State Aid Rules and Public Financing of Infrastructure. The Case of Autostrada Wielkopolska S.A. State Aid Rules and Public Financing of Infrastructure. The Case of Autostrada Wielkopolska S.A. Paulina Kubera Poznań University of Technology 2 Jacka Rychlewskiego Str., Poznań 60-965, Poland Email: [email protected] Abstract: The operation of a toll road typically involves an economic activity for which State aid rules apply. However, if the construction and operation of the road infrastructure is bundled and they are tendered out together, they usually fall outside the State aid regime. The reason for it lies in the fact that the use of competitive procurement procedures aim to increase the effi ciency of public expenditure and to ensure a level playing fi eld for private operators to compete for public contracts. Nevertheless, based on the European Commission’s decisional practice, it transpires that an economic advantage for a concession holder cannot be ruled out automatically, in particular when there are amendments made to the original agreement. On the example of the Autostrada Wielkopolska S.A. case, critical State aid issues are discussed, among others, the application of State aid rules to public fi nancing of infrastructure, the amendments made to a concession contract in the light of the risk assignment problem, as well as the existence of State aid in the form of overcompensation for a concession holder. The considerations are carried out on the canvas of a concrete case; however, they are enriched by the analysis of relevant legal provisions as well as conclusions from the EU courts and the European Commission decisions made in similar cases. Keywords: concession, construction and operation of a toll road, overcompensation, public fi nancing of infrastructure, State aid TalTechdoi: 10.1515/bjes-2020-0005 Journal of European Studies TalTech Journal of European Studies Tallinn University of Technology (ISSN 2674-4619), Vol. 10, No. 1 (30) 77 Paulina Kubera 1. Introduction Financing the high initial cost of constructing infrastructure (such as building a motorway) and the payments for services provided by the infrastructure can both take a variety of forms. Over recent decades, interest in attracting private capital for this purpose has increased substantially. A number of public-private partnership arrangements are practised, where risk is distributed in varying degrees between the public and private parties. Payments for infrastructure services, which are used to repay private financing costs over the life of the asset, can come from the government by way of a budget transfer as well as from the users of the infrastructure in the form of charges such as tolls. An approach to infrastructure financing from the perspective of the EU State aid rules has evolved. Initially, it was based on the presumption that public funding of infrastructure is not an issue for the State aid control as it pertains to the domain of general measures of economic policy and does not provide a selective advantage for an undertaking. It can be argued that till the 1990s, State aid and public support for infrastructure were perceived as two separate, non-conflicting domains, although both were important for economic growth stimulation and fostering integration (Bruzzone & Boccaccio, 2018; Ruechardt, 2018; Gayger, 2016). An issue of concern was the construction and infrastructure improvement rather than controlling public support for it. Generally, the construction and non-discriminatory operation of infrastructure were not considered economic activity falling under the scrutiny of the EU competition policy. However, this has changed in the course of time, along with the introduction of competition into previously state-controlled sectors and the general trend towards tightening State aid control. At first, the Commission’s focus was only on the users of infrastructure as potential aid beneficiaries and did not examine the presence of State aid on the markets of infrastructure developers or operators (see, e.g., Matra SA v. Commission of the European Communities [1993]).1 For instance, in the XXV Report on Competition Policy 1995, the European Commission expressed the opinion that, in general, as long as access and usage remain public and general, public investment in infrastructure 1 Paragraph 29 reads: “With respect to the investment in infrastructure […] it must be em- phasised that the Commission found in the contested decision that the infrastructure […] would not benefit the joint venture exclusively, enabling it to conclude that the financial assistance granted by the Portuguese Republic should not be regarded as State aid” (Matra SA v. Commission of the European Communities [1993], para. 29). TalTech Journal of European Studies 78 Tallinn University of Technology (ISSN 2674-4619), Vol. 10, No. 1 (30) State Aid Rules and Public Financing of Infrastructure. The Case of Autostrada Wielkopolska S.A. would not involve State aid and be regarded as being in the public interest (European Commission, 1996). For the public support to be qualified as State aid, “the infrastructure-related advantages should be conferred selectively, with the aim of helping specific firms: for example, a purpose-built facility for the sole use of one undertaking or discriminatory access restrictions” (European Commission, 1996, para. 175). Subsequently, in its compatibility assessment, the Commission has started to differentiate between different levels of aid beneficiaries: the owner/developer, operator/concessionaire and user levels. Concession agreements are those policy instruments that can affect the various segments of market for a long time. As they typically entail granting exclusive rights to operators of infrastructure, they have the potential to distort competition to a considerable degree. The overarching aim of this article is to examine the link between State aid rules and public financing of infrastructure projects, with a special emphasis on concession agreements for roads construction and operation. A case study design has been used as a realistic demonstration of a theory in practice. On the example of the case of Autostrada Wielkopolska S.A. v. European Commission [2019] (the AW S.A. case), critical State aid issues are discussed in four subsequent parts, following the FIRAC approach, which is an acronym for a five-step analytical process and stands for: Facts–Issue– Rule–Application–Conclusions (Statsky, 2010). First, the concept of State aid under EU law is introduced, and the evolution of the application of State aid rules to public financing of infrastructure is presented to set the scene for an ensuing discussion. It also includes a brief description of the facts of the case under study (facts). Next, the main issues are indicated that need to be considered in order to identify aid in a concession agreement (issues), as well as rules pertinent in deciding the issues specified (rules). The problems of alternations of a concession contract in the light of the risk assignment problem and the existence of State aid in the form of overcompensation for a concession holder are also investigated and referred to the case under study (application). The considerations are carried out on the canvas of a concrete case; however, the EU courts and the European Commission (EC) decisional practice in similar cases provide additional guidance on the issues discussed. They have enabled to develop the framework for the assessment of State aid existence in concession agreements for roads construction and operation. TalTech Journal of European Studies Tallinn University of Technology (ISSN 2674-4619), Vol. 10, No. 1 (30) 79 Paulina Kubera 2. Setting the scene: the concept of State aid under EU law The general definition of State aid is set out in Article 107(1) of the Treaty on the Functioning on the European Union (TFEU), according to which any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market. (Consolidated version of TFEU, 2012, Art. 107(1)) This provision can be broken down into four criteria which must be met cumulatively for a measure to be qualified as State aid. These are: (1) the measure must be financed through State resources and be imputable to the State; (2) it must confer an economic advantage on its recipient; (3) the advantage must be selective; and (4) the measure must distort or threaten to distort competition and affect trade between Member States. It suffices that one of the above-specified criteria is not fulfilled to escape the State aid regime. For the ensuing discussion, it is worth to stress two issues. First, there is a general ban on State aid falling under Article 107(1) of the TFEU in the EU. Second, rules governing the admissibility of State aid are one of the few areas where the Union enjoys exclusive competence.2 The rationale for the EU State aid control stems from the fact that it is perceived as a mechanism which underpins the functioning of the internal market and supports economic integration (Clarke, 2013). Without State aid rules, Member States might engage in wasteful subsidy races, which are non-sustainable in the long run, the localisation of economic activities across the Member States could be affected, the dynamic incentives of firms be disrupted as less efficient firms would be able to survive or expand to the detriment of other market players. However, there are so many exemptions from this ban that some even compare the EU State aid regime to Swiss cheese as it contains more holes than actual cheese (Marquardt, 2007). Therefore, the European Commission’s efforts are more concentrated on ensuring that State aid granted by the Member States is in line with the EU rules and does not cause undue distortion of competition than, in fact, on preventing Member 2 According to Article 3 of the TFEU, “establishing of competition rules necessary for the functioning of the internal market” is an exclusive competence of the Union.