COMMISSION DECISION (EU) 2020/1472

of 20 March 2020

on the State aid SA.39078 – 2019/C (ex 2014/N) which Denmark implemented for Femern A/S

(notified under document C(2020) 1683)

(Only the English text is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provision cited (1) and having regard to their comments,

Whereas:

1. PROCEDURE

(1) On 13 July 2009, the Commission approved aid for the financing of the planning phase of the Fehmarn Belt Fixed Link project (‘Planning decision’) (2).

(2) Following a pre-notification phase, the Danish authorities notified, by letter dated 22 December 2014, to the Commission pursuant to Article 108(3) of the Treaty the financing model of the Fehmarn Belt Fixed Link project.

(3) On 5 June 2014, 5 September 2014, 26 November 2014, 19 January 2015, and 22 April 2015, the Commission received five complaints (3) alleging that Denmark had granted unlawful and incompatible State aid for the planning, construction and operation of the Fehmarn Belt Fixed Link project in favour of Femern A/S and A/S Femern Landanlæg (4).

(4) On 23 July 2015, the Commission decided not to raise objections to the measures granted by Denmark to A/S Femern Landanlæg and Femern A/S (‘Construction decision’) (5). The operative part of that decision is divided into two parts. In the first part, the Commission concluded that the measures granted to A/S Femern Landanlæg for the planning, construction and operation of the road and rail hinterland connections in Denmark do not constitute State aid within the meaning of Article 107(1) of the Treaty. In the second part, the Commission concluded that, even if the measures granted to Femern A/S for the planning, construction and operation of the Fixed Link did constitute State aid within the meaning of Article 107(1) of the Treaty, they are compatible with the internal market pursuant to Article 107(3)(b) of the Treaty. On 16 September 2015, the Commission sent the Construction decision to the complainants.

(5) Following actions for annulment by two complainants (6), the General Court annulled the Construction decision with its judgments of 13 December 2018 (7) in so far as the Commission decided not to raise any objections to the measures granted by Denmark to Femern A/S for the planning, construction and operation of the Fixed Link (the coast-to-coast infrastructure).

(6) The General Court dismissed the action as to the remainder. In particular, it rejected the arguments of the applicants concerning the Commission’s conclusion that the measures granted to A/S Femern Landanlæg for the planning, construction and operation of the road and rail hinterland connections in Denmark do not constitute State aid within the meaning of Article 107(1) of the Treaty.

(7) The judgments of 13 December 2018 have been appealed by the two complainants (8).

(8) On 24 January and 22 May 2019, the Commission services had a meeting with the Danish authorities. The Commission services had telephone conferences with the Danish authorities on 12 April and 20 June 2019. The Commission services sent further information requests on 26 March, 18 April and 24 April 2019. The Danish authorities submitted additional information on 18 January, 4 February, 25 February, 28 March, 5 April, 7 May, 8 May, 16 May, 20 May, 28 May and 10 June 2019.

(9) On 18 and 25 March 2019, the Commission services had a meeting with Stena Line Scandinavia AB (‘Stena Line’) and with Scandlines Danmark ApS and Scandlines Deutschland GmbH (‘Scandlines’) respectively. On 4 April and 13 May 2019, the Commission services had a meeting with the Naturschutzbund Deutschland e.V. (‘NABU’) and the Association of Swedish Ship-owners (Föreningen för Svensk Sjöfart (‘FSS’) respectively. The Commission received further information from interested parties on 29 January, 14 February, 18 February, 26 March, 15 April, 16 April, 24 April, 24 May, 29 May, 6 June and 7 June 2019. The Commission received a letter from Scandlines on 29 January 2019 to which it replied on 8 February 2019. The Commission received a further letter from Scandlines on 20 February 2019 to which it replied on 13 March 2019. The Commission received a letter from Stena Line on 7 February 2019 to which it replied on 28 February 2019. The Commission received a letter from NABU on 18 February 2019 to which it replied on 18 March 2019. The Commission received a letter from FSS on 19 February 2019 to which it replied on 8 March 2019. The Commission received a letter from Verband Deutscher Reeder (‘VDR’) on 12 March 2019 to which it replied on 21 March 2019. The Commission received a letter from Grimaldi Group on 28 March 2019 to which it replied on 16 April 2019. The Commission received a letter from Trelleborg Port on 8 April 2019 to which it replied on 9 April 2019. The Commission received a letter from Trelleborg Port on 15 April 2019 to which it replied on 2 May 2019. The Commission received a letter from Aktionsbündnis gegen eine feste Fehmarnbeltquerung e.V. on 15 April 2019 to which it replied on 2 May 2019.

(10) By letter of 14 June 2019, the Commission informed the Danish authorities that it had decided to initiate the procedure laid down in Article 108(2) of the Treaty in respect of the public financing of the Fixed Link (‘Opening decision’).

(11) On 5 July 2019, the Opening decision was published in the Official Journal of the European Union (9). In the Opening decision, the Commission invited interested parties to submit their comments within one month.

(12) On 12 July 2019, the Commission services forwarded earlier comments from Scandlines of 7 June 2019 to the Danish authorities. On 23 July 2019, the Commission services forwarded other previous comments and observations from Scandlines of 28 January 2019 and 29 May 2019 to the Danish authorities.

(13) Through successive requests, Scandlines asked for an extension of the deadline to submit comments to the Opening decision until end of August/beginning of September. On 22 July 2019, the Commission services agreed to a 10 working days extension of the deadline to 20 August 2019, which the Commission services subsequently granted also to other interested parties.

(14) On 17 August 2019, Scandlines brought an action for the annulment of the decision to extend the time-limit for submitting their comments to 20 August 2019, and not until the end of the month as they had requested. By separate application lodged on the same day, Scandlines requested the President of the General Court to order, by way of interim measure, the Commission to suspend the formal investigation and/or to prohibit the Commission from adopting a final decision, or grant any other form of appropriate interim relief.

(15) The President of the General Court dismissed the application for interim relief by order of 13 September 2019 (10). Subsequently, Scandlines withdrew the related action for annulment (11).

(16) Eleven interested parties submitted comments. The Danish Ferry Association submitted comments on 16 August 2019. The European Community Shipowners’ Associations (‘ECSA’) submitted comments on 19 August 2019. FSS submitted comments on 20 August 2019. Scandlines, Aktionsbündnis gegen eine feste Fehmarnbeltquerung e.V., NABU, Rederi Aktiebolaget Nordö-Link, Stena Line, Trelleborg Hamn AB, Rostock Port GmbH and VDR all submitted comments on 21 August 2019. The interested parties are involved in the shipping industry (ferry operators, ports and associations) or non-profit organisations alleging an interest in the coast-to-coast infrastructure. By letter dated 3 September 2019, the Commission services forwarded a non-confidential version of the comments of the eleven interested parties to the Danish authorities, which were given the opportunity to react. The Danish authorities submitted their observations on those comments on 4 October 2019, complementing their comments on the Opening decision of 26 August 2019.

(17) On 27 June, on 2, 5 and 9 July, on 3 October, on 4, 12, 15, 19, 22 and 25 November 2019 and then on 7 and 14 January and on 6 February 2020 the Commission services had a telephone conference with the Danish authorities. On 18 December 2019, the Commission services had a meeting in Brussels with the Danish authorities. The Commission services sent further information requests on 8, 12 and 17 July, on 3 and 12 September, on 4, 17, 18 and 24 October, on 5, 13, 25 and 27 November 2019 then on 7 and 9 January and on 3, 4, 14, 18, 19 and 28 February 2020. In 2019, the Danish authorities submitted additional information on 27 June, on 1, 4, 5, 10, 12 and 15 July, on 21 and 27 August, on 13 and 26 September, on 1, 9, 11, 23, 27 and 29 October, on 6, 7, 11, 14, 18, 22 and 25 November, and on 10 and 20 December. In 2020, the Danish authorities submitted additional information on 3, 7, 13, 15, 21 January, on 4, 6, 11, 12, 14, 20 and 21 February and on 3 March 2020. With their communication of 5 March 2020, the Danish authorities revised the initial notification.

(18) Furthermore, the Commission received additional comments from Scandlines and Stena Line which in light of the Mytilinaios Anonymos Etairia – Omilos Epicheiriseon Judgment (12) the Commission is not required to take into account since those comments were submitted out of time. The Commission received such additional comments from Scandlines on 26 October 2019 and again on 20 February 2020, which were forwarded to the Danish authorities on 4 November 2019 and on 28 February 2020, respectively. The Danish authorities submitted their observations to those comments on 6 November 2019 and on 3 March 2020, respectively. Scandlines had a telephone conference with the Commission services on 25 February 2020 and submitted additional information on 5 March 2020. The Commission received additional comments from Stena Line on 13 December 2019, which were forwarded to the Danish authorities on 23 December 2019. The Danish authorities submitted their observations to those comments on 8 January 2020.

(19) The Commission received a letter from the Danish authorities on 9 September 2019 to which it replied on 30 September 2019.

(20) By letter of 4 March 2020, the Danish authorities agreed to have the present decision adopted and notified in the English language.

Clarification as to the scope of this decision

(21) On 2 August 2016, Scandlines sent a letter of formal notice to the Commission, asking it to take steps in respect of certain alleged aid measures in favour of Femern A/S, which, in their view, had not been addressed by the Commission in its Construction decision, even though those measures had been referred to in their complaint.

(22) By letter of 30 September 2016, the Commission services replied to that letter. It indicated that the Construction decision dealt with two alleged aid measures, namely non-commercial railway fees and the free use of State property during the construction phase of the project. As to the other alleged aid measures, the Commission considered, pursuant to Article 24(2) of the Council Regulation (EU) 2015/1589 (‘Procedural Regulation’) (13), that the facts and points of law put forward by Scandlines did not provide sufficient grounds to show, on the basis of a prima facie investigation, the existence of unlawful aid. It therefore invited Scandlines to submit any comments it might have within a period of one month. The Commission received those comments on 30 October 2016.

(23) On 12 December 2016, Scandlines lodged an action of annulment of the letter of 30 September 2016 (14). On the same day, they also brought an action against the Commission for failure to act on their complaint (15).

(24) On 30 July 2018, Scandlines sent a second letter of formal notice (16), inviting the Commission to define its position on the other alleged aid measures following its comments of 30 September 2016. On 28 September 2018, the Commission adopted a decision (‘2018 decision’) (17) confirming that the State guarantees in favour of A/S Femern Landanlæg and the State loans in favour of Femern A/S and A/S Femern Landanlæg, as well as the alleged unlawful aid granted in excess of the Planning decision and in the form of tax advantages, did not constitute unlawful State aid. In the same decision, the Commission concluded that the alleged unlawful aid to Femern A/S in the form of capital injection is compatible with the internal market under Article 107(3)(b) of the Treaty, in so far as it constitutes State aid not covered by the Planning decision. On 4 January 2019, Scandlines brought an action for the annulment of this decision (18).

(25) By orders of 13 December 2018, the General Court declared both the action for the annulment of the Commission’s letter of 30 September 2016 and the action for failure to act inadmissible (19). Scandlines brought an appeal against the order dismissing its action for annulment (20).

(26) In the Opening decision, the Commission withdrew the 2018 decision in so far as it relates to measures granted to Femern A/S for the planning, construction and operation of the Fixed Link. Those measures are therefore part of the assessment in this decision.

(27) As noted in the Opening decision, this procedure also covers all measures relevant to the planning phase of the project that concern the Fixed Link.

(28) This decision does not concern the measures in favour of A/S Femern Landanlæg relevant to the financing of the hinterland connections, as also clarified in the Opening decision. In addition, it does not cover other possible measures than the ones as mentioned in Section 2.4 granted or allegedly granted by Denmark to Femern A/S, A/S Femern Landanlæg, Sund & Bælt Holding A/S or to any other related company.

(29) On 6 November 2017, Scandlines filed an additional complaint on alleged unlawful and incompatible aid measures used to finance Femern A/S’ activities allegedly related to promotion and marketing of the Fixed Link (‘promotional/marketing/information activities’). The measures referred to in that letter were included in the scope of the Opening decision and are therefore assessed in this decision.

2. DETAILED DESCRIPTION OF THE PROJECT AND THE MEASURES

2.1. The Fehmarn Belt Fixed Link project

(30) The Fehmarn Belt Fixed Link project consists of a coast-to-coast infrastructure (‘Fixed Link’) and rail and road hinterland connections.

(31) The Fixed Link will be constructed as an immersed tunnel between Rødby on the island of Lolland in Denmark and Puttgarden in Germany. It will be approximately 19 kilometres long and will consist of an electrified, double-track railway and a four-lane motorway with emergency lanes.

(32) The Danish hinterland connections include the existing railway connection between Ringsted and Rødby of approximately 120 kilometres, which is owned by Banedanmark (‘Rail Net Denmark’), the State rail infrastructure manager. The whole railway section from Ringsted to Rødby will be electrified and equipped with new signalling systems according to ERTMS (21) level 2. The Danish hinterland connections will also comprise the necessary environmental improvements and upgrading of the existing motorway infrastructure of Lolland, i.e. the existing E47 motorway between Rødbyhavn and Sakskøbing. Finally, the existing single-track railway section between Vordingborg and Rødby will be extended to a double-track railway section.

(33) The objective of the Fehmarn Belt Fixed Link project is to improve the conditions for transport of passengers and goods between the Nordic countries and Central Europe. The Fehmarn Belt Fixed Link project will lead to a number of other positive impacts in terms of environmental impact, employment, regional development, improvement of trading conditions and a general strengthening of the transport sector. In combination with the Øresund Fixed Link between Denmark and Sweden, which has been in operation since July 2000, the Fehmarn Belt Fixed Link project will thus bring about a considerable improvement on one of the most important land based transport corridors connecting Scandinavia with Central Europe. The Fehmarn Belt Fixed Link project was also recognised by the Commission as a priority project within the TEN-T framework. In addition, it is a ‘pre-identified project’ mentioned as such in Annex I, part I, point 2 of Regulation (EU) No 1316/2013 of the European Parliament and of the Council (22).

(34) In their reply to the Opening decision, the Danish authorities added that the formal planning of the Fehmarn Belt Fixed Link project began already in 1991 when the Danish Government entered into the Treaty with the Swedish Government about the establishment of a fixed link across Øresund (‘the Øresund Fixed Link’) (23). According to Article 21 of the Danish-Swedish treaty on the Øresund Fixed Link, the Danish Government declared to be ready to work on carrying out a fixed link across the Fehmarn Belt provided that environmental and financial considerations are taken into account. In the period between 1991 and the signature between Denmark and Germany in 2008, the Danish and the German Governments carried out a number of preparatory assessments regarding a Fehmarn Belt Fixed Link project.

(35) According to Article 1 of the ‘Treaty between the Kingdom of Denmark and the Federal Republic of Germany on the Fixed Link across the Fehmarn Belt’ (‘the Fehmarn Belt Treaty’) (24), Denmark has the sole responsibility and bears the full risk for the financing of the Fixed Link across the Fehmarn Belt strait, as well as for the upgrading of the Danish hinterland connections. Germany is responsible for the financing and upgrading of the German hinterland connections.

(36) At the time of the 2014 notification, the Danish authorities estimated that the total costs for the planning and construction of the Fixed Link would correspond to DKK 54,9 billion in 2014 prices (EUR 7,4 billion (25)). The costs related to the planning and construction of the upgrading of the Danish hinterland connections corresponded to DKK 9,5 billion in 2014 prices (EUR 1,3 billion). In total this amounted to DKK 64,4 billion (EUR 8,6 billion) for the entire project (planning activities, construction costs, reserves and other works of both the Fixed Link and the hinterland connections). As a reply to the doubts raised in the Opening decision, the Danish authorities revised their notification and updated those estimated planning and construction costs of the Fixed Link. Section 5 of this decision elaborates on this update.

(37) The Commission has awarded total co-funding grants of EUR 205 million from 2007 to 2013 for the planning activities of the Fehmarn Belt Fixed Link project. The period was later extended to 2015. The project had also been included in the list of proposals selected for receiving EU financial assistance in the field of Connecting Europe Facility (‘CEF’) – Transport sector (26). The Danish authorities specified that in the 2007-2015 period, the project has actually received EUR 181 million for the Fixed Link. Femern A/S has received commitments for CEF support in 2017-2020 for an amount of EUR 589 million. The Danish authorities clarified that Femern A/S has currently utilised amounts of approximately EUR 7 million.

(38) In September 2005, the State-owned company Sund & Bælt Holding A/S established the company Femern A/S as a wholly owned subsidiary. Femern A/S subsequently became a subsidiary of A/S Femern Landanlæg (27), which is also a subsidiary of Sund & Bælt Holding A/S.

(39) Based on the Planning Act (28), the Danish Minister for Transport appointed Femern A/S as responsible for the planning of the Fehmarn Belt Fixed Link project. Consequently, Femern A/S has carried out various studies and preparations for its construction, in particular analyses and evaluations regarding environmental, technical and safety aspects and preparations for the tender processes for the completion of the project. Femern A/S also carried out the necessary investigations and preparatory activities regarding the establishment of the future construction site in Rødbyhavn. Finally, Femern A/S is responsible for information activities, which it should conduct in cooperation with the local municipalities (29).

(40) The financing of the planning phase was notified to the Commission pursuant to Article 108(3) of the Treaty on 16 March 2009 for reasons of legal certainty. On 13 July 2009 the Commission decided not to raise objections to the financing of the planning phase (30), concluding that in the planning phase Femern A/S acted as a public authority and that any support therefore fell outside the scope of Article 107(1) of the Treaty. Nevertheless, as the Commission could not exclude that the public support for the planning phase might include State aid in favour of the future operator of the Fixed Link, it also assessed the compatibility of the notified measures and concluded that they could be considered compatible.

(41) On 28 April 2015, the Danish Parliament passed the bill on the construction of the Fixed Link and the hinterland connections in Denmark (‘Construction Act’) (31). The Construction Act also contains the legal basis for the future operation of the Fixed Link. The Construction Act entered into force on 6 May 2015.

(42) On 6 February 2019, Femern A/S received the signed administrative German Plan Approval of the Fixed Link from the German authorities. Following the administrative German Plan Approval, on 26 March 2019 the Danish Parliament authorised Femern A/S to start the first and specified construction works for the Fixed Link on the Danish side. More specifically, Femern A/S has been asked to negotiate the necessary agreements with the contractors in order to initiate the following activities: constructing the tunnel element factory, establishing a working harbour, establishing the tunnel portal on the Danish side, establishing the camp and administration facilities, ensuring that the relevant contractor initiates the procurement of special marine equipment and minor preparatory activities.

2.2. The Fixed Link

(43) With the Construction Act, Femern A/S was appointed as the owner of the Fixed Link (32), with sole purpose to manage its construction, operation and financing (33). In this capacity, it will also be the infrastructure manager of the rail link in the Fixed Link. The Construction Act allows Femern A/S to obtain loans and to use other financial instruments for purposes related to the planning, construction and operation of the Fixed Link.

(44) Femern A/S may finance the Fixed Link with loans obtained on the international financial market. The Danish Government may provide a State guarantee for those loans. Alternatively, Femern A/S may finance the project through State loans.

(45) Femern A/S will be entitled to collect toll charges from users of the Fixed Link road infrastructure. The Minister for Transport will determine the level of those fees and the principles for adjustment of those fees (34). Femern A/S may change existing general discount schemes and introduce new discount schemes only to the extent that this does not affect materially the level of payment determined by the Minister for Transport. It will also be entitled to railway fees for the use of the rail link in the Fixed Link. The Minister for Transport will also set those fees (35). The setup chosen entails that the toll charges and railway fees will both cover the operating and maintenance costs of the Fixed Link and the Danish rail hinterland connections and the costs related to interest payments and loan instalments relevant to the debt created from the planning and construction of the Fehmarn Belt Fixed Link project.

(46) The conduct of the construction works of the Fixed Link are open to all potential undertakings on equal and non-discriminatory terms since Femern A/S has applied public procurement procedures in accordance with public procurement law for the attribution of all construction contracts.

2.3. The Danish (36) road and rail hinterland connections

(47) A/S Femern Landanlæg has been appointed to manage the construction and operation of the Danish hinterland connections (37). The construction and operation of the railway hinterland connections will be undertaken by Rail Net Denmark on behalf of the Danish State and financed by A/S Femern Landanlæg. Rail Net Denmark, as the Danish rail infrastructure manager, is responsible for all costs related to the operation of the Danish railway infrastructure, including the hinterland rail connections. The construction of the necessary upgrading of the road hinterland connections will be undertaken by the Danish Road Directorate on behalf of the Danish State and financed by A/S Femern Landanlæg. The hinterland road connections will be part of the general Danish road infrastructure network, which is financed, operated and maintained by the Danish Road Directorate.

(48) The existing double tracked railway from Ringsted to Vordingborg and the existing single-track railway from Vordingborg to Rødby, including the new signalling system installed on this section, are owned by Rail Net Denmark. A/S Femern Landanlæg will own the new track section from Vordingborg to Rødby, including the new signalling system installed on the new track, and the installations for electrification of the whole section from Ringsted to Rødby.

(49) A/S Femern Landanlæg and Rail Net Denmark share the ownership of the Danish rail hinterland connections (38). Once the construction is completed, and owing to the fact that it will be technically difficult to separate the ownership of the rail installations on the Danish hinterland connections, an exchange of property will take place between Rail Net Denmark and A/S Femern Landanlæg (39).

(50) The ownership of the Danish road hinterland connections will remain with the State.

(51) A/S Femern Landanlæg may finance the hinterland connections with loans obtained on the international financial market. The Danish Government may provide a State guarantee for these loans. Alternatively, A/S Femern Landanlæg may finance the hinterland connections using State loans.

(52) Femern A/S will pay dividends to A/S Femern Landanlæg. With those dividends, A/S Femern Landanlæg will repay its debt related to the loans necessary to fund the costs of the planning, construction, maintenance and reinvestments related to the hinterland rail connections and the costs related to the construction of the hinterland road connection.

(53) In accordance with general principles in Denmark, there will be no user fees for the use of the Danish road hinterland connections.

2.4. The measures granted or allegedly granted to Femern A/S

(54) The Opening decision raised doubts on the State aid character and compatibility of several notified and alleged aid measures as described below.

2.4.1. Capital injections

(55) The Danish authorities notified capital injections amounting to DKK 500 million (EUR 67,0 million) by the State-owned Sund & Bælt Holding A/S into Femern A/S that took place in 2005 and 2009. The purpose of those capital injections was to set up Femern A/S to carry out the Danish part of the preparatory work and studies related to the Fehmarn Belt Fixed Link project (40). As mentioned in the Opening decision, Scandlines is of the view that Sund & Bælt Holding A/S proceeded to additional capital injections for the same period, possibly exceeding the amount authorised by the Construction decision with at least DKK 10 million (EUR 1,3 million).

2.4.2. State guarantees

(56) The Opening decision also covered the State guarantee model as notified by the Danish authorities. It covers State guarantees for loans or other financial instruments raised by Femern A/S on the international financial markets for the financing of the planning, construction and operation of the Fixed Link (41).

(57) According to Section 7(3) and (5) of the Planning Act, Femern A/S benefits from a State guarantee covering the obligations of Femern A/S in relation to loans and other financial instruments used to finance the preparation, investigation, planning and other necessary measures concerning the Fixed Link.

(58) According to Section 4(2) of the Construction Act, Femern A/S benefits from a State guarantee covering the obligations of Femern A/S in relation to loans and other financial instruments used to finance and refinance the planning, construction, operation and other necessary arrangements for the purpose of construction and operation of the Fixed Link.

(59) Femern A/S, similar to other public undertakings that obtain loans covered by a State guarantee, will be required to pay a guarantee premium to the Danish State, as notified in 2014 amounting to 0,15 % per annum on the outstanding debt covered by the guarantee.

(60) The State guarantee covers the obligations of Femern A/S in relation to loans and other financial instruments used to finance and refinance the planning, construction, operation and other necessary arrangements for the purpose of planning, construction and operation of the Fixed Link.

(61) The State can also decide to guarantee other financial contracts of Femern A/S used in connection with the project financing (such as swaps) (42). The Danish authorities explained that the Danish state might provide guarantees for derivative transactions. Those guarantees enable Femern A/S to obtain cheaper rates for its derivatives since the counterparty does not face the risk that Femern A/S will default on its obligations stemming from the derivatives contract. Similarly, if Femern A/S is required posting collateral for those derivatives it can also draw on those guarantees.

(62) Finally, the guarantee covers other financial obligations assumed by Femern A/S in connection with the construction phase (43).

(63) The State guarantee can only be used to cover loans that Femern A/S obtains in order to finance the Fixed Link. As a special purpose company, Femern A/S cannot obtain loans for or engage in any other activity than the financing, planning, construction and operation of the Fixed Link.

(64) As mentioned in the Opening decision, the complainants argued that due to the State guarantee, Femern A/S enjoys the same credit rating as the Danish State (AAA), which allows it to obtain financial terms for its loans that are significantly better than otherwise available on the financial market. In addition, they argue that it appears from the Planning and Construction Acts that the State guarantees are unlimited in time and amount and in effect prevent the possibility of Femern A/S going bankrupt. Moreover, they fulfil none of the conditions mentioned in the Guarantee Notice (44) that could exclude the existence of State aid.

(65) The complainants also argued that every time Femern A/S enters into a new financial agreement, a new guarantee is granted, involving a new ad hoc aid measure.

2.4.3. State loans

(66) As to the notified financing model, Femern A/S is also entitled to obtain State loans as an alternative way of raising funds (45). The Danish authorities indicated that the interest rate on State loans corresponds to the State’s own loan terms (46) with an additional loan margin of, as notified in 2014, 0,15 %.

(67) As mentioned in the Opening decision, the complainants argued that the Planning decision did not authorise State aid in the form of State loans. According to them, the Minister of Finance proceeded to the grant of State loans and granted this form of aid for a much higher amount than authorised by the Planning decision. According to the complainants, during the planning phase of the project, the State granted loans to Femern A/S and A/S Femern Landanlæg, which in total would amount to EUR 533 million (47). The Danish authorities submitted that the initial planning budget of EUR 194 million was increased in 2010, 2011 and 2013 to a total budget of EUR 684 million (2008 prices), out of which EUR 534 million concerned the planning phase of the Fixed Link (the rest concerned the hinterland connections). Femern A/S contracted State loans to cover those expenses. Those budget adjustments were approved by the Danish Parliament’s Finance Committee.

(68) The complainants further argued that the State loans as intended have no fixed repayment period and are, therefore, unlimited in time. In the absence of such a period, Femern A/S can continuously delay the repayment of the initial loans by successively obtaining new loans to refinance the initial ones.

(69) In November and December 2018, when the Construction decision was still valid, Femern A/S obtained State loans for a nominal value of DKK 7,4 billion (EUR 1,0 billion) in order to ensure the necessary funding for initiating the construction phase. Those loans have been disbursed in the period November 2018 – April 2019.

(70) The complainants also argued that every time Femern A/S raises a new State loan, a new measure is granted, involving a new ad hoc aid measure.

Loans for promotional/marketing/information activities

(71) As mentioned in the Opening decision, Scandlines argued that Femern A/S had undertaken a wide range of promotional and marketing activities (48) either by itself, or through the use of contractors, consultants (49) and direct suppliers. Scandlines also indicated that, as Femern A/S for the time being has no source of income beyond EU funding, the financing of this type of activities constituted State aid, which would be unlawful and incompatible. Alternatively, the alleged aid in question should be considered as misuse of the aid authorised under the Planning decision.

(72) In this respect, the Danish authorities had, in the context of the preliminary investigation procedure, submitted that Femern A/S’s information activities fall within the scope of its tasks as defined in the legal framework regulating its activities as a publicly owned company, on behalf of the Ministry of Transport. When the State implements such big infrastructure projects, the relevant public entities have the obligation to inform the public in the broadest manner, so that the citizens know what the infrastructure project is about, how long the construction phase will last, as well as the benefits that will derive from the State’s decision to construct this infrastructure. Thus, in their view, those activities form part of the public task of the State to inform its citizens and do not constitute promotional and marketing activities, as at this stage the operation of the Fixed Link lies in a distant future. Therefore, their financing would not constitute State aid. The Danish authorities further detailed that for the years 2014 and 2015, the information activities were financed partly by EU funding through the Commission’s TEN-T programme and partly through State loans. In 2014, the activities received full EU funding (50 % of the costs) and in 2015, the activities received a limited amount of EU funding. Femern A/S has not received EU funding for the information activities in 2016. Hence, in 2016, those activities – like the other activities of Femern A/S – have been financed by obtaining State loans. In 2017, Femern A/S has received EU funding from the CEF programme and hence information activities were partly funded by EU and partly by State loans.

2.4.4. Special tax measures

(73) The Opening decision further noted Scandlines’ concern that Femern A/S is subject to a special tax regime under the Danish tax law, which was originally introduced by the Planning Act.

2.4.4.1. Loss carry forward

(74) Section 9 of the Planning Act allowed Femern A/S to carry forward losses year on year without any restrictions. At the outset, this was consistent with the rules that apply to undertakings in general in Denmark. However, on 1 January 2013, Danish tax law introduced (50) a limitation on the amounts of historical losses (51) carried forward that can be deducted in a single year. According to this provision, although the right to carry forward losses was not limited in time, the amount of losses that may be carried forward and deducted from profits of subsequent years is limited annually to DKK 7,5 million (52) (EUR 1,0 million). If a loss remains, this can only be deducted up to 60 % of the positive taxable income in excess of DKK 7,5 million. However, by virtue of the special provisions of the Planning Act, this limitation did not apply to Femern A/S, which retained the right to unlimited carry-forward of historical losses. This right was abolished at the end of 2015 (53).

(75) The Danish authorities submitted, in the context of the preliminary investigation procedure, that during the period 2013-2015, Femern A/S had no actual financial advantage, as in practice such measure could only be used in later phases of the project, i.e. when the project would generate taxable profit. The Danish authorities further clarified that in this period, Femern A/S used all losses incurred to reduce taxable income at group level in the same financial year. Other Danish companies within a group could have done the same according to the general tax rules.

2.4.4.2. Depreciation of assets

(76) Pursuant to Sections 12 and 13 of the Sund & Bælt Act (54), the annual depreciation rate for the assets of the companies belonging to Sund & Bælt, such as Femern A/S, was set at 6 % of the initial acquisition costs. The total construction costs of the Fixed Link could be considered as initial acquisition costs. This means that a single general rule on depreciation would be applied to all assets of Femern A/S. The 6 % depreciation rate for Femern A/S would apply until the income year in which the total sum of the depreciation exceeds 60 % of the initial acquisition costs (i.e. a 10-year period), as from which point the annual depreciation rate would be reduced to 2 %.

(77) According to the Danish authorities, the special depreciation rules have also been repealed since 1 January 2016 through an amendment of the Sund & Bælt Act (55).

2.4.4.3. Joint taxation regime

(78) Femern A/S is subject to mandatory joint taxation with Sund & Bælt Holding, in accordance with the general joint taxation regime applicable to all Danish undertakings within a group. According to Article 31 of the Danish Act on Corporation Tax a ‘group’, all companies of which are established in Denmark, must be taxed in accordance with the provisions on mandatory group taxation. No specific rules apply to Femern A/S in that respect.

(79) The complainants argued that the above tax measures in favour of Femern A/S constitute incompatible State aid, which, up to the point the relevant provisions were repealed, was designed to be unlimited in time and amount, and which provided an advantage to the company separate from the other State measures, which has to be assessed on its own merits.

2.4.5. Free use of state property

(80) According to Section 8 of the Fehmarn Belt Treaty, Germany and Denmark shall make available the necessary areas of land for the construction and operation of the Fehmarn Belt Fixed Link project (Section 8, subsection 1), including the necessary water areas and seabed, free of charge (Section 8, sub-section 2).

(81) The Danish State will make available to Femern A/S free of charge the water areas and the seabed, which are necessary for the preparation, examination and planning (56), as well as the construction and operation (57) of the Fixed Link.

(82) As mentioned in the Opening decision, Scandlines argued that through those provisions, Femern A/S benefits from a financial advantage as, in their absence, it should normally pay a market fee for the use of the water areas and the seabed.

(83) However, the Danish authorities submitted that there is no general rule or principle in Danish law requiring companies in a similar factual and legal situation as Femern A/S to pay fees to the State for making use of seabed and water areas. Hence, the same free access principle applies to other toll funded transport infrastructures in Denmark (such as the Øresund Fixed Link and the Great Belt Fixed Link). Similarly, though not in a directly comparable situation, no fees are paid to the Danish State by ferry operators or other ship freight companies for crossing any sea areas under Danish jurisdiction. In addition, the harbours pay no fees for using the seabed.

2.4.6. Railway fees

(84) Femern A/S is authorised to charge the railway operators for use of the railway connection on the Fixed Link. The Ministry of Transport will set the level and principles for the regulation of railway companies’ payment to Femern A/S for the use of the rail line of the Fixed Link (58).

(85) The Opening decision noted the concern of Scandlines that the State, via its own railway operator, Danske Statsbaner (‘DSB’) (59), will annually pay Femern A/S a share of the overall fees of DKK 350 million (EUR 46,9 million) for an undefined period of time. As it would seem that this fee would apply irrespective of the number of trains using the Fixed Link, without an adjustment mechanism and for an undefined period, the complainant indicated that this would involve an economic advantage to Femern A/S.

(86) The Danish authorities submitted that the preparatory notes to the Construction Act (60) (‘preparatory notes to the Construction Act’) provide that the level of the railway fees will also reflect a part of the construction costs of the Fixed Link on a long term basis and not only costs directly incurred by the operation of the rail link. Moreover, they will be determined in accordance with Directive 2012/34/EU of the European Parliament and of the Council (61) ensuring that overcompensation is avoided.

(87) Further, the Danish authorities expect that revenues from the railway use will account for about 15 % of the total operating income, while the construction costs for the railway part of the Fixed Link account for 51 %, which means that the users of the road connection will ultimately pay for a part of the railway connection.

(88) Since all railway operators using the Fixed Link are supposed to pay the railway fees, the Danish authorities indicated that the charging of railway fees would not constitute use of State resources granted to Femern A/S, as the transfer of funds from railway operators to Femern A/S would have no impact on the State budget.

3. GROUNDS FOR INITIATING THE PROCEDURE

(89) The Commission initiated the formal investigation procedure on 14 June 2019. In the Opening decision adopted on that date, it provided its preliminary assessment of the measures and raised doubts as to their compatibility with the internal market.

(90) The Commission could not, at that stage, conclude whether Femern A/S could be considered as an undertaking. More specifically, given the particular situation in which Femern A/S operates, the argumentation submitted by the Danish authorities and the complainants and the case-law mentioned, the Commission had doubts, as to whether Femern A/S could be considered as being engaged in an economic activity (during the planning, construction and operational phase of the project) and thus qualify as an undertaking. The Commission also had doubts on whether the promotional/marketing/information activities should be considered as a public task or as an economic activity. Furthermore, it was not in a position to conclude definitely on the existence of a selective advantage for some of the aid measures.

(91) The Commission could not conclude on whether the State guarantees and State loans should be considered as an aid scheme or whether they should be considered as individual aids, granted when the Planning and the Construction Acts entered into force, or as individual aid granted each time a financial transaction of Femern A/S is implemented by the national authorities.

(92) As to the compatibility assessment and in light of the Court judgments, the Commission took the preliminary position that the Fixed Link project constituted an important project of common European interest. However, the Commission raised questions as to whether the aid should be partly considered as operating aid. The Commission also had difficulties in establishing the necessity of the aid. Given the uncertainties around the appropriate period for the calculation of the internal rate of return (‘IRR’) of the project and the time that had elapsed since the 2014 notification, the Commission considered that it would need to assess in detail the benchmark weighted average cost of capital (‘WACC’) and project’s IRR level proposed by the Danish authorities on the basis of updated and appropriate assumptions. In addition, the Commission had questions as regards the proportionality of the measures under examination given the complexity to establish the funding gap and the absence of the elements that would allow a proper quantification method of the aid involved or at least an appropriate methodology and relevant limitations. Although the Commission was not in a position to conclude on the effect on competition of the additional aid measures, it tentatively concluded that the notified aid measures should only have limited negative effect on competition and trade that cannot outweigh the obvious positive effects of the project for the Union as a whole. Finally, the Commission considered it was not in a position to decide on the specific compatibility condition relating to the conditions for the mobilisation of the State guarantees and could not conclude that Denmark complied with the transparency condition provided for in paragraph 45 of the Communication from the Commission – Criteria for the analysis of the compatibility with the internal market of State aid to promote the execution of important projects of common European interest (‘IPCEI Communication’) (62).

4. COMMENTS FROM INTERESTED PARTIES

(93) All of the interested parties that have submitted comments to the Opening decision expressed concern over the alleged State aid to Femern A/S. The comments received from Danish Ferry Association and ECSA are general in nature.

(94) VDR stressed in particular that Femern A/S should be considered as an undertaking, engaged in an economic activity. As Femern A/S was tasked with the construction and operation of the Fixed Link in the absence of a public procurement procedure, it receives an advantage. Furthermore, VDR doubts the existence of an incentive effect, considers that there were other less costly alternatives available, requests the Commission to limit the aid and considers that there is a high risk that the Fixed Link project will unfairly distort competition.

(95) Rostock Port first argues that all the conditions for State aid under Article 107(1) of the Treaty are met. Rostock Port further considers that the effects and impact of the project were not properly assessed and that the impact on their own activities was underestimated. The traffic forecast, in particular concerning the German hinterland connections, would be incomplete, not plausible and contradictory. In addition, the effects of border control and relocations (to the benefit of the Great Belt or Øresund links) would be ignored. Therefore, for all ports next to the Fehmarn Belt Fixed Link, on both sides of the Baltic Sea, negative effects of the project would not be valued properly.

(96) The comments from Aktionsbündnis gegen eine feste Fehmarnbeltquerung e.V., Rederi Aktiebolaget Nordö-Link, Stena Line, Trelleborg Hamn AB, FSS and Scandlines are similar to each other and they broadly reflect the overall arguments raised by Scandlines. For the ease of reading, those comments will therefore by referred to below as comments from ‘Scandlines et al.’. The reply from NABU focuses on the compatibility analysis, and it is to a large extent in line with the comments from Scandlines, complemented by an environmental point of view.

4.1. Comments on the existence of aid

4.1.1. Notion of undertaking

(97) Scandlines et al. state that Femern A/S should be considered as an undertaking in the sense of Article 107(1) of the Treaty, since Femern A/S is engaged in an economic activity by offering transport services in return for remuneration. To this end, Scandlines et al. refer to the 2014 decision of the Commission as regards the financing of the construction of the Øresund Bridge (‘2014 Øresund decision’) (63), where the Commission found the very same activities carried out by the Øresund Bridge Consortium to constitute economic activities.

(98) Furthermore, Scandlines et al. argue that Femern A/S does not provide services connected to the exercise of public powers. According to settled case-law, an activity is connected to the exercise of public powers only when the activity serves a public interest objective, which is typically that of a public authority (64). This is not the case for any of the activities carried out by Femern A/S.

(99) Moreover, Scandlines et al. refer to the case-law of the European Courts and the Commission decision-making practice, arguing that it is irrelevant whether Femern A/S can determine its own prices or is subject to state-regulated prices. Furthermore, Femern A/S retains a wide discretion to grant steep discounts with the effect that the Minister for Transport does not determine the exact consideration but only sets maximum prices.

(100) As the activities of Femern A/S are considered economic in nature, Scandlines et al. consider that in addition to the funding for planning, constructing and operating, also the funding for promotional/marketing/information activities constitutes State aid. Scandlines et al. further emphasise that Femern A/S has performed clear marketing activities, which go well beyond informing the general public about an infrastructure project.

4.1.2. Selective advantage

(101) Scandlines et al. note that according to the Commission’s decision-making practice, the direct appointment of Femern A/S as the sole constructor and operator of the Fixed Link, without a tender, in itself involves an economic advantage. Scandlines et al. argue that each aid measure listed in Section 2.4 of the Opening decision provides a selective advantage to Femern A/S.

(102) As regards the capital injections, State guarantees and State loans, Scandlines et al. argue that the aid element consists of the entire amount guaranteed or lent by the State, rather than the difference between the premium or interest rate paid by Femern A/S and the market conform premium or interest rate. This argument is based on the reasoning that Femern A/S would be in such a weak financial position, that no private lender of guarantor would offer any loans or guarantees. Scandlines et al. deduce this weak financial position from their interpretation of the Enquiry of commercial interest in that no market operator would grant guarantees or loans to Femern A/S. On this basis, Scandlines et al. conclude that no market rate exists and the aid element is therefore the entire guarantee and the entire loan amount.

(103) As regards the railway fees, Scandlines et al. argue that the only relevant parameter for price setting is costs, as no competitor is offering a similar service after the removal of railway tracks to the Scandlines’ ferries. Since the Danish State will pay Femern A/S an annual railway fee of DKK 350 million (EUR 46,9 million) through the State-owned railway operator DSB, without any downward adjustment mechanism regarding the number of trains actually using the Fixed Link, the price is not cost-based. FSS adds that the amount of DKK 350 million constitutes a specific share of the overall annual revenue generated from rail fees and that the application of this fee is not limited in time.

(104) As regards the tax measures, Scandlines et al. maintain that all measures involve an advantage. They further note that the tax measures have been applied both to planning activities and to construction works.

(105) As regards the free use of State property, Scandlines et al. argue that Femern A/S benefits from free use of water areas and part of the seabed, as explicitly provided for in the Planning and Construction Acts. They consider the claim of Denmark that in general no fees are to be paid to the Danish State by ferry operators or other ship freight companies for crossing any sea areas, as contradictory to the inclusion of the said provision in the Acts. FSS considers the fact that companies are actually not paying charges for the transit through national sea areas as irrelevant.

4.2. Comments on the classification of aid

(106) Scandlines et al. disagree with the reasoning in the Opening decision, which mentions three possible classifications of the aid related to state guarantees and loans: namely (i) an aid scheme; (ii) individual aids, granted when the Planning and Construction Acts entered into force; or (iii) individual aid granted each time a financial transaction of Femern A/S is implemented by the national authorities.

(107) Scandlines et al. argue that the aid is granted exclusively to Femern A/S for a specific project and therefore cannot be considered as a scheme but should be considered as individual aid (i.e. ad hoc aid).

(108) In the interpretation of Scandlines et al., the argument the Commission made in recital (132) of the Opening decision concerning the State’s obligation to ensure the funding of the project was an argument in favour of the classification as an aid scheme. Scandlines et al. consider that this would contradict the Procedural Regulation and the Øresund judgment (65).

(109) Scandlines et al. conclude that, since the aid cannot be classified as an aid scheme, it must necessarily constitute a series of ad hoc aid, granted each time Femern A/S concludes a financial transaction for the financing of the project (i.e. option (iii)). Scandlines et al. did not put forward further arguments or evidence as to why the ad hoc aid is granted each time an individual transaction is concluded, and not at the time when the Planning or Construction Acts entered into force (i.e. option (ii)).

(110) FSS considers that the aid cannot be considered as an aid scheme but does not comment on the aid granting moment(s).

4.3. Comments on the compatibility assessment

4.3.1. Qualification of the project in the light of IPCEI rules

(111) Scandlines et al. argue that the Commission wrongly accepted that the Fehmarn Belt Fixed Link project is a project of common European interest. NABU argues that the fact that the project is designated as a TEN-T Network project (for the rail part) and is entitled to EU funding is not sufficient to demonstrate common European interest. Scandlines et al. consider that the positive socio-economic return of the Fixed Link relied upon in the Opening decision is based on inconsistent and outdated studies from 2015 (66). In particular, Scandlines et al. emphasise that the analysis relied upon in the Opening decision does not adequately take into consideration the impact of ferry competition, and consider that the traffic forecasts underlying the calculated socio-economic return are outdated. To this end, Scandlines et al. refer to new studies by PWC (67) (‘PWC report’) and Knud Erik Andersen (‘Knud Erik Andersen study’) (68) of resp. January and August 2019. The PWC report was prepared for the German authorities in the context of issuing a German plan approval for the Fehmarn Belt Fixed Link project. It focused on the ferries’ competitiveness after the opening of the Fixed Link. On the basis of the Knud Erik Andersen study, Scandlines and Stena Line argue that the costs of Scandlines are significantly overestimated in the studies from 2015 as they imply that Scandlines would have been operating at a massive loss. If the costs were properly determined, the socio-economic return of the Fehmarn Belt Fixed Link project would be negative. Additionally, Scandlines and Stena Line consider that the studies from 2015 are flawed due to increased costs of the German hinterland which further reduces the socio-economic return. NABU added that the studies do not take proper account of the impact on the environment.

(112) Scandlines et al. further argue that the actual European net benefit of the Fehmarn Belt Fixed Link is negative and that the rate of return of the Fehmarn Belt Fixed Link is clearly well below 4 %, which they consider as the established minimum return for an infrastructure project to be undertaken in Denmark.

(113) FSS did not comment on this element.

(114) NABU considers that the Fehmarn Belt Fixed Link project does not deliver the benefits claimed by the Danish authorities as it does not improve traffic conditions or lead to the claimed timesavings and thus does not contribute positively to the transportation between Germany and Scandinavia.

4.3.2. The grant of operating aid

(115) In the view of Scandlines et al., operating aid is prohibited and cannot be authorised. Scandlines et al. consider that operating aid is not related to a particular project phase (such as the operating phase) but to the nature of the costs. Any aid covering operating costs constitutes operating aid. Therefore, all relevant operating costs should be excluded from the funding gap calculation. FSS adds that, in their interpretation of the Øresund judgment, any loan taken out to refinance an earlier loan automatically becomes operating costs and that therefore the aid for such refinancing is prohibited. The authorization of any aid to Femern A/S can therefore not cover costs for refinancing loans. In FSS’ view, the toll prices should be cost-based and price dumping should be excluded. NABU did not comment on the operating aid element.

4.3.3. Comments about the funding gap

(116) Scandlines et al. claim that the funding gap as described in the Opening decision is flawed for three reasons: (1) it includes inflated and ineligible costs relating to (i) dividends paid to A/S Femern Landanlæg for the hinterland connections; and (ii) operating costs; (2) it includes artificially low revenues by (i) excluding the TEN-T subsidies; and (ii) by accepting that Femern A/S sets its tolls below costs; and (3) the lifetime of the Fixed Link project is too short. Scandlines et al. consider that all those elements lead to an artificially high funding gap and thus to a maximum permissible aid amount that is also too high.

(117) As regards the eligible costs, Scandlines et al. recall that the Commission previously held that, where an aided project involves both economic and non-economic activities, only costs linked to the economic activity may be included, when calculating the funding gap. On this basis, they argue that the hinterland costs and the operating costs cannot be included in the funding gap, as those costs do not form part of the Fixed Link project. Furthermore, as dividend payments are not a cost item but distribution of profits, they cannot be included in the funding gap analysis. FSS adds that the preparatory works that started in 2013 are construction costs and therefore they cannot be authorised as eligible costs for planning purposes. Furthermore, in the view of FSS, planning costs are not part of the construction costs as laid down in Table 1 of the Opening decision.

(118) As regards the revenues, Scandlines et al. claim that TEN-T subsidies are not included in the 2014 analysis of the funding gap. Including those subsidies will result in a significantly lower funding gap. In addition, revenues are artificially low due to the fact that Femern A/S’ toll prices are not cost-based but based on Scandlines’ ferry prices. The Commission must therefore require that during the period that Femern A/S will benefit from State aid, the prices of the Fixed Link are set at a level that reflects all its costs including serving its debt. This last element was not brought forward by FSS. As to the lifetime of the project, Scandlines et al. recall that the funding gap and IRR analysis should be based upon the lifetime of the investment and not on the repayment period of 55 years, as also confirmed by the General Court. It would appear from the website of Femern A/S that the lifetime of the tunnel is 120 years.

4.3.4. Aid amount and duration of the aid

(119) According to Scandlines et al., the amount of aid is underestimated as it only refers to the difference between the interest/premium rates paid by Femern A/S for the State loans and State guarantees and the corresponding market rates.

(120) Scandlines et al. further argue that the duration of the aid must be much shorter than 55 years. In addition, each State guarantee and State loan must be time limited. The aid for Femern A/S must expire when the revenues can cover the costs of operations and the costs related to the debt on marked-based terms. Scandlines et al. refer to the annual reports of the Great Belt and the Øresund fixed links to suggest that each individual State guarantee and State loan should be limited in duration to 4 to 5 years after the opening of the Fixed Link and that the possibility to obtain the State guarantees and State loans should also be limited to 4 to 5 years after the opening of the Fixed Link.

4.3.5. Incentive effect

(121) Scandlines et al. claim that Femern A/S initiated the construction works on the Fixed Link in 2013 although the Danish authorities committed to grant the aid at the earliest in 2015 with the adoption of the Construction Act. The aid to Femern A/S therefore would not have the required incentive effect. Scandlines et al. further criticise the Commission for finding that publicly owned companies should just be exempt from the requirement that the aid has an incentive effect and allege that this approach is an example of discrimination in favour of publicly owned companies, contrary to Article 345 of the Treaty.

4.3.6. The counterfactual scenario

(122) Scandlines et al. claim that several alternative projects did exist. Therefore, the counterfactual analysis of the Commission cannot be based on the absence of an alternative project. The fact that Femern A/S cannot decide itself on alternative projects is irrelevant. Scandlines et al. consider the reference to the 2001 Enquiry as wrong as it does not show that there are no alternative projects without aid. In addition, the study is outdated since it is 17 years old and concerns a different project. NABU further elaborated on the existence of alternative projects without aid. NABU referred to a study by Hanseatic Transport Consultancy (‘HTC Report’) (69) from 2019 and noted that the currently estimated traffic is way below the traffic level estimated when the Fehmarn Belt Treaty was signed in 2008. Specifically, the HTC report states that it is not possible to show where the traffic growth can be generated for an economically viable use of the Fixed Link based on the current market data. In addition, NABU referred to the HTC Report when stating that the current traffic level will not even be reached due to structural cross border traffic problems. With this in mind, NABU claims that the Commission must consider the alternative of constructing a pure rail link combined with a ferry solution. This would be the least expensive and best solution from an environmental point of view, in line with the TEN-T objective of moving traffic from road to rail. Furthermore, NABU considers that the alternative of a core-bored tunnel should be considered as an alternative for an immersed tunnel solution. In addition, the environmental impact of the chosen solution should be part of the cost-benefit calculations and alternative project analysis by the Commission.

4.3.7. Internal Rate of Return and Weighted Average Cost of Capital

(123) Scandlines et al. consider the IRR and WACC calculations to be wrong. The IRR should be calculated over the lifetime of the project, not over 55 years, and non-eligible costs should be excluded. The WACC of 11 % is too high. According to Scandlines et al., the WACC should range between 5,68 % and 6,71 %. Scandlines et al. provided two studies further documenting their view on the WACC calculation, on the one hand a study dating from February 2018 and on the other hand references from Damodaran from 2014.

4.3.8. Prevention of undue distortion of competition and balancing test

(124) Scandlines et al. claim that the Commission should assess how serious the distortion of competition is. This analysis should go further than establishing the fact that the aid distorts competition as this is already inherent in the qualification as State aid. From the socio-economic report and the 2014 traffic forecast, it appears that Femern A/S would be likely to hold significant market power and even have a monopoly. In addition, Femern A/S is likely to abuse its market power. According to Scandlines, the refusal of the Danish government to support an application for EU funding by Scandlines (70) and an alleged use of State aid to downgrade the access roads to the harbour in Puttgarden means that the aid to Femern A/S unduly distorts competition. Scandlines et al. further claim that there is a risk of overcapacity and that the socio-economic return when the ferry service continues will be lower than the Danish threshold of 4 %.

(125) NABU added that the impact on the environment should be part of the balancing test. The negative effects of the aid should not be limited to the distortion of competition.

4.3.9. Mobilisation conditions of the State guarantees

(126) By reference to the Guarantee Notice, Scandlines et al. reminded the Commission that it is not entitled to authorise aid in the form of State guarantees unless the Commission knows beforehand what the conditions are for triggering those guarantees. FSS requires that the Danish authorities make a commitment that the conditions for the mobilisation of State guarantees will comply with the requirements of the Guarantee Notice.

5. COMMENTS FROM DENMARK

(127) This section includes the comments of the Danish authorities to the Opening decision and the comments of the Danish authorities on the submissions of the interested parties which were submitted to the Danish authorities in a non-confidential format.

(128) Overall, the Danish authorities do not agree with what is argued by the interested parties. They provided further information and counter-arguments which are summarised below.

5.1. Supplementary comments to the description of the Fehmarn Belt Fixed Link project and the financing measures

(129) The Danish authorities provided factual clarifications to the descriptive part in the Opening decision. They also specified that what was labelled as ‘construction costs’ in Table 1 of the Opening decision includes the planning costs.

(130) Furthermore, the Danish authorities provided clarifications on the capital injection measure. In 2005, Femern A/S was established pursuant to Section 6 of the Sund & Bælt Act. At the time of incorporation, the registered share capital of Femern Bælt A/S (now Femern A/S) was DKK 10 million (EUR 1,3 million). The registered share capital was paid at a premium of DKK 40 million (EUR 5,4 million), totalling DKK 50 million (EUR 6,7 million). The capital contribution was made by Sund & Bælt Holding A/S in accordance with Section 6 of the Sund & Bælt Holding A/S Act. On 24 July 2009, the registered share capital of Femern Bælt A/S was increased from DKK 10 million to DKK 500 million (EUR 67,0 million) by a cash capital injection of DKK 460 million (EUR 61,7 million) made by Sund & Bælt Holding A/S to Femern Bælt A/S and a ‘scrip issue’ (in Danish: ‘Fondsemission’) of DKK 30 million (EUR 4,0 million). The scrip issue constitutes a conversion of Femern A/S’s equity reserves into share capital and thus entails an increase of the capital but not a capital injection. The cash capital contribution was made pursuant to Section 7(2) of the Planning Act. Thus, the total amount of capital injected in Femern A/S is DKK 510 million (EUR 68,4 million), DKK 500 million of which has been injected (and registered) as share capital. No capital injections have been made since 2009.

(131) On the guarantees, the Danish authorities provided further background as to the meaning of Section 4(4) of the Construction Act. According to this provision, the State guarantee also covers other financial obligations incurred by Femern A/S in connection with the construction of the Fixed Link. The Danish authorities explained that this provision means that for example arbitration cases concerning works in connection with the construction of the Fixed Link are covered by the government’s guarantee. This provision does not extend to the operations phase. It functions like a guarantee that the constructors will be paid in case of a failure by Femern A/S to pay. Given that the construction costs are already covered by State loans or loans with a State guarantee, it does not provide an additional advantage to Femern A/S.

(132) The Danish authorities further provided the Commission with an overview of the financing measures already in place.

(133) On 19 November 2018, the Minister for Transport authorised Femern A/S, for the first time, to obtain State loans with a view to finance construction costs. Such loans were subsequently entered into in November and December 2018.

5.2. Comments on the existence of aid

(134) The Danish authorities raised two main arguments to support their overall view that the public financing of the Fixed Link does not fall within the scope of Article 107(1) of the Treaty.

(135) Specifically, the Danish authorities maintain that (1) the planning, construction and operation of the Fixed Link are not ‘economic activities’, but an exercise of public authority; (2) the positive and negative economic effects, which the Fixed Link may produce on adjacent markets and in the EU in general, are not a ‘distortion of competition’.

(136) The Danish authorities further consider that, in any event, Femern A/S does not carry out an economic activity before it starts operating as it does not offer any services on the market.

5.2.1. Femern A/S exercises public power

(137) In the view of the Danish authorities, the planning, construction and operation of the Fixed Link are classic examples of an exercise of public planning power, which are not, and ought not to be, covered by Article 107(1) of the Treaty. Consequently, the State measures, including notably the State guarantee and State loans granted in favour of Femern A/S fall outside the scope of EU competition policy.

(138) Contrary to the methodology used by the Commission in the Opening decision, the Danish authorities submit that an overall assessment – in light of the nature, aim and applicable rules – of Femern A/S’ activities should lead to the conclusion that Femern A/S exercises public power – or at least that Femern A/S exercises public power until it starts operation.

(139) The Danish authorities argue that the aim of connecting the Danish and German State-owned road and rail infrastructures is much wider than other public investments in, for example, the utility sector. Similarly, the nature of Femern A/S and its activities are also fundamentally different from, for example, ferry operators and ferry activities, as Femern A/S is created with the sole purpose to implement the Danish State’s decisions regarding the construction of a particular infrastructure (the Fixed Link). Femern A/S is thus a Special Purpose Vehicle (‘SPV’) which is not subject to a profit maximisation standard and not allowed to carry out unrelated activities according the applicable rules.

(140) According to the Danish authorities, an appreciation of those wider policy considerations underlying the setting up of Femern A/S supports the notion that Femern A/S does not carry out economic activities but rather exercises public power.

(141) The fact that a user fee is charged does not, in itself, change the nature of that activity as it must be examined whether the charging of a fee can be separated from the exercise of public authority. It is only where those two activities can be separated that the charging of a fee in exchange for a service will be considered an economic activity (71).

(142) According to the Danish authorities, it is clear that the collection of charges by Femern A/S, which according to law are determined by the Minister for Transport, cannot be separated from the exercise of activities connected to public authority, such as providing access to and maintaining State owned general road and rail infrastructure. Thus, all activities by Femern A/S should be seen together as an exercise of public authority.

(143) The Danish authorities also clarify that the Minister for Transport has not yet decided how the user fees will be established or what the level of those fees should be. The fees referred to in the Opening decision and in the comments of the interested parties is simply a reflection of budgetary assumptions. It is further noted, that the main aim and function of the user fees is to balance public budgets.

(144) In the event that the Commission cannot accept that all Femern A/S’ activities should be considered together as an exercise of public power, the Danish authorities submit that only the operation can reasonably be considered an economic activity. In the view of the Danish authorities, the rationale in the Leipzig-Halle Judgment (72) does not apply in this case, inter alia because it concerned the capacity increase of an already existing economic activity in a liberalised market.

(145) The Danish authorities further request the Commission to carefully assess when the period of potential economic activities would start and they refer to case-law arguing that whenever it is possible to separate activities, each of those activities should be subjected to a separate State aid analysis.

(146) In addition, they argue that it makes little sense to assume that when the Construction Act entered into force and authorised Femern A/S to construct and operate the Fixed Link, all financing support granted to Femern A/S prior to that date became State aid retroactively.

(147) The Danish authorities further rejected the argument of Scandlines et al. that the leeway for Femern A/S to offer certain discounts demonstrates that the Minister does not fix the exact level of the user fees. The Danish authorities argue that Femern A/S has no freedom to set the fees as it wishes, but only a limited freedom to adjust certain fees downwards to the extent that this does not affect the level of the fees significantly. They further note that Femern A/S’ freedom to amend and introduce new discount schemes is also limited by the Eurovignette directive (73).

5.2.2. Femern A/S’ information activities

(148) In the Danish authorities’ view, there is no doubt that Femern A/S’ information activities are a public task and not an economic activity. One of the tasks imposed on Femern A/S in the Planning Act is ‘information activities’ which should be conducted in cooperation with local municipalities. This is a task that no private commercial infrastructure operator has. It is an inseparable part of the public tasks connected with the planning and construction of public infrastructure projects that affect the local community. Furthermore, the Danish authorities note that if those information activities are not considered as a public task, they should be considered as inextricably linked to the realisation of the project and therefore eligible under the IPCEI Communication.

5.2.3. Femern A/S’ activities do not distort competition

(149) In the view of the Danish authorities, the Commission must carry out a specific assessment of whether competition is distorted or not. This assessment should include a thorough analysis of the organisation of the State road infrastructure in Denmark to enable a determination of whether State roads are in a real competitive relationship with other modes of transport such as ferries, airlines, train operators, etc.

(150) The Danish authorities do not consider the Fixed Link to be in direct competition with, for example, ferries, in the same way as railway infrastructure is not in direct competition with roads, busses or airports. The Danish authorities specifically refer to paragraph 220 of the 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 (‘Notice on the notion of State aid’) (74) and the Infrastructure Analytical Grid for Roads, Bridges, Tunnels and Inland Waterways (75). They further note that the Fixed Link is available to all users on non-discriminatory terms and that it is not constructed to favour a specific undertaking or sector.

(151) On this basis, the Danish authorities submit that any possible economic effects, which Femern A/S’ activities may have on other commercial operators cannot be considered a distortion of competition in the sense of Article 107(1) of the Treaty. It is especially clear, that Femern A/S does not distort any competition on any market while it plans and constructs the Fixed Link.

(152) Finally, the Danish authorities note on this point that the case for Femern A/S is very different from the factual circumstances relating to the construction of an additional runway in the Leipzig-Halle Airport (76), as Femern A/S does not supply services on a market until the infrastructure is open for traffic. Leipzig-Halle Airport competed on the regional airport market against other airports to attract customers and when a need to expand arose, it received State aid to construct new infrastructure.

5.3. Comments on the classification of aid

(153) The Danish authorities consider that Femern A/S obtained a legal right to finance its activities by the adoption of the Construction Act on 4 May 2015, as the act clearly assumes that Femern A/S will finance its debt obligations with State guaranteed loans and State loans. Therefore, the aid was granted at this point in time. However, they note that the State guarantees and the State loans could not be used and thus could not produce any economic advantage for Femern A/S before the Minister for Transport instructed Femern A/S to do so.

(154) Thus, the Danish authorities disagree with Scandlines et al., who argue that the aid related to State guarantees and State loans constitute a series of ad hoc grants. However, the Danish authorities note that, even if the aid were to be considered as a series of ad hoc grants, nothing prevents the Commission from carrying out a compatibility assessment and approving all those future grants at once and on an ex ante basis. The Danish authorities also submitted more detailed information on the absence of discretion of the Minister of Finance as to the specific loan agreements.

(155) They further note that the position of Scandlines et al. appears to entail that Femern A/S should instead at the outset take up one big loan with a State guarantee up to the maximum permitted limit. According to the Danish authorities, this would not be a suitable way to minimise the aid and thus would be contrary to the general requirements of the Commission’s compatibility assessments such as provided by paragraph 28 of the IPCEI Communication.

(156) The Danish authorities further consider that the standstill obligation has been respected. They consider that the legal basis of all activities carried out prior to the entry into force of the Construction Act has been Section 2 of the Planning Act. Since the adoption of the Planning Act, the Danish Parliament’s Finance Committee has subsequently granted its consent to increase the budget for the planning phase three times. Each time, the consent related to specific planning activities covered by Section 2 of the Planning Act (the so-called ‘preparatory works’).

(157) When the Construction Act was adopted, the Minister for Transport instructed Femern A/S not to initiate the construction phase and thus not to sign construction contracts before being authorised to do so by the Minister. In November and December 2018, Femern A/S raised State loans to ensure the necessary funding for initiating the construction phase. However the Danish authorities explained that it was only on 26 March 2019 that Femern A/S was authorised to start the first and specified construction works concerning the Fixed Link. Femern A/S has not yet started any of these works.

5.4. Comments on the alleged aid measures

5.4.1. Railway fees

(158) The Danish authorities maintain that the railway fees do not entail State aid to Femern A/S, and thus they reject the arguments put forward by Scandlines et al. The railway fees constitute a future source of income for Femern A/S, which – as the road tolls – will be regulated by the Minister for Transport. Specifically, the Minister sets out rules regarding the level and principles for the regulation of the fees that users of the Fixed Link (i.e. railway operators) will be charged. These fees will be determined in accordance with Directive 2012/34/EU establishing a single European railway area. The Danish authorities stress that the railway fees for Femern A/S will be collected on behalf of Femern A/S by Rail Net Denmark (77) and not – as assumed in the Opening Decision – by Femern A/S itself. Rail Net Denmark collects those fees on the entire Danish State-owned railway infrastructure. Therefore, it has been considered most expedient to ask Rail Net Denmark to do the same on the Fixed Link. The funds are directly transferred to Femern A/S and Rail Net Denmark cannot dispose of the funds for its own purposes. The fees collected for using the Fixed Link and transferred to Femern A/S will be documented in the annual State budgets. The fees collected by Rail Net Denmark are a payment for a service and not a levy/charge. Rail Net Denmark is as the Danish Railway infrastructure manager responsible for all costs related to the operation of the Danish railway infrastructure.

5.4.2. Tax measures

(159) The Danish authorities note that Femern A/S has not at any time used the previously applicable rules regarding depreciation of assets and carry forward of losses. Thus, regardless of whether the rules may potentially have granted Femern A/S a selective advantage, no such advantage actually occurred in the relevant period.

5.4.3. Free use of the seabed

(160) In its remarks to the comments of the interested parties, the Danish authorities explain that the Construction Act simply clarifies, for the avoidance of doubt, that Femern A/S should not pay a fee for its use of the seabed. They reiterate that these provisions do not treat Femern A/S differently from entities in a comparable legal and factual situation.

5.5. Comments on the compatibility assessment

5.5.1. Project of common European interest

(161) The Danish authorities consider that the new studies submitted by Scandlines and Stena Line are irrelevant and, in any event, incorrect. In relation to the Knud Erik Andersen study, they note that the author is a known opponent to the Fehmarn Belt Fixed Link project, and that the study is based upon wrong calculation assumptions in relation to traffic forecast and construction costs. The Danish authorities further reject the argument put forward by Scandlines and Stena Line that the 2015 studies have inflated Scandlines’ costs to the extent that it results in an assumption that Scandlines operates with a massive loss. The Danish authorities consider this an incorrect and distorted presentation of the calculations in the ‘Original study’ from 2015 because the study is based on the assumption that the revenues of the ferries are higher than operating costs (the difference between revenues and costs is estimated at around 15 % of the costs). In addition, the Danish authorities argue that the studies do not become flawed because sub-components or circumstances change, and they note that new calculations of socio-economic effects are not necessary each time a sub-component changes. As such, the Danish authorities also reject that the 2015 studies are flawed due to increased costs of the German hinterland.

(162) The Danish authorities further argue that socio-economic calculations are always included in the political decision making for large infrastructure projects. However, there is no requirement of a socio-economic return of 4 % as claimed in the report and by the interested parties. The Danish authorities also indicated that the Fehmarn Belt Fixed Link project has been considered as a priority cross-border TEN-T project in its entirety and not only for what concerns the rail part. As to the traffic forecast, the Danish authorities submitted an additional report by Intraplan / TSS Trimode commenting on the HTC Report. Overall, the conclusion by Intraplan / TSS Trimode is that the HTC report is flawed and misleading and does not question the traffic forecast for the Fehmarn Belt Fixed Link specifically. Furthermore, the Danish authorities refer to a report published by the Danish Road Directorate (78) which shows that road traffic to and from Denmark is increasing significantly. Specifically, the report shows that truck traffic has increased by 38 % from 2010 to 2018 across the borders between Denmark and Germany, on the Øresund Fixed Link and on the ferry routes across Øresund and Fehmarn Belt, which further contradicts the HTC Report.

5.5.2. No operating aid will be granted

(163) In the Danish authorities view, operating aid is aid relating to the operating of the infrastructure. All expenses incurred in the construction phase, including expenses concerning the day-to-day administration of the construction project are considered as construction costs. Femern A/S will not need to obtain loans from the State or loans with a State guarantee to finance its day-to-day operations in the operations phase.

5.5.3. Funding gap

(164) The Danish authorities provided updated assumptions for the calculation of the funding gap and the aid element (or gross grant equivalent). As a starting point, the assumptions are based on the latest fully revised financial analysis of the project: ‘Financial analysis of the Fehmarn Belt Fixed Link including Danish landworks’ (79), of February 2016 (‘2016 financial analysis’).

(165) In the preparatory notes to the Construction Act, it was clearly mentioned that there would be a fresh assessment of the total finances of the project. A process to reduce construction costs had to be initiated before the construction contracts could be signed. On 28 April 2015, the Minister of Finance instructed Femern A/S not to sign the project’s major construction contracts before a renewed assessment of the overall finances had been performed. According to the 2016 financial analysis, a major element contributing to a reduction in the construction costs was the extension of the construction period from 6,5 years as assumed in the 2014 financial analysis to 8,5 years in the 2016 financial analysis. The 2016 financial analysis states that, as a result of the tender process, based on this extended construction period of 8,5 years, Femern A/S received the contractors’ (80) final and binding bids. Femern A/S also analysed the other parameters of the financial calculations which led to a number of updated assumptions compared to the analysis that formed the basis for the Construction Act. The updates relevant to the Fixed Link in the 2016 financial analysis concern notably: updated construction budget, updated estimate of costs for operation, maintenance and reinvestment, revision of timetable, adjusted traffic revenue due to revised timetable, update of EU funding, update of some technical assumptions. In addition, to ensure that the Commission’s assessment is based on the most accurate and updated financial assumptions, the Danish authorities did some further adjustments to the 2016 financial analysis, as detailed below. Where appropriate, the Danish authorities also included actual figures such as for the loans already raised or relating to inflation. The below recitals contain further details as to the assumptions of the funding gap model.

(166) The construction costs in the 2014 notification amounted to DKK 54,9 billion (EUR 7,4 billion) in fixed 2014 prices. This amount corresponds to the construction costs mentioned in the 2015 Construction Act: DKK 55,1 billion (EUR 7,4 billion) in fixed 2015 prices. Femern A/S received bids in September 2015. Consequently, Femern A/S prepared an update of the construction budget and the forecast of planning and construction costs for the Fixed Link was reduced to DKK 52,6 billion (EUR 7,1 billion) in 2015 prices or DKK 62,2 billion (EUR 8,3 billion) in nominal prices. This includes a reserve requirement of DKK 7,3 billion (EUR 1,0 billion) in 2015 prices. The reserve has been calculated based on Femern A/S’ risk register and reflects costs the project most likely will incur. A ‘P-value’ of P80 was used. As the Danish authorities explained, this means that there is an 80 % probability that the reserve budget will be sufficient to cover the identified risks. Ernst & Young has performed an external quality assurance of reserves and risks associated with the Fixed Link.

(167) The financial calculations assume that the Fixed Link will receive EU funding corresponding to 10 % of the construction costs throughout the construction period, which is the same level as was assumed in the 2016 financial analysis. The funding relating to the planning phase has also been taken into account in the financial model.

(168) The traffic forecast had been prepared by the German consultancy firms Intraplan and BVU and crosschecked with other models such as the Trans Tools model of the European Commission. The traffic forecast was presented in November 2014. As stated in the 2016 financial analysis, COWI consultancy group performed an external quality assurance of the forecast and concluded that the assumptions are reasonable and in line with professional traffic forecasting practice. The basic assumption in the 2014 traffic forecast is that the existing parallel ferry service would not continue when the Fixed Link opens. At the same time, the 2014 traffic forecast includes a separate analysis of a scenario, with continued (parallel) 1-hour ferry service. Since 2014, Scandlines repeatedly confirmed its intention to continue operating after the opening of the Fixed Link. The Danish authorities therefore considered in the financial funding gap calculation model a 1-hour ferry service between Rødby and Puttgarden. The Danish authorities explained that this is in line with the PWC study prepared for the German authorities in the context of the German plan approval process for the Fixed Link, as provided by Scandlines et al. in an annex to their comments to the Opening decision. Furthermore, the study ‘Forretningsanalyse af færgefarten Rødby-Puttgarden’ of 24 January 2016 prepared by consultants from KPMG on behalf of the Danish Ministry of Transport confirmed that the ferry service can continue with a very small marginal return. The effect of the 1-hour continued ferry service on the traffic volumes, already estimated in the 2014 traffic forecast, is a reduction of 14 % in the volume of cars in the first year after opening of the Fixed Link, decreasing to a 12 % reduction 13 years after the opening. For lorry traffic, the share using the parallel ferry service was estimated at 15 %. A second update after the 2016 financial analysis concerns the effect of the toll reduction on the Great Belt Link by 25 % with full effect as from 1 January 2023. This slightly reduces the traffic volumes on the Fixed Link.

(169) As to the rates for the road traffic, the Danish Minister for Transport will determine the final rates just before opening of the Fixed Link. The Danish authorities explained that the road traffic prices are an extrapolation of 2007 ferry prices, when the Rødby-Puttgarden ferry route was still a legal monopoly owned by the Danish and the German states. The Danish authorities explained that the ferry prices were considered as a reasonable and transparent benchmark – also taking into account what future users of the Fixed Link would be willing to pay without jeopardising the broader aims of the Fixed Link. The assumed and average rate for passenger cars is DKK 494 (EUR 66,2) and for lorries DKK 2 092 (EUR 280,4) in 2015 prices.

(170) In the funding gap calculation model, railway revenues are estimated at around DKK 400 million (EUR 53,6 million) per year (2015 prices). The fees will be determined in accordance with Directive 2012/34/EU. The Danish authorities provided a report from Consultancy TetraPlan ‘Analysis of Rail Infrastructure Payment on the Fehmarn Belt Fixed Link’ from March 2003 and its update from 2008. The 2003 document contains a technical analysis on the railway’s ability to pay for the using of a Fixed Link. The purpose of the analysis was to substantiate whether the estimated payment for using the rail track could be expected to materialise. The TetraPlan analyses assume that the total railway fee for trains going from/to Hamburg via the Fehmarn Belt Fixed Link should equal the total railway fee for trains going via the Great Belt fixed link.

(171) The costs for operation, maintenance and reinvestment of the Fixed Link correspond to DKK 468 million (EUR 62,7 million) per year (in 2015 prices). This estimation is in line with the 2016 financial analysis, as the Danish authorities did not consider it necessary to adjust these figures. The Danish authorities evaluated the effect of the reduced traffic volume on the costs for operation, maintenance and reinvestment. They concluded that the reduced traffic volume only has a minor impact on the operating and maintenance costs and does not have any noticeable effect on the State aid calculations and the guarantee period.

(172) To compute the funding gap, the different cash flows (for example, construction costs, operating results) need to be discounted for which the Danish authorities used the WACC as appropriate discount rate. In reply to the concern expressed by the Commission in the course of the formal investigation procedure that the nominal average risk-free interest rate of 5 %, as an important component of the WACC, might be too high under the current market circumstances, the Danish authorities proposed to use an average risk-free rate of 3,5 % per year. This would be based on the Ministry of Finance’s updated official projection for 2025 of the Danish economy, including public finances (81). In the Danish authorities’ view, the assumption based on the Ministry of Finance’s projection is the most objective prediction of future interest rate levels available in Denmark and is therefore a credible benchmark to use. This also takes into account that Femern A/S cannot in practice obtain loans covering its entire financing need all at once and thus that the current market interest rate cannot be used over a long-term period where Femern A/S takes up debt and refinances frequently.

(173) In reply to the concern expressed by the Commission that also an average risk-free rate of 3,5 % per year might be too high, the Danish authorities explained that, due to the urgent need for a State aid decision, the Danish authorities are willing to use a risk-free rate of 1,5 % for the purpose of determining the funding gap if the Commission were to consider this necessary for the aid to be compatible with the internal market.

(174) Accordingly, the Danish authorities provided two funding gap calculation models. One was based on an average risk-free rate of 3,5 % (time varying starting from low levels and increasing over time) (‘first funding gap calculation model’) and another one assumed, as an alternative model, a risk-free rate of 1,5 % (‘alternative funding gap calculation model’).

(175) The resulting WACC figure is therefore dependent upon the applicable model. The calculations based on the Ministry of Finance’s projection result in a WACC ranging between 4,2–8,3 % in the first funding gap calculation model, while the calculations based on a risk-free rate of 1,5 % (in the alternative funding gap calculation model) result in a fixed WACC of 5,59 %. The Danish authorities explained that the WACC level was estimated in terms of what a typical investor would require for a project with comparable risk characteristics. They provided full details on how this WACC was established.

(176) The Danish authorities calculated the funding gap model on the basis of an operational period of 40 years. They did not include dividend payments relating to the hinterland.

5.5.4. Aid amount and duration

(177) In order to address the doubts raised in the Opening decision, the Danish authorities revised the notification and limited the use of State guarantees and State loans. The State guarantees and State loans will be limited to the financing needed for the costs incurred during the planning and construction phase. Femern A/S will terminate all loans with a State guarantee and repay all State loans at the latest 16 years after start of operations of the Fixed Link (‘maximum guaranteed period’). Start of operations of the Fixed Link is the point in time where the Fixed Link opens for road and rail traffic. Femern A/S will not be able to raise loans with a State guarantee and State loans, which, together, exceed a maximum amount of DKK 69,3 billion (EUR 9,3 billion) (‘maximum guaranteed amount’). The maximum amount is the expected total net construction debt for Femern A/S, including accrued interest costs during the planning and construction phase. To this amount, a liquidity reserve of DKK 2,0 billion (EUR 0,27 billion) and a ‘construction cost buffer’ of DKK 2,5 billion (EUR 0,34 billion) has been added (2015 prices). The liquidity reserve was added to cover the risk of short-term fluctuations in project payments. The Danish authorities explained that an additional construction cost buffer is needed because, if construction costs were higher than expected (expected construction costs were calculated with a risk probability of 80 %), Femern A/S would not be able – still in construction phase – to obtain loans on the market. The buffer corresponds to an increase in the risk probability to 99 %. The Danish authorities however committed to a recalculation mechanism which adjusts the maximum guaranteed amount and the maximum guaranteed period downward if the actual costs incurred in construction mean that the construction cost buffer is not needed thus ensuring that the total aid amount does not exceed the funding gap. The Danish authorities committed to performing this recalculation at the latest five years after start of operations.

(178) Femern A/S is obliged to pay a premium in connection with the State guarantees and State loans. As stated in the preparatory notes to the Construction Act (Section 11.1), this fee amounts to 0,15 %. This corresponds to the premium to be paid by Femern A/S as to the first funding gap calculation model of the revised notification. In the alternative funding gap calculation model, this premium is higher and amounts to 2 %.

(179) Furthermore, Femern A/S will not use State loans and loans with a State guarantee to finance its dividend payment obligation to