sou · GWB338d2 · 2009-01-01 00:00:00 — Under both provisions, the aid level is limited to a certain intensity and may not exceed a national ceiling.225 Furthermore, Art. 87(3)(c) EC can only be applied if the aid does not adversely affect trading conditions to an extent contrary to the common inte- rest.226 222Guidelines on national regional aid, OJ 2006 C 54/13. 223Acronym for Nomenclature of Statistical Territorial Unit. 224Guidelines on national regional aid, OJ 2006 C 54/13 para. 225The national ceiling for regional aid coverage pursuant to Art. 87(3)(a) and (c) EC in respect of for the period 2000–2006 is . (OJ 1999 C 16) 226No such express condition is imposed in respect of aid for underdeveloped areas according to Art. 87(3)(a) EC. 211.In , ten counties qualify for regional aid pursuant to Art. 87(3)(c) EC.227 However, for aid measures to qualify as regional aid, they must remain neutral towards the allocation of productive resources between the various economic sectors and activities. Aid confined to one area of activity may have a major impact on competition and its effects on regional development are likely to be limited. Moreover, the regional aid derogation will normally be granted only for multisectoral aid schemes open, in a given region, to all firms in the sectors concerned.228 212.Although it is difficult for me to assess whether some of the public housing companies as aid recipients are located in areas which qualify for regional aid, the conditions for granting regional aid are not satisfied in the present case. Not only are the aid measures limited to the housing sector, and thus to one confined activity, but also the aid is granted exclusively to public housing companies to the exclusion of private com- panies. The aid granted is therefore not neutral but discrimi- natory in character. Accordingly, it cannot be exempted as regional aid. It may, however, qualify as rescue and restructu- ring aid according to Art. 87(3)(c) EC. (ii) Sectoral aid 87(3(c) EC refers to aid intended to facilitate the develop- ment of certain economic activities and such economic acti- vities may refer to certain sectors of the economy. This type of aid is usually referred to as sectoral aid. 214.There is no single legislative document containing general sectoral aid rules but separate guidelines exist for the agri- cultural sector, the coal and steel sector, shipbuilding, transport and the broadcasting sector. Further relevant rules can be found in the multisectoral frameworks.229 227These counties are: the whole of , , , and , and parts of , , , , Orebro län and . (See Commission press release IP/00/305, Com- mission approves regional aid map for , 29/03/2000.) 228Guidelines on national regional aid, OJ 2006 C 54/13 para. 229The last version of the Multisectoral Framework on regional aid for large investment projects can be found at OJ 2002 C 70. 215.The general principles with respect to the granting of sectoral aid, were formulated in a of 1978230 where the Commission states that aid should be authorised when it is needed to correct serious re- gional imbalances, to encourage or speed up necessary changes or development, in certain industries, to enable for social reasons a smooth adjustment of certain activities or to neutralize, at least temporarily, the distortion of competition due to action outside the Community.231 216.On the basis of these general principles the Commission has developed a number of criteria against which it examines the sectoral aid proposals notified to it. The main criteria are the following: (1)sectoral aid should be limited to cases where it is justified by circumstances in the industry concerned; (2)aid should lead to a restoration of long-term viability by resolving problems rather than preserving the status quo and putting off decisions and changes which are inevi- table; (3)nevertheless, since adjustment takes time, a limited use of resources to reduce the social and economic costs of change is admissible in certain circumstances and subject to strict conditions; (4)unless granted over relatively short periods, aids should be reduced progressively and clearly linked to the re- structuring of the sector concerned; (5)the intensity of aid should be proportionate to the pro- blem it is designed to resolve so that distortions of com- petition are kept to a minimum; and (6)industrial problems and unemployment should not be transferred from one to another.232 217.As no sectoral aid guidelines pertaining to the housing sector exist, it needs to be determined whether the support measures granted by fulfil the above conditions in order to 230COM(78) 221 final, 25 1978. 231Ibid, para. 232Hancher, Ottervanger and Slot, E.C. State Aids, 3rd edition, Sweet & (2006), para. qualify for an exemption pursuant to Art 87(3)(c) EC. Although the available information does not allow me to make a com- prehensive assessment as to whether the above conditions are satisfied in the present case or not, the fact that the aid is only granted to public housing companies to the exclusion of private companies operating in the same sector argues against the qua- lification of the support measures as sectoral aid. Given the absence of specific sectoral aid guidelines and considering the fact that exemption provisions are always interpreted strictly, it seems reasonable to argue that the Commission will be rather reluctant to allow the granting of the present aid measures as sectoral aid. (iii) Rescue and restructuring aid 218.The concept of rescue and restructuring aid is explained in the Community Guidelines on State aid for Rescuing and Re- structuring Firms in Difficulty (the Guidelines) as: [r]escue aid is by nature temporary [not exceeding six months] and reversible assistance. Its primary objective is to make it possible to keep an ailing firm afloat for the time needed to work out a restructuring or liquidation plan. [] the rescue aid must be limited to the minimum necessary.233 Restructuring, on the other hand, will be based on a feasible, coherent and far-reaching plan to restore a firms long-term viability, Restructuring usually involves one or more of the following elements: the reorganisation and rationalisation of the firms activities on to a more efficient basis, the restructuring of those existing activities that can be made competitive again and, possibly, diversification in the direction of new and viable activities. Financial restructuring (capital injections, debt reduction) usually has to accompany the physical restructuring.234 219.In the present case, argued that given the strained conditions under which many public housing companies operate (weak and dwindling markets due to large overcapacity of rental apartments in certain rural areas and limited financial capacities of the municipalities), the housing companies need to be supported by a number of restructuring measures. 233Community aid for rescuing and restructuring firms in difficulty, OJ 2004, C 244, para. 234Ibid, para. this purpose, the government proposal provided for the setting up of which can conclude agree- ments with the municipalities on long-term State participation in the restructuring of the public housing companies and pro- vide for the granting of various measures in the form of State guarantees, direct contributions and acquisition of housing.235 Thus, the measures at issue would fall under the category of restructuring rather than rescue aid. 220.In order for a measure to qualify as restructuring aid and to be exempted pursuant to Art. 87(3)(c) EC, the following condi- tions have to be fulfilled:236 (1)eligibility of the firm: the firms must qualify as a firm in difficulty. This is generally the case if it is unable, whether through its own resources or with the funds it is able to obtain, to stem losses which, without outside intervention by the public authorities, will almost certainly condemn it to going out of business in the short or medium term; (2)restoration of long-term viability: the grant of the aid must be conditional on implementation of the restructuring plan which must be endorsed by the Commission. The plan must provide for a turnaround that will enable the company, after completing its restructuring, to cover all its costs including depreciation and financial charges. The expected return on capital must be enough to enable the restructured firm to compete in the marketplace on its own merits. (3)avoidance of undue distortions of competition: compen- satory measures must be taken to ensure that adverse effects on trade are minimized as much as possible. The compensatory measures may comprise divestment of assets, reductions in capacity or market presence and 235Response by the , Housing Division, to the first complaint of the EPF, dated 16 October 2002, pp. 7 and 8. 236The Guidelines include a number of other conditions for restructuring aid, which are, however, of limited relevance to the present case. Although not mentioned explicitly, any aid granted in the basis of the Guidelines has to be granted on a non-discriminatory basis, irrespective of whether the aid recipient is a private or public undertakings. Such a requirement is presumed on the basis of the principle of non- discrimination enshrined in the Treaty, Art. 3(1)(g) EC as well as the general principles of law. Thus, it is not possible to make a distinction between public and private housing companies when granting restructuring aid although it is highly unlikely that private housing companies will satisfy the conditions for eligibility under the Guidelines. reduction of entry barriers on the markets concerned and must be in proportion to the relative importance of the firm on its market. However, write-offs and closure of loss-making activities which would at any rate be necessary to restore viability will not be considered reduction of capacity. (4)aid must be limited to the minimum: the amount and intensity of the aid must be limited to the strict mini- mum of the restructuring costs necessary to enable re- structuring to be undertaken in the light of the existing financial resources of the company, its shareholders or the business group to which it belongs. Aid beneficiaries are expected to make a significant contribution to the restructuring plan from their own resources, including the sale of assets, etc.237 (5)one time, last time: in order to prevent firm from being unfairly assisted when they can only survive thanks to repeated State support, restructuring aid should be grant- ed only once. If the company concerned has already received restructuring aid in the past and if less than 10 years has elapsed since the restructuring period came to an end, the Commission will normally allow further restructuring aid only in exceptional and unforeseeable circumstances for which the company is not respon- sible.238 237The Commission normally considers the following contributions to the restructuring to be appropriate: at least in the case of small enterprises, at least for medium-sized enterprises and at least for large firms. 238Community aid for rescuing and restructuring firms in difficulty, OJ 2004, C 244. The exceptions to the one time, last time principle are: 1)where restructuring aid follows the granting of rescue aid as part of a single restructuring operation 2)where rescue aid has been granted in accordance with the conditions and this aid was not followed by a State supported restructuring, if: a.the firm could reasonably be believed to be viable in the long-term following the granting of rescue aid, and b.new rescue or restructuring aid becomes necessary after at least five years due to unforeseeable circumstances for which the company is not responsible; 3)in exceptional and unforeseeable circumstances for which the company is not responsible (here, the Commission accepted, e.g. the crisis in the information and communication technologies sector in 2001; see Commission decision against ). The Commission Decision 2005/941 (EC) (OJ 2005 L 342/81) further explains: However, the one time, last time principle cannot be applied absolutely. As the Court of has held admittedly within the framework of the although it holds true even more so within the framework of the , the purpose of the provisions 221.In the case at issue, it is highly doubtful whether the above conditions are satisfied. From the information available to me, it is not discernible whether the public housing companies which received State support are indeed firms in difficulty according to the definition in the Guidelines and whether the aid measures have in fact only been granted to those firms. Furthermore, as regards the submission of a restructuring plan, it could be argued that the government proposal concerning the setting up of constitutes a restructuring plan although it does not seem to fulfil all the conditions in the Guidelines. In any case, as it was not noti- fied to the Commission, it can, in principle, not be used as a basis for the restructuring measures. 222.It is also questionable whether the public housing companies took any compensatory measures to keep the distortion of competition to a minimum. Moreover, although it seems that the aid was minimised to the costs that the municipality has to bear in order to carry out its role,239 it was granted more than once and therefore also conflicts with the last condition. 223.It can therefore be concluded that the aid granted by the and identified by EPF in its complaints con- stitutes State aid incompatible with Art. 87(1) EC and does not qualify for an exemption pursuant to Art. 87(3)(c) EC as regional or rescue and restructuring aid. It therefore remains to determine whether the aid measures at issue could be exempted pursuant to Art. 86(2) EC. concerning aid is to grant the Commission power to meet unforeseen situations by taking account of the changing nature of market conditions. This being so, indiscriminate application of the one time, last time principle would excessively restrict the category of aid capable of being regarded as necessary and would not allow the Commission to examine, in each particular case, whether a project for restructuring aid was necessary in order to attain Treaty objectives. Similarly, the Commission cannot in principle base itself exclusively on the existence of an earlier decision in order to prohibit subsequent aid to the same re- cipient. It needs to be highlighted, however, that exceptions to the one time, last time principle are rare and cannot easily be assumed. 239 Response by the , Housing Division, to the first complaint of the EPF, dated 16 October 2002, p. d.Exemption pursuant to Art. 86(2) EC 86(2) EC applied in combination with the State aid provisions refers to State support intended to cover some or all of the specific costs resulting from the provision of public service obligations.240 Such aid may be declared compatible if it is granted in order to ensure the provision of services of general economic interest which are entrusted on the undertaking by a legal act. The Commission Decision on the application of Art. 86(2) EC (the Decision) explains the conditions under which State support may be declared compatible with the Com- mon Market and is meant as a specification of the meaning and extent of Art. 86(2) EC as it has been consistently applied by the Community Courts and the Commission.241 i.Undertakings entrusted with the operation of SGEI 225.The undertakings receiving the aid have to be entrusted with the operation of SGEI. As regards the entrustment by an official act, the Decision sets out the conditions which have to be satisfied. Accordingly, the entrusting act has to specify, in particular: (1)the nature and duration of the public service obligation; (2)the undertaking and territory concerned; (3)the nature of any exclusive or special rights assigned to the undertaking; 240 While Art. 86(2) EC applied in conjunction with Art. 81 or 82 EC is directly applicable and can be relied upon by both Member States and individual undertakings, the same does not hold true for the application of Art. 86(2) in conjunction with the State aid provisions. In the CELF judgment (Case C-332/98 v Commission [2000] ECR I-4833), the ECJ ruled that in case Member States are of the opinion that the aid is exempted by Art. 86(2) EC they remain nevertheless subject to the obligation to notify and to observe the standstill obligation. 241Commission Decision on the application of Art. 86(2) of the 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 2005 L 312. The Commission Decision applies if the average annual turnover (before tax, all activities included) does not exceed million during the two financial years preceding that in which the service of general economic interest was assigned, and if the annual compensation for the service in question is less than million. (Art. (2)(1)(a) of the Decision) The Decision also applies to compensation granted to social housing undertakings carrying out activities qualified as services of general economic interest by the concerned. (Art. 2(1)(b) of the Decision). (4)the parameters for calculating, controlling and reviewing the compensation; (5)the arrangements for avoiding and repaying any over- compensation. 226.The available information does not allow me to draw any con- clusions whether the Swedish Municipal Housing Provision Act satisfies all the conditions but as indicated above in the context of Art. 86 applied in conjunction with Art. 82 EC,242 it is rather unlikely. It might therefore be necessary that the Swedish legislation laying down the obligation to provide good housing at affordable rents to all income groups is redrafted in order to include an express entrustment of the public service obligation and to also clearly set out the conditions pursuant to which the social services of general interest are provided. Thus the arguments made above on the extent of the exemp- tion provided by Art. 86(2) apply here as well.243 However, in addition we have to look at the specific problems that arise in the context of the application of the state aid rules, i.e. the issues of the proportionality of the funding and the cross- subsidisation. 227.In the following, I will proceed on the assumption that clearly defined SGEI are entrusted on the public housing companies in order to complete the assessment pursuant to Art. 86(2) EC. ii.Proportionality of funding and cross-subsidisation 228.According to the Decision, compensation is considered to be proportionate and thus in conformity with Art. 86(2) EC if it does not exceed what is necessary to cover the costs incurred in dis- charging the public service obligation, taking into account the relevant receipts and a reasonable profit on any own capital necessary for discharging those obligations. The compensation must be actually used for the operation of service of general eco- 242Supra, paras 99 et seq. nomic interest concerned, without prejudice to the undertakings ability to enjoy a reasonable profit.244 229.This requires that the costs245 and income connected with the public service can be properly ascertained and that costs and income related to non-public service activities or commercial activities are kept separate, provided that the undertaking also engages in such activities. This refers to the issue of cross- subsidisation in that the of separate accounts enables the Commission to monitor whether funds granted for the operation of SGEI are used to finance activities on another market.246 Under the State aid rules, this is considered unlawful if it leads to conditions in the unreserved or commercial market which make it difficult for private competitors to compete, or as the Commission stated in its Decision regarding funding granted by the : State support must be prevented from spilling over to commercial entities. A spill-over of this kind could be achieved if the housing associations equip their own commercial subsidiaries with resources under conditions that other investors operating on the basis of market conditions would find unacceptable.247 230.Therefore, costs and income received from public and non- public activities must be kept separate to enable the Com- mission to assess whether subsidies designed to support the provision of services in the public interest are not diverted to activities which are open to competition. 231.In separate accounts, the following has to emerge clearly: 244Commission Decision on the application of Art. 86(2) of the 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 2005 L 312, Art. 5(1). 245The costs incurred by public service obligations for social housing must be assessed with reference to a housing operator who has no specific constraints in terms of obligations, i.e. in our case the private, for profit, housing companies. (See Report published by CECODHAS (European Social Housing Observatory), Social Housing in the EU, dated 2005, available at: ) 246See also to that effect Art. 5(5) of the Decision which states that when a company out activities falling both inside and outside the scope of services of general economic interest, the internal accounts shall show separately the costs and receipts associated with the SGEI and those of other services, as well as the parameters for allocating costs and revenues. 247State aid E 2/2005 – The , para. (1)the costs and revenues associated with different activities; (2)full details of the methods by which costs and revenues are assigned or allocated to different activities.248 232.If the costs pertaining to the public service obligation can be properly ascertained, any compensation which exceeds the net costs for the public service obligation and a reasonable profit249 is not necessary for the operation of the SGEI and constitutes incompatible State aid according to Art. 87(1) EC. It there- fore needs to be determined whether the State support granted by to the public housing companies is proportionate to the costs incurred by the latter in the discharge of their public service which, in turn, requires that the accounts re- lating to public and commercial activities are kept separate. 233.At this point, it is necessary to recall the distinction made in the context of the application of Art. 86(1) EC with respect to the existence of two housing markets, divided into a social and commercial housing sector, and the existence of one housing market, comprising housing to all income groups.250 234.Taking the existence of two housing markets as a starting point, the public housing companies are not only in the discharge of a SGEI, which consists in the provision of housing but that they also carry out commercial activities. These con- sist, on the one hand, in the operation of commercial premises which can commonly be found on the ground floor of multi- dwelling , the leasing of central facilities, garages and car parks as well as in the provision of various services when new areas are created in cities or municipalities.251 The other commercial activity carried out by the public housing com- 248Commission Directive 2000/52/EC amending Directive 80/723/EEC on the transparency of financial relations between Member States and public undertakings, OJ 2000, L 193, Art. 2(2). The obligation to keep separate accounts according to the Directive does not apply to undertakings with a total annual net turnover of less than million over a period of two financial years preceding the entrustment of SGEI as the potential impact on com- petition would only be limited. (Ibid, Art. 4(2)(b))