aid and in fact in the revised 2012 Altmark package, it recognised the need to provide SGEI at the least cost to the Community, stating that this was easier to be achieved through a public procurement procedure. Specifically, the Communication provided that: “Concerning the characteristics of the tender, an open procedure in line with the requirement of the public procurement rules is certainly acceptable, but also a restricted procedure can satisfy the fourth Altmark criterion, unless interested operators are prevented to tender without valid reasons. On the other hand, a competitive dialogue or a negotiated procedure with prior publication confer a wide discretion upon the adjudicating authority and may restrict the participation of interested operators. Therefore, they can only be deemed sufficient to satisfy the fourth Altmark criterion in exceptional cases. The negotiated procedure without publication of a contract notice cannot ensure that the procedure leads to the selection of the tenderer capable of providing those services at the least cost to the community.” 52 The general idea deriving from the above text is that public procurement procedures are important but they are not always compatible with the SGEI. This example was illustrated in the Commission Decision in the Southern Moravia Bus Companies case where it was held that it would not be sufficient to approach only known providers which are already active in the region since, such a
49 Communication from the Commission (n 41), para 19 50 Skovgaard (n 39) 51 M Klasse, ‘The impact of Altmark: The European Commission Case Law Responses’ in E Szyszczak, Financing Services of General Economic Interest (T.M.C. Asser Press, 2013) 52 Communication from the Commission (n 41), para 66 procedure was controverting the possibility for participation for carriers from other Member States.53 Following, Altmark the question raised was whether a public procurement procedure will suffice, by choosing the most capable undertaking to carry out the service at the least cost for the community. Therefore, even though the Member States have the freedom to choose an operator according to those criteria, the public procurement incentive from the fourth criterion will be satisfied just by choosing an operator who requested the least amount of compensation regardless of the fact that the requirement for the highest quality of service might not be satisfied. 54 In its CADA Decision, the Commission concluded that the procedure under which an undertaking is requesting the lowest compensation is complied with the fourth Altmark and the compensation does not constitute State aid.55 The Commission highlighted that a ‘material analysis’ examining beyond the public procurement rules has to be undertaken to determine whether those services are in fact provided at the least cost to the community.56 Therefore, it is evident that a public procurement procedure amid desirable for the selection of a public service operator does not guarantee that the fourth Altmark will be fulfilled. Such an example was in Busverkehr Wittenberg case where the Commission found that the compensation granted to a public transport provider in Wittenberg was State aid irrespective of the fact that the operator was chosen pursuant to public procurement procedures.57 Specifically, it was found that another parameter of the service did not meet the third Altmark thus did not satisfy all four Altmark conditions. Conversely, in the Dorsal case when examining the compensation for a broadband network, it was again found to be State aid since despite following a public procurement procedure, the selection was based on the most favourable conditions instead of the least costs. It is questionable whether a public procurement procedure can provide the most optimal results in the allocating of SGEI. The answer varies according to the sector in question. For instance, in the postal sector the operator might be the sole company best suitable to provide such services but
53 Joined Cases E-10/11, E-11/11 Hurtigruten ASA and the Kingdom of Norway v EFTA Surveillance Authority (2012) OJ C29 54 Klasse (n 45) 55 Commission Decision in case N 475/2003 – Ireland - Public Service Obligation in respect of new electricity generation capacity for security of supply OJ C 34 56 Ibid, para 57 57 Ibid fn 48 in cases where it is hard to define their nature it might be more appropriate to select the operator after direct negotiations with the interested parties. 2.2.2 Efficiency Benchmarking Despite the extensive case law and guidelines indicating that public procurement is the preferred requirement to follow from the fourth criterion, the CJEU has showed reluctance as to the imposition of the practice, by creating instead an alternative efficiency test examining the most adequate provider for the public service obligation at the least cost for the community. What is hard to examine however, is the notion of the typical well-run undertaking since the Court has not specified a precise definition as to what it might comprise. The Commission has not done much for the issue either but to provide that in addition to an efficiency test, a market comparison was also necessary to be carried out. In the Dorsal case, the Commission found that compensation based on a comparative analysis of the needs of the project and the offers of the candidates, met the efficiency test requirement.58 Likewise, in Poste Italiane, the Commission decided that the benchmark of the market remuneration for the distribution of postal bonds was a suitable evaluation of the level of costs that a typical well-run undertaking in the specific sector would sustain, taking into account receipts and a reasonable profit.59 Contrary to that, in Postbus Lienz, the Commission examined the payments granted to Postbus by Austria for the discharge of a public service and found that Austria failed to prove that the financing corresponded to the one of an adequate typical provider.60 The Commission in this case, broke down the efficiency test of the fourth Altmark into three types: a. the cost of the typical undertaking; b. the cost of a well-run undertaking c. the undertaking must be adequately provided with means of transport. Despite finding that the provider was a typical undertaking, the costs did not suggest that Postbus was well-run. Commission suggested that Austria could have satisfied the fourth criterion by just calculating the average costs of other undertakings that were previously awarded with the service obligation.61 The Commission has provided that the calculation of the costs of the efficient undertaking cannot only achieved by the mere consideration of the actual costs in a sector. Instead, there must
58 Haut débit en Limousin – DORSAL (N382/2004) Commission Decision [2004] OJ JOCE C/230/2005 59 Poste Italiane SpA (SA.43243) Commission Decision [2015] OJ JOCE C/104/2016 60 Postbus in the Lienz 2009/845/EC Commission Decision [2008] OJ C 16/07 61 Ibid, para 87 be a calculation of the price of a public service, had it been awarded based on a public procurement procedure.62
2.3 The Court methodology on the application of the condition
2.3.1 The BUPA Judgement The decision in BUPA illustrates the ambiguous application of State aid rules on the SGEI.63 Until the mid-1990s the sole provider of private health insurance in the Irish market was Voluntary Health Insurance Board (VHI). Health Insurance Act 1994 mandated the liberalisation process which was subject to a risk equalisation scheme (RES). The RES was a mechanism that was responsible for the prevention of the use of risk insurance by insurers, a practice that was basically overcharging or making harder the obtaining of health insurance, to older, less healthy and costlier individuals.64 Even though there was no explicit mention of “intergenerational solidarity” anywhere in the 1994 Act, the approach of the RES was to impose private medical insurers with a risk profile below the average to pay a special levy to the Health Insurance Authority, which in turn would pay the extra costs of the insurers with a higher than average risk profile. What is more, RES provided for open enrolment and lifetime cover, making it impossible for private health insurers to refuse subscribers or terminate their contracts. The scheme meant that new entrants to the market like BUPA, with younger subscribers, would have to make payment to the VHI, which during that time had the monopoly in that sector, and its subscribers were 20 times the number of subscribers over the age of 80 more than the ones BUPA had. The RES was notified to the Commission in 2003, under Article 88(3) EC (now Article 108(3) TFEU), which upon inspection found that there was no State aid for the purposes of Article 87(1) EC (now 107(1) TFEU) because it was the Commission’s view that the amount of the compensation was very low and was corresponding to the amount necessary to cover the costs for the SGEI operation.65 British United Provident Association Ltd (BUPA), BUPA Insurance Ltd and BUPA Ireland Ltd lodged two similar applications for annulment of the Commission Decision, the one before the CFI, and the other before the Irish Supreme Court, arguing that the approved
62 Southern Moravia Bus Companies (C 3/08) Commission Decision [2008] OJ L 97/14, paras 82, 83 63 BUPA (n 2), para 169 64 M Ross, ‘A healthy approach to services of general economic interest? The BUPA judgment of the Court of First Instance’ (2009) European Law Review 127 65 Commission Decision C(2003)1322 final of 13 May 2003 measures did not satisfy the Altmark test. Explicitly, among the pleas that BUPA raised, was the claim that Article 86(2) EC was misused.66 The Commission supported its reasoning in omitting to apply the Altmark requirements on the basis that after the judgment the test was altered. The General Court, after scrutinising the arguments brought up in the case, decided to reject BUPA’s request for annulment. The judgement is of great significance for a number of reasons including the unusual way that it deciphered the Altmark conditions, which fundamentally was by providing flexible interpretations.67 Specifically, during, the examination of the applicability of the fourth Altmark condition, the Court provided a relaxed interpretation which did not include the efficiency requirement, something that was justified on the grounds that it was impossible for the RES to estimate the amount of the compensation in advance, due to the absence of pre-existing facts and figures. What is unusual though from the exclusion of the efficiency test was that the public procurement test could not be used since, no public procurement procedure was followed to choose BUPA for the public service obligation. Thus, the Court did not reflect on the fourth Altmark’s applicability in the examination of the legality of the RES. In the judgement, the Court takes a somewhat diverging route in regards to its previous view that the Member States enjoy wide discretion in the management of the SGEI. Specifically, the CFI provided that “even though the Member State has a wide discretion when determining what it regards as an SGEI, that does not mean that it is not required, when it relies on the existence of and the need to protect an SGEI mission, to ensure that that mission satisfies certain minimum criteria common to every SGEI mission within the meaning of the EC Treaty, as explained in the case-law, and to demonstrate that those criteria are indeed satisfied in the particular case.”68 In principle, it is evident that the Court backtracked from its previous position, adopting an approach that suggests that EU law can intervene without compromising the Member States’ wide discretion. Moreover, it is observed that the Court took a more relaxed attitude as to the interpretation of the Altmark conditions, making them look too rigid. In that regard, as Andrea Biondi stated about what to make out of the BUPA judgement is that it “is a reasonable
66 BUPA (n 2), para 86 67 Albuquerque (n 38) 68 BUPA (n 2), para 172 compromise between the paucity of scrutiny of the Ferring approach and the possible rigidity of Altmark”.69 The BUPA judgment can be interpreted in two distinctive ways. From a Member State perspective, it is a welcome confirmation of the wide discretion they enjoy in regulating the SGEI, whereas from a general point of view, it is an example of the evolution of social values within the EU law context.70 The significance of the outcome of the case should not be conveyed as the indisputability of the Member States’ SGEI arrangements but rather the fact that EU competition rules interceded on national measures. CFI’s position in this case was to reject all of the arguments submitted by BUPA and support the rule that leaves the Member States with wide discretion in defining regulating and financing their own SGEI. In fact, the Court explicitly mentioned this prerogative in the judgement further providing that the Commission can only intervene in case of a manifest error.71 This approach was observed throughout the ruling, with the loose interpretation of the Altmark criteria. 2.3.2 TV 2/Danmark A/S and Viasat Broadcasting v Commission In 2003, the European Commission begun to investigate a possible State aid granted by Denmark to the Danish Service Broadcaster. The Commission found that in the course of 7 years Denmark has granted State aid to TV 2. Specifically, the aid administered to TV 2 between 1995 and 2002 from licence fee resources and other measures was considered to be exceeding the relevant benchmark and ordered the Danish government to recover the amount of 628.2 Danish Krone plus interest.72 TV 2 and Denmark brought actions before the Court of First Instance (CFI) contesting the Commission’s Decision. During the proceedings, the Commission argued that Denmark had not applied the fourth Altmark condition in a satisfactory manner. The CFI recognised that despite its wide exposure broadcasting is an economic activity subject to competition rules.73 During the analysis of the circumstances under which the compensation was provided, the Court found that even though the amount of compensation was determined by the Danish Parliament in a transparent and objective procedure, it still did not satisfy the second Altmark as to the method of calculation that was followed. This was attributed to the fact that in
69 A Biondi, ‘BUPA v. Commission’ (2008) 2 European State Aid Law Quarterly 406. 70 Ross (n 58) 71 BUPA para 169 72 Joined cases T-309/04, T-317/04, T-329/04 and T-336/04. TV 2/Danmark A/S and Others v Commission of the European Communities (2008) ECLI:EU:T:2008:457 para 24 and 25 73 TV 2/ Danmark (n 66), para 76 the expenditure of TV 2 was taken into consideration in the calculation of the costs. On further elaboration, the CFI broke down the second Altmark condition into three subdivisions: 1. the compensation must be established under objective parameters; 2. in advance; 3. Through a transparent procedure. If the second criterion is not satisfied then the third will also fail to be met since it is accepted that if the compensation is not clearly established beforehand, then extra costs that may arise that can lead to the overcompensation of the provider. The Court was opposed with the Commission’s view that the effective management of the service was attuned with the second Altmark, arguing that the efficiency element is only reflected through the fourth Altmark.74 Analysing the fourth Altmark the Court clarified that in cases where the public service operator is not chosen pursuant to a public procurement procedure, the application of the fourth Altmark would probably impose some difficulties. Elaborating on this view, the Court said that the efficiency benchmarking has a wide scope of application and it is hard to compare a private company from an SGEI operator that is subject to specific requirements.75 However, the Court was of the opinion that it was easy to establish the efficiency benchmarking in the broadcasting sector due to its similar substance. Therefore, it rejected Denmark’s position that it was not feasible to compare costs. The claim was unsuccessful because the Commission had demonstrated that Denmark did nothing that in practice could ensure the compliance with the Altmark conditions, and the Commission effectively showcased that the analysis carried out by Denmark had a manifest error for the purposes of ensuring compliance with that condition.76 Since, in this case the conditions were met the CFI ruled in favour of Denmark and TV 2, and annulled the Decision. In principle, the case provided that the Commission can claim that the Altmark criteria did not meet only in cases where there is a manifest error as to their application.
74 TV 2/Danmark (n 66), paras 105 and 106; Nicolaidis argued that this position was “a major setback for the Commission and taxpayers” because even though the consumers are “protected by inefficient SGEI providers through price regulation”, the costs that are a result of the growing inefficiency will be paid by the taxpayers since, the fourth Altmark cannot impose the efficiency objective for the duration of the contract. see P Nicolaides, ‘The Perennial Altmark Questions’ (2015) StateAidHub.eu
3.1 The 2012 Almunia Package
The so-called “Almunia Package” was a revised version of the first 2005 Altmark Package with the Commission implementing a Communication, a Directive, a Framework and a de minimis Regulation. The Communication simplified the core principles which are relevant to the application of the SGEI within the State aid context.77 Primarily, the Communication provides guidance as to the already established Commission rules along with clarifications as to the rules deriving from the case law of the European Courts. Specifically, in the Communication, the Commission examined the criteria according to which the financing of a public service might escape might disqualify it from being State aid. Those criteria are: a. the existence of an SGEI for the purposes of Article 106(2); b. the need for an entrustment act; c. the obligation to define the parameters of the compensation; d he principles concerning the avoidance of overcompensation; e. and the principles concerning the selection of the provider.78 Ultimately, the Communication elaborated on the elements of the compensation for the performance of a public service obligation in order to be considered an SGEI. Deliberately, it recapped the four Altmark conditions followed by the parameters comprising an SGEI, the entrustment act, the conditions for the granting of compensation and ways to elude overcompensation. in essence, what is done here is a repetition of the original Altmark Package rules along with a few minor modifications. The most prominent feature from the Communication is the emphasis given to the fourth Altmark conditions in regards to the use of public procurement procedures. It is suggested that the most straightforward procedure for selection of a public service operator is that following a public procurement procedure.79 Furthermore, it is provided that the transparency case law of the CJEU is applicable in cases where there is no explicit requirement to apply public procurement rules and in that order, it is clarified that where public procurement was not followed, then the compensation must be calculated based on the universally accepted market enumeration or if that is also not possible to
77 Communication from the Commission (n 41) 78 Commission Communication, para 44 79 Commission Communication, para 63 determine, then the calculation must be estimated according to an analysis of the costs of a typical well-run undertaking adequately equipped plus a reasonable profit. With the Decision, the Commission delivered an updated, more straight-forward version of the previous document. The Decision introduces two prominent changes to the 2005 Decision.80 Firstly, it limits to €15 million from €30 million the annual threshold, a change that is attributed to the increasing numbers of multinational companies acting as SGEI providers.81 Secondly, it extends the notion of the reasonable profit by including the amount of risk in respect to the sector of the service, the nature of the service and the characteristics of the compensation. Among others, the new Decision, exempts Member States from notifying the Commission for aid given to SGEI providers. The Framework applies to SGEI that do not fall under the scope of the Decision and thus, they must be notified to the Commission.82 This makes the Framework only applicable to public service compensation in the field of air and maritime transport.83 What is significant from the document is that it specifies that aid for SGEI can only be compatible with Article 106(2) insofar as the EU public procurement rules are satisfied.84 The Framework makes it apparent that the Commission regards public procurement procedures as a standard practice for the awarding of SGEI, and in an effort to strengthen this method of assessment. Primarily, it is obvious that the Commission is leaving the possibility open on a new modification of the structure of SGEI. Notably, the guidelines reveal the Commission’s gradual divergence from the fourth Altmark requirement as it was, favouring a more rigid interpretation of the rule. The de Minimis Regulation is considered as the most noteworthy measure adopted from the new package. In practice the Regulation is a measure applicable to the SGEIs that are not already covered by the sectoral rules and which are outlined in Article 1.85 The Regulation is taking a
80 Commission Decision on the 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 [2012] OJ L7/3 81 Ibid, Recital 10 82 Communication from the Commission — European Union framework for State aid in the form of public service compensation (2011) OJ C8; N Pesaresi, The New State Aid Rules for Services of General Economic Interest (SGEI)’
3.2 The Courts’ view in Germany v European Commission (Zweckverband Tierkörperbeseitigung)
The General Court in Germany v European Commission, considered Germany’s request for annulment of the Commission Decision regarding financial aid that was granted to Zweckverband Tierkörperbeseitigung in Rheinland-Pfalz (ZT), a special purpose association for the disposal of dead animals in Rhineland-Palatinate.88 ZT was responsible to collect and dispose animal carcasses and retain a reserve capacity in case of an epidemic and its financing from the state was designed to cover the costs incurred from providing a public service obligation. The Commission regarded the compensation was incompatible with the State aid rules mostly due to the fact that ZT did not endure any extra costs for the discharging of the public service. The Commission supported this
86 Regulation 994/98 on the application of Articles 92 and 93 of the Treaty establishing the European Community to certain categories of horizontal state aid [1998] OJ L142/1 87 Ibid 88 Case T-295/12 Federal Republic of Germany v European Commission (2014) ECLI:EU:T:2014:675; Case T- 309/12 Zweckverband Tierkörperbeseitigung in Rheinland-Pfalz, im Saarland, im Rheingau-Taunus-Kreis und im Landkreis Limburg-Weilburg v European Commission (2014) ECLI:EU:T:2014:676 argument on the grounds that ZT had sufficient spare capacity in case of an epidemic and the maintaining of the extra capacity was unnecessary. Furthermore, upon examination of the payment to ZT, it determined that the constituted State aid because there ZT was overcompensated considering that some of its costs were already compensated by the polluters who were subject to a “polluters act”. Accordingly, the Commission accused ZT of funding normal operating costs with the compensation for the public service operation. Germany counter argued that the aid, that ZT received, was only a compensation for its public service obligation, and the extra capacity was a precautionary amenity and a necessity. Germany’s position in the proceedings was that the requirement for ZT to not only retain normal capacity for the service, but also reserve spare capacity was in fact an SGEI and the compensation for the net costs of this SGEI was corresponding to the Altmark criteria.89 Firstly, it reinstated the already known rule deriving from Article 14 TFEU, which confers to the Member States the wide discretion of defining an SGEI and therefore, excludes the Commission from intervening unless there is a manifest error.90 It went on to explain that because of the distinctive characteristics of SGEI compared to other economic activities, the conditions under which an operator was chosen have to be validated. Subsequently, upon examination of the appellants’ arguments, it went on and examined the Altmark criteria in order to determine whether the activity was a genuine SGEI. The Court agreed with the Commission that the first Altmark was not satisfied since the service was not an SGEI explaining that the first condition was principally the same as the one provided in Article 106(2). In the second Altmark it held that the payments were made ex post therefore, the ex-ante transparent and objective requirement was not satisfied. Once again in the third criterion the Court reasoned that ZT was overcompensated because some of the compensated costs were going to be sustained by ZT regardless of the conditions under which it was operating. For the fourth condition the General Court considered the Commission’s view that ZT was not selected based on a public procurement procedure and Germany was unable to demonstrate that the high costs incurred for the operation of the service were sustained according to the costs that a typical well-run and adequately equipped undertaking was going to sustain. To decide what
89 Nicolaides, STATE AID UNCOVERED: Critical Analysis of Developments in State Aid 2014 (2nd edn, Lexxion Publisher Berlin 2015) 162 90 BUPA (n 2); Case T-309/12 (n 80), para 44 are the costs that a typical undertaking normally incurs, the Commission took into account the costs incurred by other German public service operators in other German territories. Despite objections from Germany, suggesting that comparing the situation in other German states was not relevant, the Court was of the opinion that such practice was important to determine the amount of the compensation. CBI v Commission was cited according to which even though the four conditions apply to all sectors, they should be modified in a flexible manner according to the needs of the sector they are being used for.91 The General Court examined both allegations and upon a close analysis of the Almark criteria, it determined that the Commission was right in its assessment, and as a result the request for annulment, along with a similar appeal brought by ZT in Zweckverband Tierkörperbeseitigung in Rheinland-Pfalz v European Commission, were quashed in both cases.92 During the proceedings, the long standing rule that the Member States enjoy wide discretion in organising, regulating and financing public services, with the EU rules only interfering only in cases of a manifest error of assessment, was once again reaffirmed. At the same time the position that this discretion is not immune from the EU law, and that any exemption from In the appeal to the General Court’s judgement, the CJEU took a very similar stance as the one that the General Court have taken in the assessment of the Altmark criteria.93 However, the Court had subtly taken a more determined approach in interpreting the conditions In particular, the Court stressed that the Altmark conditions are very singular and each one is trying to be satisfied on their one accord.94 Focusing on the fourth Altmark, the Court interpreted the criterion in its literal meaning, i.e. when the selection of an undertaking is not made pursuant to a public procurement procedure, then the level of compensation needed must be determined based on an analysis of the costs that a typical well-run undertaking would have incurred. Conversely, the General Court held that the nature of the service needed to be considered which means that the requirement for the costs incurred a typical well-run undertaking should not be applied strictly in the case. The General Court recognised that the Altmark conditions were equally applicable to all
91 Case T-137/10 Coordination bruxelloise d’institutions sociales et de santé (CBI) v European Commission (2012) ECLI:EU:T:2012:584 92 Case T-309/12 (n 80) 93 Case-446/14 P Federal Republic of Germany v European Commission ECLI:EU:C:2016:97 94 A Sanchez Graells, ‘CJEU CONSOLIDATES PUSH FOR OVERCOMPLIANCE WITH EU PUBLIC PROCUREMENT RULES IN THE PROVISION OF PUBLIC SERVICES (C-446/14 (2016) http://www.howtocrackanut.com/blog/2016/02/cjeu-consolidates-push-for.html?rq=FOURTH%20ALTMARK accessed 13 June 2017 sectors but expressed the view that the type of sector should also be taken into consideration and the application of Altmark should be more flexible, citing the case of CBI v Commission.95. The case illustrates the CJEU’s effort for modification of the Altmark test, in such a way that propels over compliance with the EU public procurement rules, as the best alternative to create legal certainty.96 What stands out from this case is once again the Court’s wavering approach in interpreting the fourth Altmark, The problem with both ZT and CBI, as Nicolaides pointed out is that the Court fails to elaborate on “what that flexibility might have meant and how the implementation of Altmark criteria could have taken into account sectoral specificities”.97 The CJEU in this case was of the opinion that the General Court was not wrong in its interpretation of the Altmark and in fact took a similar approach in its assessment. Sanchez Graells in his analysis of the case criticised this decision as wrong because in his opinion, even if the four conditions ‘are distinct from one another and they are pursuing their own finality’ their application under similar circumstances requires that, once a Member State defines an SGEI appropriately and if the SGEI is according to the State aid rules, the analysis of the fourth Altmark needs to remain within that context.98 If not then the Court and the Commission will lead the Member States to avoid assessing the fourth Altmark according to the efficiency benchmark and instead choose the first test of public procurement procedure. This though, might be problematic since such outcome will render the purpose of the SGEI
3.2 The Commission Notice on the Notion of State Aid
In May 2016, the European Commission published the final version of the much-anticipated Notice on the Notion of State aid.99 The Commission deemed this Notice as the last part of its State aid modernisation initiative that launched in 2012.100 The Notice stipulates a thorough guidance
95Case-446/14 (n 85), paras 85-86 96 Sanchez (n 86) 97 Nicolaides (n 81) 165 98 A Sanchez Graells, ‘COMMISSION NOTICE ON NOTION OF STATE AID SHOWS CONTRADICTIONS WITH EU PUBLIC PROCUREMENT RULES, IN PARTICULAR CONCERNING AID AND CONTRACTS FOR LOCAL SGEI’ (2016) How to Crack a Nut http://www.howtocrackanut.com/blog/2016/5/20/commission- notice-on-notion-of-state-aid-shows-contradictions-with-eu-public-procurement-rules accessed 13 June 2017 99 Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union 2016/C 262/01 100 European Commission Press release, State aid: Commission clarifies scope of EU State aid rules to facilitate public investment, 19 May 2016 based on the existing case law of the CJEU, as well as some ‘independent’ Commission policies.101 The scope of application is wider than the communication in the Altmark Package, and its target is the greater consistency of public procurement rules with State aid rules.102 By introducing the Notice, the Commission meant to illuminate the law on State aid and to provide simplified rules that promote legal certainty, in an effort to contribute to a more consistent application of the notion. The Notice puts together case law from the European Courts and the parameters of the Commission’s policy making.103 One of the noteworthy developments, observed in the Notice, is that it clarifies that where an infrastructure development does not compete with any other similar infrastructure development then any investment by a Member State will not be categorised as State aid.104 In essence, the Commission promotes the rationale that local infrastructure funding is unlikely to attract investors from other Member States, which creates only a marginal effect on cross border trade thereby, is not caught under Article 107(1). This is somehow risky since, in competitive sectors like for instance in telecommunications, there is a possibility that funding can be selective and thus only beneficial for one operator.105 The most important facet of the Notice is that it clarifies the interaction between State aid rules and public procurement procedures, and endorses greater consistency between the two. Particularly, it binds the Commission to evaluate public measures in conformity with the Notice provisions fostering a consistent and straightforward methodology to the interpretation of SGEI hence, rendering the State aid rules as more transparent and predictable. As such, the Notice adopted subtle but purposeful wording, by replacing the word ‘open’ in the phrase ‘open, transparent, non-discriminatory and unconditional tender procedure’ with the word ‘competitive’.106 This is done in an effort to distinguish the State aid rules with the ones in public procurement directives, explicitly the Directive 2014/24/EU and Directive 2014/25/EU which both make use of the word “open”.107 What is more, such clarifications aim to enable unproblematic measures to be enacted without prior Commission inspection and at the same time to enable the
101 Sanchez (n 90) 102 Skovgaard (n 39) 103 E Szyszczak, ‘Services of General Economic Interest and State Measures Affecting Competition’ (2016) Journal of European Competition Law & Practice 7(7):501-508 104 Commission Notice (n 91) 105 Ibid at 7.2.3 106 Commission Notice (n 91), para 89 107 Commission Notice (n 91) para 146 Commission to focus on more urgent State aid issues that have the potential to distort the functioning of the Single Market. Paragraph 93 of the Notice which deals with the use of public procurement procedures to avoid the granting of State aid states that "using and complying with the procedures provided for in the Public Procurement Directives can be considered sufficient to meet the requirements above provided that all the conditions for the use of the respective procedure are fulfilled. This does not apply in specific circumstances that make it impossible to establish a market price, such as the use of the negotiated procedure without publication of a contract notice. If only one bid is submitted, the procedure would not normally be sufficient to guarantee a market price, unless either (i) there are particularly strong safeguards in the design of the procedure ensuring genuine and effective competition and it is not apparent that only one operator is realistically able to submit a credible bid or (ii) the public authorities verify through additional means that the outcome corresponds to the market price." The Notice displays the shift from the preceding framework on State aid, by assuming as a focal rule the use of public procurement procedures, in accordance to the corresponding directives, to satisfy the requirements of a competitive, transparent, non-discriminatory and unconditional procedure.108 Nevertheless, the rule has two explicit exceptions. The first exception is the awarding of a contract, where the nature of the procedure is such that is not possible to establish that the market price is paid. Such contracts can be the products of negotiated procedures without prior publication. Even when the necessary public procurement procedure has been followed, the contract might still be deemed as State aid due to the lack of competition. The first exception is extended to other circumstances such as in cases where contracts were excluded from the public procurement directives, or where the public procurement directives were applied but the contract was not awarded according to a tender indicating the market price. The second exception is applicable in those cases where only one interested party submitted a bid, and the framework foresees that in such instances it is acceptable for the authorities to accept the tender and lays down some guidelines that can be applied in such scenarios. However, this document is a product of a number of compromises from the Commission’s part something that makes it more possible to be revised in the near future. Nonetheless, it is a good initiation for the handling of many issues deriving from state financing.
108 Skovgaard (n 5) CONCLUSION
To recap, the developments in the SGEI during the past 14 years have been a welcome addition in the interpretation of SGEI. The Altmark decision addressed some of the questions that were left unanswered in previous case law and concreted the rules for the identification of SGEI. The judgment was a step toward the road to integration by addressing issues created by previous judgements and providing a way to tackle such cases in the future. The ruling issued four binding cumulative criteria for the Member States to satisfy in order to grant compatible to the market aid for the operation of SGEI. The most noteworthy and at the same time troublesome criterion was the fourth, for both the Member States that were trying to comply with it, and the Union bodies that were contemplating methods to convey appropriate application procedures, because due to its broad n, it left many doubts as to its applicability to the treatment of public services. The Commission tends to favour the selection of a public service operator according to a public procurement procedure but this has proved to be problematic on multiple occasions since this is not enough to satisfy the necessity test which provides for the least cost incentive. There is no clear standard and in more complex scenarios, it is observed that the Courts take a more flexible approach in the interpretation of the four criteria, and most importantly the fourth Altmark which deals with efficiency. As it was observed in BUPA the efficiency test in Altmark was not adequate to fulfil all of the conditions necessary for the delegation of a SGEI. Thus, the Court provided a more relaxed interpretation of the four Altmark to the point where it seemed that they were not included in the interpretation of the case altogether. The BUPA approach was not the exception since, the Courts have chosen to interpret the criteria in a case by case manner, that enables them to approach each case individually according to their distinctive parameters. This approach though, welcome it has created confusion as to the instances where those exceptions can be made. From its part, the Commission, which has also kept a more consistent and strict approach to both the Altmark test and the Package, has adopted the second Altmark Package in an effort to perfect the procedures for the allocation of SGEI. What is more, as illustrated from the case law it is evident that there is a tendency to interpret the Altmark conditions in a rigorous manner. This tactic has resulted in the inability of the Member States to prove that an aid has met all four requirements. In a last resort to clear the issues of the notion and free up some of its investigative time on other more important cases, the European Commission has adopted the last part of its State aid modernisation initiative, with the Notice on the notion of State aid. As it is manifest, the Notice clarifies many aspects of the financing of SGEI and provides valuable instructions for their classification. Despite, these developments it is evident from established case law that undertakings entrusted with public service obligations have struggled to comply with the Altmark conditions, with low success rate. According to Nicolaides, it is bewildering to observe the Member States and public service operators’ efforts to conform with them, given that they can follow alternative State aid rules on SGEI.109 This uncertainty deriving from the application of the rules, is due to the broad discretion that the Member States enjoy in regulating such services, which in a way confines the judicial liberty of the Court, and limits the power of the Commission to implement thorough and precise regulations. In turn this has caused inconsistency on the application of the SGEI rules within the internal market. This can be illustrated through the 2015-2016 Member State reports, where Cyprus described only one SGEI, under the application of the SGEI Decision, whereas the Netherlands stated fifteen SGEI.110 This is a contrasting and somewhat troublesome outcome since it illustrates that even when the Member States use the same legal routes, it does not necessarily mean that they will reach the same results. Furthermore, it shows that there is still great disparity in the identification of those services among them something that in the long term, will be proved to be a barrier to further integration and therefore a point of divergence for greater integration. From the information provided in this paper, it is clear that the Commission had tried and to some extend succeeded in regulating SGEI. However, the instructions given for the use of the fourth Altmark were not clear and easy in practice. The Member States found it hard to apply those rules and avoid the granting of State aid, but the public procurement test of the fourth Altmark has proved to be hard to meet. In a last resort, the Commission adopted the Notice which clarified to some extend the scope of State aid. At the same time, it compromised some of its views on the treatment of such services in an effort to meet the Member States’ needs.
109 P Nicolaides, ‘The Perennial Altmark Questions’ (2015) StateAidHub.eu
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TextBooks Dashwood, Wyatt and Dashwood’s European Union Law (6th edn, Hart Publishing 2011) Whish, Competition Law (8th edn, OUP 2015)
Edited Books M Klasse, ‘The impact of Altmark: The European Commission Case Law Responses’ in E Szyszczak, Financing Services of General Economic Interest (T.M.C. Asser Press, 2013) P Nicolaides, STATE AID UNCOVERED: Critical Analysis of Developments in State Aid 2014 (2nd edn, Lexxion Publisher Berlin 2015) P Wemer and V Verouden, EU State Aid Control. Law and Economics (Wolters Kluwer 2016)
Journal Articles A Biondi, ‘BUPA v. Commission’ (2008) 2 European State Aid Law Quarterly 406. AE Szyszczak, ‘Services of General Economic Interest and State Measures Affecting Competition’ (2016) Journal of European Competition Law & Practice 7(7):501-508 G Kamaris, ‘The reform of EU state aid rules for services of general economic interest in times of austerity’ (2012) European Competition Law Review 55 G Skovgaard Ølykke, ‘Commmission Notice on the notion of state aid as refered to in article 107(1) TFEU – is the conduct of a public procurement procedure sufficient to eliminate the risk of granting state aid?’ (2016) Public Procurement Law Review 197 G Skovgaard Ølykke, ‘The Notice on the Notion of State Aid and Public Procurement law’ (2016) Europen State Aid Law Quarterly 508 Gyselen L, ‘Services of General Economic Interest and Competition under European Law – A Delicate Balance’ (2010) Journal of Europesan Competition Law & Practice 1 (): 491-499 M Ross, ‘A healthy approach to services of general economic interest? The BUPA judgment of the Court of First Instance’ (2009) European Law Review 127 N Albuquerque Matos, ‘The Role of the BUPA Judgement in the Legal Framework for Services of General Economic Interest’ (2011) Tilburg Law Review 16, 83-104 N Boeger, ‘Solidarity and EC competition law’ (2007) European Law Review 319 N Fiedziuk, ‘Putting Services of General Economic Interest up for Tender: Reflections on Applicable EU Rules’ (2013) Common Market Law Review 50(1) N Fiedziuk, ‘Services of general economic interest and the Treaty of Lisbon: opening doors to a whole new approach or maintaining the "status quo"’ (2011) European Law Review 226 N Fiedziuk, ‘Towards Decentralization of State Aid Control: The Case of Services of General Economic Interest’ (2013) World Competition 36(3) W Sauter, ‘The Altmark package mark II: new rules for state aid and the compensation of services of general economic interest’ (2012) European Competition Law Review 307
Commission Guidelines Commission Decision of 28 November 2005 on the application of Article 86(2) of the EC Treaty to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest Commission Decision on the 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 [2012] OJ L7/3 Commission Directive 2005/81/EC of 28 November 2005 amending Directive 80/723/EEC on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings (2005) OJ L 312 Commission Directive 2005/81/EC of 28 November 2005 amending Directive 80/723/EEC on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings (2005) OJ L 312 Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union 2016/C 262/01 Commission Regulation (EU) No 360/2012 of 25 April 2012 on the 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 OJ l114/8 Communication from the Commission — European Union framework for State aid in the form of public service compensation (2011) OJ C8 Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest (2012/C 8/02) OJ C 8/4 Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest (2012) C 8/02 Community framework for State aid in the form of public service compensation (2005) OJ C 297/04 Regulation (EEC) No 1191/69 of the Council of 26 June 1969 on action by member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway (1969) OJ L 156 Regulation 994/98 on the application of Articles 92 and 93 of the Treaty establishing the European Community to certain categories of horizontal state aid [1998] OJ L142/1
Websites
A Sanchez Graells, ‘CJEU CONSOLIDATES PUSH FOR OVERCOMPLIANCE WITH EU PUBLIC PROCUREMENT RULES IN THE PROVISION OF PUBLIC SERVICES (C-446/14 (2016) http://www.howtocrackanut.com/blog/2016/02/cjeu-consolidates-push- for.html?rq=FOURTH%20ALTMARK accessed 13 June 2017 A Sanchez Graells, ‘COMMISSION NOTICE ON NOTION OF STATE AID SHOWS CONTRADICTIONS WITH EU PUBLIC PROCUREMENT RULES, IN PARTICULAR CONCERNING AID AND CONTRACTS FOR LOCAL SGEI’ (2016) How to Crack a Nut http://www.howtocrackanut.com/blog/2016/5/20/commission- notice-on-notion-of-state-aid-shows-contradictions-with-eu-public-procurement-rules accessed 13 June 2017 A Sanchez Graells, ‘The Commission’s Modernization Agenda for Procurement and SGEI’ (2012) https://poseidon01.ssrn.com/delivery.php?ID=6921020050810690990990121030130300 771180200200190440061050251230640701010930290701051210350370380230040450 700940890040640720640250850140610160791060220210120870680700500220000770 02097123111111103016079004004005092011098116020088065022072095070068022 &EXT=pdf accessed 12 June 2017 European Commission Final Report on the Study on the financing models for public services in the EU and their impact on competition < http://ec.europa.eu/competition/publications/reports/kd021641enn.pdf> accessed 06 June 2017 European Commission on Services of general economic interest (public services)