Case handler: Vilde Hordnes Bergset Brussels, 31 January 2020 Tel: +32 2 286 1836 Case No: 83546 e-mail: [email protected] Document No: 1107229 xxxxxxxxxx xxxxxxxxxxX xxxxxxxx xxxxxx Sent by email only to XXXXXX Subject: Sølyst park area (complaint) - Preliminary assessment under paragraph 48(b) of ESA’s Guidelines on Best Practice for the conduct of state aid control procedures 1 The complaint Reference is made to your complaint to the Competition and State Aid Directorate of the EFTA Surveillance Authority (“ESA”) dated 27 March 2019 regarding alleged state aid to Veidekke Eiendom AS (“Veidekke”). In your complaint, you allege that Stavanger Municipality (“the Municipality”) has granted state aid to Veidekke through the following measures: 1. The exchange agreement. 2. A beneficial rezoning of a public park area sold to Veidekke. 3. The grant of NOK 350 000 from the Ministry of Culture to the art project Find Your Eyes at “Kulturøya Sølyst”. Since receiving your complaint, ESA has gathered information from the Norwegian authorities, and conducted a preliminary examination of these measures. Against this background, ESA is of the preliminary view that Veidekke has not received aid in breach of the EEA state aid rules through any of these measures. According to Article 61(1) of the EEA Agreement, a measure constitutes state aid if the following conditions are cumulatively fulfilled: the measure (i) is granted by the state or through state resources; (ii) confers a selective economic advantage on the beneficiary; and (iii) is liable to affect trade between Contracting Parties and to distort competition. ESA’s preliminary views are set out in further detail in the following. 2 Measure 1: the exchange agreement 2.1 Legal framework With regard to the first measure, ESA notes that in essence, it appears that no economic advantage has been conferred on Veidekke, within the meaning of the state aid rules. An economic advantage, within the meaning of Article 61(1) of the EEA Agreement, is any economic benefit which an undertaking could not have Rue Belliard 35, B-1040 Brussels, tel: +32 2 286 18 11, www.eftasurv.int Page 2 obtained under normal market conditions.1 Economic transactions carried out by public bodies do not confer an advantage on its counterpart, and therefore do not constitute aid, if they are carried out in line with normal market conditions.2 With regard to measure 1, it is ESA’s preliminary opinion that Veidekke has not obtained an economic advantage which it could not have obtained under normal market conditions. 2.2 About the exchange agreement In September 2014, the Municipality and Veidekke concluded an agreement (“the exchange agreement”) by which the Municipality would exchange a recreational area in return for two allotments (parseller) and a payment from the Municipality to Veidekke of NOK 500 000. The basis for the exchange agreement was that the Municipality wanted to create a public recreational area in Sølyst. Due to their size, location and layout the allotments had limited value for the Municipality as a public recreational area. The exchange agreement involved exchanging an area that was of limited value to the public with an area that could be adapted for the public good. Veidekke owned an area bordering on the allotments and could make use of the allotments for a construction project. The Municipality and Veidekke therefore saw a mutual benefit to the exchange of properties. The exchange of the properties was carried out in the second half of 2018 and the first half of 2019, on the basis of the terms agreed in September 2014. In short, this entailed that Veidekke transferred the recreational area, valued at NOK 1 million to the Municipality (see chapter 2.3 below), in return the Municipality transferred its two allotments, valued at NOK 510 400 to Veidekke along with a cash payment, from the Municipality to Veidekke of NOK 500 000 (see chapter 2.4 below). 2.3 The recreational area (transferred from Veidekke to the Municipality) As for establishing the price of the recreational area transferred from Veidekke to the Municipality, the Norwegian authorities have explained that land regulated as public recreational areas could be subject to expropriation according to national law. The principles for expropriation compensation is set out in national legislation and case law. However, rather than actually expropriating, the Municipality will, as a rule, always try to come to an agreement on acquisition with the owner of the land. The Municipality’s agreements on acquisition with landowners are based on the practice set out in expropriation compensation law. Local courts have established a basic price for such areas in Stavanger in 2013 in the range of NOK 20–25 per m2.3 When such an area borders on a building development, it is established through case law that based on the so-called “differential principle” an additional fee is paid beyond the standardised basic 1 See ESA’s Guidelines on the notion of State aid as referred to in Article 61(1) of the EEA Agreement (Notion of aid), (OJ L 342, 21.12.2017, p. 35 and EEA Supplement No 82, 21.12.2017, p. 1), at paragraph 66. 2 Notion of aid, paragraph 74. 3 See for instance LG-2013-114840 where the court states that the normal value for free areas is around NOK 20 per m2. See also LG-2013-46227 where the court states that the normal value for free areas is around NOK 20–25 per m2. Page 3 compensation if the area has special qualities, such as a shoreline, seabed, built- up roads, etc. The differential principle means that one assesses how much less the residential property/development area would be worth without the particular recreational area. The Norwegian authorities have referred to a number of contemporaneous court decisions from the appeals court competent to rule on such real estate transactions in the Municipality. In the decisions, the level varies from NOK 47 per m2 to NOK 454 per m2. - Gulating Court of Appeal — Valuation Appeal of 7 April 2014.4 Compensation was to be determined for Stavanger Municipality’s acquisition of free areas for the implementation of the zoning plan. The purpose was the creation of a walking trail. It emerges from the case that the normal value for free areas is around NOK 20 per m2. This would give a basic compensation of NOK 33 720. However, based on a differential valuation, the compensation for the property with shoreline was set at NOK 800 000 for 1 686 m2 with 21 metres of shoreline. The “free area” price evened out at NOK 474 per m2. The supplement for the qualities, which “disappeared” from the main property, thereby creating a value difference, amounted to NOK 766 280. - Gulating Court of Appeal — Valuation Appeal of 28 April 2014.5 Compensation was to be determined for the Municipality’s acquisition of a recreational area for the implementation of a zoning plan. The purpose was to secure the area as a recreational area for public use associated with recreational activities. The area was 12 752 m2. The basic compensation would have been NOK 260 000, based on a price of approximately NOK 20 per m2. Based on a differential assessment, the compensation was set at NOK 1 000 000. In fact, the free area price evened out at NOK 78.40 per m2. The Court of Appeal considered this to be at the lower level of what the compensation should be. The Court thus set a supplement for the property’s qualities in the amount of NOK 740 000. The qualities consisted in the possibility of horse pasture and the cultivation of fruit trees. - Gulating Court of Appeal — Valuation Appeal of 13 November 2014.6 Compensation was to be determined for the Municipality’s acquisition of “free areas” for the implementation of the zoning plan. The purpose was a general need for land to be used for recreational activities. The area was 38 687 m2 and included 30 m of shoreline. It emerges that the normal value for free areas is around NOK 20–25 per m2. This would have given a price of NOK 967 175. 4 LG-2013-114840. The case was dealt with in Stavanger Valuation Appeals Court for building cases by appraisement of 22 April 2013. 5 LG-2013-147388. The case was processed in Stavanger Valuation Appeals Court for building cases on 11 June 2013. 6 LG-2013-46227. The case was processed in Stavanger Valuation Appeals Court for building cases on 20 December 2012. Page 4 Based on a differential valuation, the compensation was set at NOK 1 650 000. The Court thus stipulated a supplement for the qualities of the property that amounted to NOK 680 000. This gave an average free area price of NOK 42.65 per m2. The qualities consisted of a shoreline, the possibility of horse pasture and the cultivation of fruit trees. - Gulating Court of Appeal — Valuation Appeal of 20 March 2015.7 Compensation was to be established for two “free areas” acquired by the Norwegian Public Road Administration for the development of the European route E39. The area was unregulated, but in the municipal plan it was allocated to an agricultural, natural and recreational area. For one area of land, a standard price was given of NOK 25 per m2. For the second area of land of 3795 m2 a price was given of NOK 1 250 000 based on a differential valuation. That is a supplement of NOK 1 155 125. The price was NOK 329 per m2. The Court of Appeal considered that this land, located near the owner’s house and garden, had a size and qualities that would be an additional factor for a normal purchaser of the residential property.