OPINION OF ADVOCATE GENERAL

GEELHOED

delivered on 28 September 2006 ( )

Case C-295/05

Asociación Nacional de Empresas Forestales (Asemfo)

v

Transformación Agraria SA

and

Administración del Estado

(Reference for a preliminary ruling from the Tribunal Supremo, Sala de lo Contencioso-Administrativo (Spain))

(Interpretation of Article 86(1) EC and Directives 93/36/EEC, 93/37/EEC, 97/53/EC, 2001/78/EC and 2004/18/EC concerning the coordination of procedures for the award of public supply, works and service contracts – Compatibility of national rules granting a public undertaking a legal regime which allows it to perform public works contracts outside the established procedures for the award of public contracts)

I – Introduction

1. This case concerns the compatibility with Community law, and in particular with the Community directives governing the award of public contracts ( ) and with Articles 12 EC, 43 EC, 46 EC and 86(1) EC, of a national statutory regime for a public undertaking constituted under private law which, under that statutory regime, is an ‘instrument’ or executive service of the public authorities, but which may also carry out work for public bodies other than those to which it is subject as an executive service, as well as for private undertakings and organisations. In addition, this legal person may be asked by the competent public authorities to provide services other than those included in its statutory remit.

2. The questions have arisen in connection with a complaint by the Asociación Nacional de Empresas Forestales (‘Asemfo’) against Empresa de Transformación Agraria SA (‘Tragsa’), in which Asemfo accused Tragsa of infringing Spanish competition law by failing to comply with the public procurement procedures laid down in Spanish legislation, which constituted an abuse of its dominant position in the market for forestry works, services and projects. In considering Asemfo’s appeal against the decision of the Sala de lo Contencioso-Administrativo (Chamber for Contentious Administrative Proceedings) of the Audiencia Nacional (National High Court), the Spanish Tribunal Supremo (Supreme Court) eventually decided that it needed to refer questions to the Court of Justice for a preliminary ruling.

II – Legal framework

A – National legislation

3. In order to have a clear understanding of the practical and legal implications of the questions referred to the Court, a more than usually detailed summary is needed of the extensive and complicated national legislation applicable to Tragsa.

4. Tragsa was set up on 24 May 1977 ( ) under Royal Decree 379/1977 of 21 January 1977, which authorised its constitution as a public undertaking. Its legal personality is regulated partly by the general rules that apply to companies governed by private law, and partly by the general rules of law that apply for public undertakings. Its company objects were originally laid down in Article 2 of Royal Decree 379/1977, but were subsequently extended by Royal Decrees 424/1984 of 8 February 1984 and 1422/1985 of 17 July 1985. Today, its principal activities involve the execution of various types of works, installations and studies, the provision of services and the preparation of plans and projects in the field of agriculture and forestry, the protection and improvement of the physical environment, fish farming, fishing and nature conservation.

5. It is to be inferred from Article 88 of Spanish Law 66/1997 of 30 December 1997 concerning fiscal, administrative and social measures that Tragsa is a public company, as defined in Article 6(1)(a) of the General Budget Law, providing essential services in the field of rural development and environmental protection. It is ‘an instrument and technical service of the Administration’ which is required to carry out, either itself or using its subsidiaries, any work entrusted to it by the General Administration of the State, the Autonomous Communities or the public bodies subject to them.

6. Ultimately, the legal regime for Tragsa is set out in Royal Decree 371/1999 of 5 May 1999 laying down the regime governing the ‘Land Transformation Company PLC’ (Tragsa).

7. Tragsa is required to carry out the works and activities entrusted to it by the Administration. That requirement specifically includes the work it is given as an executive organisation and technical service of the Administration in the areas covered by its company objects (Article 3(2) of Royal Decree 371/1999). In addition, Tragsa is required to give priority to urgent and exceptional work arising from natural disasters and similar events (Article 3(3) of the decree). It cannot refuse the work entrusted to it or negotiate the deadline for completion, and must execute the works assigned in accordance with the instructions it is given (Article 5(3) of the decree).

8. The royal decree classifies Tragsa’s relations with the central and decentralised public administrations as instrumental rather than contractual, and they are therefore, for all purposes, internal, dependent and (for Tragsa) subordinate (Article 3(6) of the decree).

9. Under the financial system to which Tragsa is subject, its work is paid according to a system of tariffs laid down in Article 4 of Royal Decree 371/1999. The tariffs are decided by a joint ministerial committee partly on the basis of information supplied by Tragsa on its costs.

10. Tragsa can call on the help of private undertakings in its activities (Article 6 of Royal Decree 371/1999). There are a number of restrictions on such cooperation with private contractors: the work may involve only the processing or manufacturing of movable property, the amounts for which such contracts may be concluded are limited, and the principles of prior public tender (publication and competition) must be observed in the selection of private partners.

11. It should also be pointed out here that Tragsa can also operate as an undertaking company, even vis-à-vis the Administration, without having to retain its capacity as an ‘executive organisation and technical service of the Administration’. In such cases, its activities are governed, pursuant to Article 1 of Royal Decree 371/1999, by the rules which generally apply to commercial undertakings.

12. The administrative context in which Tragsa operates changed significantly in the 1980s as a result of the entry into force of the Spanish Constitution of 1978, when responsibility for agriculture and environmental protection was transferred from the General State Administration to the Autonomous Communities or regions (‘the Autonomous Communities’). The transfer of administrative powers also necessarily involved the transfer of the resources and instruments needed to enable those powers to be fully exercised. For that reason Tragsa was placed at the disposal of the Autonomous Communities to enable them to exercise their powers even before the EC Treaty came into force for Spain.

13. The transfer of public powers with respect to Tragsa from the General State Administration to the Autonomous Communities took the form of public law agreements which each of the Communities concluded with Tragsa, laying down the rules governing the use of Tragsa as an ‘instrument’ of the Autonomous Community concerned. Most of the Autonomous Communities concluded such agreements with Tragsa, although only four became shareholders in it as a company.

14. Under the Spanish laws and regulations in force, however, an Autonomous Community does not need to become a shareholder in Tragsa in order to use its services: Tragsa operates as an ‘instrument’ of the Autonomous Communities, so that as a rule it makes no difference whether or not they are shareholders. That is borne out by Law 66/1997, which provides that the regions may, but need not, be shareholders in Tragsa.

15. In order to assess the questions referred to the Court, it is also useful to reproduce a number of other sections of the Spanish legislation on public procurement, which determine the legal framework in which Tragsa operated, and still operates, on the basis of its legal status as a public undertaking.

Article 60 of the Law on Public Procurement, as confirmed by Royal Decree 923/1965 of 8 April 1965, provides as follows:

‘Only those works which are carried out in the following circumstances may be executed directly by the Administration:

1. Where the Administration has available plant, stocks, facilities or technical or industrial services suitable for the execution of the planned works, in which case use should usually be made of those resources.’

Article 153 of Law 13/1995 of 18 May 1995 on Public Procurement provides as follows:

‘1. The Administration may carry out works using its own services and its own human or material resources, or in cooperation with private undertakings, in the latter case on condition that the financial interest of the works in question is less than ESP 681 655 208, excluding VAT, where one of the following circumstances occurs:

(a) where the Administration has available plant, stocks, facilities or technical or industrial services suitable for the execution of the planned works, in which case use should usually be made of those resources.’

Article 152 of the revised text of the Law on Public Procurement, confirmed by Royal Decree 2/2000 of 16 June 2000, reads:

‘1. The Administration may carry out works using its own services and its own staff or material resources, or in cooperation with private undertakings, provided, in the latter case, that the amount of the works in question is lower than EUR 5 923 624, the equivalent of 5 000 000 special drawing rights, where one of the following situations obtains:

(a) where the Administration has at its disposal factories, stocks, workshops or technical or industrial services suitable for the execution of the project works, use should usually be made of that method of execution.’

Article 194 of the Law on Public Procurement provides that:

‘1. The Administration may manufacture movable property using its own services and its own human or material resources, or in cooperation with private contractors, provided, in the latter case, that the amount of the works in question is lower than the maximum amounts laid down in Article 177(2), where one of the following situations obtains:

(a) where the Administration has available factories, stocks, workshops or technical or industrial services suitable for the execution of the planned works, use should usually be made of that method of execution.’

16. As the referring court explains, the legislation cited in the previous point summarises the various conditions on which the Administration itself is allowed to execute works directly, including the condition that it must have its own resources, as is the case with Tragsa in its activities. That condition is not linked to any other more detailed requirement or circumstance, such as reasons of urgency or public interest, for instance. Those are covered by a separate provision: ‘in the case of the execution of works considered urgent according to the provisions of this Law’. ( ) Therefore, the Administration need only have its own services, like Tragsa and its subsidiaries, to be able to entrust to them all types of work or works without any other requirement, the only restriction being the quantitative limit that applies if Tragsa involves private parties in the execution of the services. It would then be a possibility, but not an obligation, for the Administration concerned.

17. Finally, I would point out that Tragsa is itself a contracting authority. That is clear from Article 88(7) of Law 66/1997, as amended by Law 53/2002.

B – Further details of Tragsa’s structure and activities

18. In its written observations, the Commission provided a number of details about Tragsa’s structure and activities which shed light on the legal and administrative framework described above, and which may be relevant in assessing and answering the questions referred to the Court.

19. At present, the vast majority of the shares in Tragsa – more than 99% – are held directly or indirectly by the Spanish State. Four Autonomous Communities have an almost symbolic share, which combined accounts for less than 1% of Tragsa’s share capital.

20. Tragsa’s activities have become considerably diversified over time. Apart from the more conventional activities such as designing and constructing infrastructure and other works needed to modernise agricultural production and livestock farming, technologies promoting efficient water use and activities protecting the physical and natural environment as well as the historical and cultural heritage of the countryside have become increasingly important. There are also activities promoting forestry, the protection of fish stocks and fish farming.

21. Tragsa is financed by the payments it receives for its work. In the 2004 financial year, its turnover was EUR 674 million, and its profits after deduction of corporation tax were EUR 22.24 million.

22. More than half the turnover of Tragsa and its subsidiaries ( ) comes from work for the Autonomous Communities. That is logical, because the Autonomous Communities exercise most of the public powers in the areas in which this undertaking operates. Around 30% of turnover comes from the Spanish State Administration, around 5% from other public bodies, including local authorities, and 2 to 3.5% from private undertakings.

23. The Commission asserts that it cannot tell from the figures available what proportion of the total turnover comes from Tragsa’s activities in its capacity as an ‘instrument and technical service’ of the Administration.

24. In order to analyse the questions raised by the Tribunal Supremo more closely, I feel it useful at this stage to make the following points on the basis of the above observations:

In its capacity as an executive organisation for – primarily – the Autonomous Communities, Tragsa, as a legal entity, is almost entirely owned by the Spanish State, which holds more than 99% of its share capital;

As a constitutionally independent executive organisation, Tragsa is entirely subject, when providing services for the General State Administration and the Autonomous Communities, to the orders and instructions given by those administrations in the exercise of their public powers: it is required to accept the work entrusted to it and to carry it out in accordance with the specifications and time periods given and at the tariffs laid down by regulation;

Under the Spanish legislation on public procurement, it is entirely possible for Tragsa to receive contracts from the General State Administration and the Autonomous Communities which have no connection with the exercise of public powers, duties and responsibilities, but which are entrusted to it solely because it is available as a technical service, and which are also carried out by private operators under normal market conditions; ( )

The system of statutory and administrative rules under which Tragsa operates expressly and tacitly allows scope for activities other than those which it carries out as an executive organisation of the General State Administration and the Autonomous Communities. However, the extent of that scope cannot be accurately deduced from the information available, since Tragsa carries out some of its activities through its subsidiaries.

III – Facts, procedure and the questions referred

25. On 23 February 1996 Asemfo lodged a complaint with the Spanish Competition Authority, accusing Tragsa of abusing its dominant position in the Spanish forestry (works, services and projects) market because its public clients did not comply with the award procedures laid down in Ley 13/1995 de Contratos de las Administraciones Públicas (Law 13/1995 on Public Procurement) of 18 May 1995, cited in point 15 above.

According to Asemfo, the constitution governing Tragsa’s operations meant that it could carry out a wide range of works at the direct request of the central or decentralised authorities, without a prior invitation to tender. As a result, competition on the market for services and works in the areas of agriculture and forestry in Spain was eliminated.

26. In a decision of 16 October 1997, the Competition Authority dismissed the complaint. It ruled that in that particular case Tragsa operated as an ‘instrument’ or executive service of the Administration, without any independent decision‑making powers, and was required to carry out the works entrusted to it itself. It was therefore a question of relations between contracting authority and contractor within the State Administration itself, and Tragsa’s operations had nothing to do with the market or the competition law applicable to private and public undertakings.

27. Asemfo lodged an appeal against that decision before the Tribunal de Defensa de Competencia (Competition Court). By judgment of 30 March 1998, that court dismissed the appeal on the same grounds as the Competition Authority. It emphasised that the activities which Tragsa carried out for the relevant authorities were to be seen as works carried out by those authorities themselves. Only when Tragsa acted independently as a public undertaking could there be any question of a breach of competition law.

28. Asemfo then appealed to the Sala de lo Contencioso-Administrativo of the Audiencia Nacional, which confirmed the Competition Court’s decision in a judgment of 26 September 2001.

29. Asemfo finally appealed to the Tribunal Supremo, arguing that Tragsa, in its capacity as a public undertaking, could not be regarded as an ‘instrument’ or executive service of the Administration, to which the Community rules on public procurement did not apply, and that the legal regime applicable to Tragsa, as laid down in Article 88 of Law 66/1997 in particular, was not compatible with Community law.

30. The Tribunal Supremo had a number of doubts about the compatibility of Tragsa’s legal regime with Community law.

31. It therefore felt it desirable to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) Does Article 86(1) EC permit a Member State of the European Union to grant ex lege to a public undertaking a legal status which allows it to execute public works without being subject to the general rules on the award of public contracts by tender, where there are no special circumstances of urgency or public interest, both below and above the financial threshold laid down by the European Directives in this regard?

(2) Is such a legal regime compatible with the provisions of Council Directives 93/36/EEC and 93/37/EEC of 14 June 1993, European Parliament and Council Directive 97/52/EC of 13 October 1997 and Commission Directive 2001/78[/EC] amending the three previous directives – legislation recently recast by European Parliament and Council Directive 2004/18/EC of 31 March 2004?

(3) Are the statements contained in the judgment of the Court of Justice of the European [Communities] of 8 May 2003 in Case C‑349/97 Spain v Commission applicable in any event to Tragsa and its subsidiaries, in the light of the rest of the case-law of the Court regarding public procurement and in view of the fact that the Administration entrusts to Tragsa a large number of works which are not subject to the rules governing free competition, and that this situation might cause considerable distortion of the relevant market?’

A – Procedure before the Court

32. Asemfo, Tragsa, the Spanish Government, the Lithuanian Government and the Commission have submitted written observations. At the hearing on 15 June 2006, Tragsa, the Spanish Government and the Commission provided further information in support of their positions.

IV – Assessment

A – Preliminary remarks

33. Tragsa, the Spanish Government and the Commission have all to some extent challenged the admissibility of the questions referred to the Court for a preliminary ruling.

34. In my view, given the complexity of the factual and legal situation in Spain, it is not possible to examine the doubts raised concerning the relevance of the questions referred and whether they are necessary to the resolution of the dispute in the main proceedings until the substance of the questions has been addressed in the light of the Court’s existing case-law.

35. For that reason, I shall not examine the admissibility of the questions referred until the end of this Opinion.

36. In all the written observations and also at the hearing, detailed consideration was given to the Court’s judgments concerning the applicability of Community law to the award of public contracts for supplies and for the execution of works, ( ) and in the award of concessions by administrations, ( ) in cases where the public authority which is a contracting authority exercises over the contracting entity concerned a control which is similar to that which it exercises over its own departments and that entity carries out the essential part of its activities with the controlling public authority or authorities. ( )

37. As the Commission rightly pointed out at the hearing, those judgments were delivered in cases where the contracting authorities awarded contracts for pecuniary interest for the supply of goods and/or services to entities over which they exercised more or less extensive control and which carried out most or a significant part of their activities with those authorities.

38. However, the factual and legal situation underlying the questions referred in this case differs in two respects from that of the judgment cited in footnote 7 above:

The Spanish State Administration and the Autonomous Communities are Tragsa’s contracting authorities in a strictly hierarchical sense, in that Tragsa cannot refuse the work entrusted to it by the relevant authorities, is wholly bound by the instructions and specifications of those authorities and receives payment for its work which is calculated and determined by regulation. In short, even though its legal personality is governed partly by private and partly by public law, Tragsa has to be characterised as an executive service of the Spanish State Administration and the Autonomous Communities. The contractual element between the contracting authority and the contractor, which always existed in the cases in which the Court delivered the judgments cited above, is entirely absent here; ( )

Although Tragsa currently carries out the essential part of its activities with the Autonomous Communities, the assumption that it is controlled by these territorial entities is problematic, to say the least. Its status under public law is, as is clear from the above summary,( ) entirely or almost entirely determined by Spain’s State legislature, while only 4 of the 17 Autonomous Communities have shares in Tragsa on a symbolic scale, together accounting for less than 1% of the total share capital. It may be inferred from this that, as an executive organisation, Tragsa is indeed at the service of the Autonomous Communities, but not necessarily that it is controlled by them.

39. These differences suggest that the questions referred cannot automatically be answered on the basis of the Court judgments cited, although they may, of course, provide significant guidance for interpreting the relevant rules of law by analogy.

40. Below I shall look first in broad terms at the possible questions of Community law that might arise in a legal and organisational context such as that in the main proceedings.

41. I shall then examine, as far as possible using the Court’s judgments cited above in footnotes 7 and 8, how the questions referred might be answered.

42. I will consider separately the relevance of Article 86(1) EC in the context of those questions.

43. Finally, I will briefly examine the question of admissibility.

B – The legal and organisational context

44. As I said earlier in point 38 above, Tragsa must be characterised as an ‘instrument’ or executive service of Spain’s State Administration and, perhaps, of the Autonomous Communities, and must, both as a result of its legal status and because of its ownership – with over 99% of Tragsa’s shares owned directly or indirectly by the Spanish State Administration – be regarded as an entity entirely under the control of the Spanish State Administration.

45. The vast majority of its activities, as is clear from its statutory remit, concern work associated with structural improvements in Spanish agriculture and forestry, as well as fishing and fish farming. Over time, these activities have come to include environmental protection and work on maintaining the natural and cultural heritage of the countryside.

46. In addition to these ‘regular’ activities, Tragsa is also on standby to be called into action in exceptional circumstances, such as in the event of floods or other similar natural disasters. Tragsa is also sometimes involved in implementing certain sections of the common agricultural policy, as is clear from the Court’s judgment in Spain v Commission. ( )

47. The vast majority of those activities must be regarded as practical work carried out as part of the exercise of public responsibility for agricultural structural development in the broad sense, and for the quality of the rural environment.

48. The nature of those activities and the public objectives pursued mean that they can be carried out both by the Administration’s own services, by entities that are to some extent independent but under public control, and by private entities contracted by the authorities responsible.

49. In principle, the Member States are free to decide how they organise the performance of activities for which they are publicly responsible, although the Court in the judgments cited earlier ruled that authorities may award public contracts and concessions to their own ‘instruments’ without a prior competitive tendering procedure only on strict conditions.

50. As is clear from paragraph 48 of the judgment in Stadt Halle and RPL Lochau, the Court considers that in cases where a public authority which is a contracting authority has the possibility of performing the tasks conferred on it by using its own administrative, technical and other resources, without being obliged to call on outside entities not forming part of its own departments, the Community rules in the field of public procurement do not apply. In such cases, there can be no question of a contract for pecuniary interest concluded with an entity which is legally distinct from the contracting authority.

51. Such a situation appears also to occur in the relationship between the Spanish State Administration and Tragsa. Whether that is also the case in the relationship between the Autonomous Communities and Tragsa, which the Spanish Government and Tragsa appear to take for granted, is one of the questions requiring further analysis at the very least. Can Tragsa automatically be regarded as the Autonomous Communities’ ‘own’ technical or administrative resource, given that they cannot exercise any powers of control over that ‘resource’ under national legislation, nor can they derive such powers from their ownership of shares in it? ( )

52. Whatever the answer to that question may be, the issue of compatibility with primary Community law, and in particular Articles 12 EC, 43 EC and 49 EC, must be assessed. That is, in my opinion, the implication of the recent judgments in Coname and Parking Brixen. ( )

53. However, before I deal with the question whether the Spanish Autonomous Communities, as Tragsa’s principals, exercise actual control over that entity, I must first examine what relevance the answer to that question might have in the light of Articles 12 EC, 43 EC, 49 EC and, if appropriate, 86 EC.

54. It is apparent from what I said in point 47 above that the vast majority of the actual activities which Tragsa carries out for the Spanish State Administration do not include activities for the exercise of the Spanish State’s official authority. The fact that those activities serve objectives of public policy and public responsibility does not in principle distinguish them from activities carried out by private undertakings contracted by the Administration, such as infrastructure construction works.

55. It follows from this that the first sentence of Article 45 EC in conjunction with Article 55 EC is not applicable. ( ) In so far as secondary Community law on public contracts does not apply to them, therefore, the compatibility of Tragsa’s operations with Articles 43 EC, 49 EC and, if appropriate, 86 EC must be assessed. ( )

56. Now, does the fact that the Spanish Autonomous Communities can in the broad sense ‘entrust’ a considerable proportion of their agricultural structural improvement works to an executive organisation of the Spanish State Administration have actual or potential consequences for freedom of establishment and the free movement of services within the Community? ( )

57. The answer to that question clearly appears to be affirmative, since the result of this arrangement is that a large proportion of the activities in question, which might also be allocated to private operators, are thereby reserved for Tragsa as the State Administration’s executive organisation. The market for possible private candidates from elsewhere in the Community is then correspondingly restricted.

58. The fact that the services at issue here are entrusted by one authority (the Autonomous Community) to an executive service (Tragsa) of another authority (the Spanish State Administration), and that not a single element of a contract for pecuniary interest is involved, does not alter the fact that this administrative arrangement has the same effect in economic terms as an arrangement in which one authority entrusts services under contracts for pecuniary interest to an entity which is under the control of another authority.

59. In both arrangements, contracts for the supply of goods, services and public works are removed from competition, with real and potential consequences for the free movement of goods and services and freedom of establishment in the Community market. They should therefore be judged as far as possible by the same measure.

60. The same applies in respect of the requirement that the contracting authority must control the entity or service to which it entrusts works, whether or not by means of a contract for pecuniary interest.

61. In their written and oral statements, Tragsa and the Spanish Government have emphasised above all that Tragsa is an ‘instrument’ serving the Spanish State Administration and the Autonomous Communities. That does not alter the fact that Tragsa is more than just an executive service for the Spanish State and the Autonomous Communities. It also acts as a contractor for local authorities, other public bodies and private parties. In that capacity, it competes with other economic operators in order to win contracts.

62. The proportion of its total turnover accounted for by those contracts varies. Paragraph 34 of the Commission’s written observations suggests that it fluctuates between 7 and 8.5%. Paragraph 96 of Tragsa’s written observations quotes slightly different figures from the Commission’s in that the data for two subsidiaries are given separately. In any event, the figures given by the Commission and Tragsa are roughly of the same order of magnitude.

63. Whether it can automatically be concluded from these figures that Tragsa carries out the essential part of its activities with the public authority that controls it – which is the view taken by the Spanish Government and Tragsa itself – is doubtful.

64. First of all, it cannot be concluded from quantitative data for a small number of years that the proportion of the work carried out on a competitive basis for other public bodies and private parties rather than for the Spanish State Administration and the Autonomous Communities will remain less than 10% of the total turnover. In the legal and administrative regime by which Tragsa is governed, there is, at any rate, no provision limiting the extent of such work.

65. Secondly, there is of course still the question of which authority controls Tragsa. If it were solely the Spanish State Administration, from contracts with which Tragsa generates around 30% of its turnover, it would be difficult to argue that it carries out the essential part of its activities with its controlling authority.

66. However, there is a further complication that is legally relevant, to do with the hybrid nature of Tragsa’s legal personality.

67. If a legal entity carries out the essential part of its activities as the ‘own’ executive service of one or more public authorities and a smaller proportion of its activities on a competitive basis for other public authorities and private clients, the question arises in what capacity it supplies the latter services.

68. Must Tragsa be regarded for the smaller proportion as a legal entity which may be governed by a special constitution, but which competes on the same footing as other private candidates to win contracts from ‘other’ public authorities and private parties?

69. Or does Tragsa not rather remain an executive service of the public authorities with which it carries out the essential part of its activities, making its remaining capacity available on the market and thereby absorbing more of the remaining work on the market in the field of agricultural infrastructure and nature conservation?

70. This question is particularly important in that Tragsa’s statutory constitution does not appear to require a clear distinction to be drawn for legal and accounting purposes between the two capacities in which it can operate, or at least it does not contain any unambiguous safeguards against possible distortions of competition that could arise on the remaining market as a result of Tragsa’s hybrid nature.

71. Thus a situation could arise where private candidates for the type of contracts that Tragsa carries out, which are already excluded from the arrangement in which Tragsa works for the Spanish State Administration and the Autonomous Communities, also miss out on the remaining sub-markets (carrying out work for other public authorities and private parties) because Tragsa starts from an advantageous competitive position as a result of being, if not the only, then at least a privileged candidate on the sizeable closed market for contracts from the State Administration and the Autonomous Communities.

72. The second Teckal criterion, that the entity, concession-holder or independent executive service concerned must carry out the essential part of its activities with its controlling public authority, is therefore not in itself sufficient to prevent real or potential obstacles to the free movement of goods and services and freedom of establishment, or to avoid possible distortion of competition. I shall come back to this later.

73. Finally, a further question arises concerning the provisions of Articles 152 and 194 of the revised text of the Law on Public Procurement. ( )

74. Under those provisions, the Administration may carry out works or produce goods using its own services and its own staff or material resources. If the Administration has appropriate staff and material resources for the purpose, it is as a rule required to do so. If this method of execution is chosen, private undertakings may also be involved without a prior award procedure if the cost of the works in question is lower than a maximum of EUR 5 923 624.

75. Those provisions do not make it a condition that the works in question must be executed or the goods in question produced within the framework of the statutory remit of the executing organisations and services involved.

76. It is naturally for the competent national court to interpret and apply this national legislation. That does not alter the fact, however, that the texts in question appear to create powers and obligations for the administrative authorities in Spain which may conflict with Community law. ( )

77. The provisions of the Spanish legislation in question appear to mean that the various administrative authorities in Spain are freely able, or even in principle required, ( ) to use the capacity of their executive services to carry out works or to provide services for purposes other than the statutory duties of those executive services.

78. Where the execution, provision or production of the works, services or goods in question entails costs lower than the statutory maximum, the relevant services may also have recourse to private companies.

79. Without there being any need to interpret the relevant national legislation more closely, it may be concluded that it allows scope for national sub-markets for public contracts to be extensively protected or even shut off. The extent to which this may occur depends on the capacity which the relevant executive services have available. By increasing their capacity and improving their equipment and staffing, it is very easy to bring sizeable sub-markets for public contracts into the exclusive domain of the executive services of the authorities concerned.

80. The fact that private companies can also be involved in the execution of such contracts without a prior award procedure, provided that the costs associated with those contracts do not exceed a certain maximum, increases that risk still further.

81. The fact that Tragsa is prohibited under Article 88(5) of Law 66/1997 from tendering for public contracts from the Spanish State Administration and the Autonomous Communities does not alter the risks presented by the application of Articles 152 and 194 of the Law on Public Procurement, since the purpose of those provisions is precisely to ensure that public contracts are generally not awarded publicly if they can be executed by departments of the Administration.

82. To summarise, the Spanish legislation in question here, in encouraging the Administration not to place public contracts through public award procedures even when that is not justified by the public interest, raises serious doubts as to its compatibility with the Community directives on public procurement. In addition, it accords a privileged position to the Administration’s own executive services, which may be considered for public contracts that have no connection whatsoever with any legal or statutory duties. Even though they are de jure instruments of the Administration, they are placed de facto in the position of privileged market operators. The question is very much whether such an arrangement is consistent with the principle laid down in Article 86(1) EC, which prohibits such forms of unequal treatment. ( )

83. Finally, with more direct reference to the legal and factual situation underlying the questions referred, the issue also arises whether the very possibility that Tragsa may, under Article 152 of the Spanish Law on Public Procurement, be entrusted to carry out works and supply services outside its own remit has implications for whether this public undertaking is still able to satisfy the second Teckal criterion, which is that it should carry out the essential part of its activities with the public authority that controls it.

C – Answers to the questions

Questions 1 and 2

84. As I observed earlier in points 38 and 44 of this Opinion, the legal and factual situation in the main proceedings is not one in which a contracting public authority awards a contract for pecuniary interest to an independent entity over which the contracting authority exercises a control ‘which is similar to that which it exercises over its own departments’. In the present case, Tragsa, even though it has a separate legal personality, must be regarded as a ‘service’ of the contracting authority. That follows unequivocally from the relevant Spanish legislation.

85. In Stadt Halle and RPL Lochau, ( ) the Court specifically ruled that a public authority which is a contracting authority has the possibility of performing the tasks conferred on it in the public interest by using its own administrative, technical and other resources, without being obliged to call on outside entities not forming part of its own departments. In such a case, there can be no question of a contract for pecuniary interest concluded with an entity legally distinct from the contracting authority. There is therefore no need to apply the Community rules in the field of public procurement.

86. In my view, it is apparent from the statutory regime that applies for Tragsa that it must be regarded as an ‘instrument’ or executive service of the Spanish State Administration, in any event. In so far as Tragsa carries out, as part of its statutory remit, contracts awarded to it by the Spanish State Administration, the Community rules in the field of public procurement do not apply to it.

87. I infer from the Court’s judgments in Coname ( ) and Parking Brixen ( ) that where the relationship between a contracting public authority and an executive service or entity is not governed by the Community rules on public procurement the general provisions of the Treaty, and in particular the provisions on fundamental freedom of movement and competition, remain applicable.

88. Although the Community rules on public procurement do not apply where a public entity performs the tasks conferred on it in the public interest by using its own administrative, technical and other services, without calling on outside entities, if the entity in question exercises a control over those services which is similar to that which it exercises over its other internal departments, and if the services in question also carry out the essential part of their activities with the public entity that controls them. But those two criteria – known as the Teckal criteria – constitute, however, an exception. They must therefore be interpreted strictly and the burden of proving the existence of exceptional circumstances justifying the derogation lies on the person seeking to rely on those circumstances. ( )

89. It is apparent from these somewhat paraphrased considerations in Parking Brixen that it must also be examined whether the Teckal criteria can be invoked in respect of Tragsa. That is a matter for the national court, which will have to investigate the legal and factual situation in which Tragsa operates. The Court can provide it with the necessary information which might help it to resolve the dispute in the main proceedings.

90. On second viewing, there is no doubt that the relationship between the Spanish State Administration and the Autonomous Communities on the one hand and Tragsa on the other satisfies the first Teckal criterion:

All of the shares in Tragsa are owned directly or indirectly by the Spanish State and the Autonomous Communities, albeit that only four regions hold shares on a symbolic scale;

Furthermore, the legal framework within which Tragsa operates as an executive service of the Spanish State Administration and the Autonomous Communities for the purpose of agricultural structural policy in the broad sense appears to indicate conclusively that it is operating in that capacity as an ‘instrument’ of the public authorities concerned. I refer here in particular to my description of the legal framework in points 4 to 9 of this Opinion.

91. In its more recent judgments, the Court has defined the first Teckal criterion in greater detail, so that in exercising a control ‘similar to that which it exercises over its own departments’ it must be a case of ‘a power of decisive influence over both strategic objectives and significant decisions of that company’. ( )

92. This more detailed criterion applies not just to the relationship between one public authority and its ‘own’ executive service, but also where different public authorities, whether or not acting together, have a joint executive service. ( )

93. It is not unusual for a number of public authorities to establish, for the execution of certain public tasks such as sewage treatment, a partnership which is responsible for managing a joint executive service. Where that joint executive service is constituted in the form of a separate company, the authorities concerned can exercise their ‘decisive influence over both strategic objectives and significant decisions of that company’ as shareholders and through representation on the company’s board of directors. ( )

94. Where the executive organisation is constituted as an ‘instrument’ of the public authorities in the partnership, then by analogy with the requirements applied to control over a ‘shared’ independent entity for the execution of public tasks, the control they exercise must be such as to ensure that all the public authorities involved have ‘influence over both strategic objectives and significant decisions’ of that entity.

95. In fact, while they cannot influence the strategy and management of their own joint service, nor can the public authorities involved be called to account for their responsibility for that service’s actions either. The same also applies to their responsibility for proper compliance with Community law.

96. The Commission is also right when it argues that arrangements in which a number of public authorities use an executive service that is constituted, in terms of power of influence over it, as the ‘instrument’ of just one of them are open to abuse. They can mean that public authorities call on – or are invited to call on – an existing executive service of another public authority to execute works and supply services for which they would otherwise have held a public award procedure. As I described in points 57 to 59 above, this can result in substantial sub-markets being removed from the operation of primary and secondary Community law on public procurement.

97. That leads me to conclude, provisionally, that in cases where an executive service acts as an ‘instrument’ for various public authorities, the statutory regime that applies to it must ensure that all the contracting public authorities have effective influence over its strategic objectives and significant decisions. It must also specify for the exercise of precisely which public responsibilities the public authorities in question can award contracts to the joint executive service as an ‘instrument’.

This is in order to restrict as far as possible the risk of abuse described in the previous point. ( )

98. From the description of Tragsa’s statutory regime in points 4 to 9 above, it appears to be governed entirely or almost entirely by the laws and regulations of the Spanish State Administration. The tariffs for the work which Tragsa carries out for the State Administration and the Autonomous Communities are also laid down by and come under the responsibility of the State Administration. The Autonomous Communities do not appear to have any direct influence. It is true, as Tragsa and the Spanish Government have stressed, that the Autonomous Communities can bring their influence to bear through their contracts, but such control over the design and execution of individual works and projects – which is inherent in any contract which a public authority awards to one of its own services or to an external entity – is not the control intended by the Court when it refers to ‘decisive influence over both the strategic objectives and significant decisions’ of, in this case, the Autonomous Communities’ ‘own’ executive service.

99. I would also point out, for the sake of completeness, that the lack of influence which the Autonomous Communities have on and under Tragsa’s statutory regime is by no means compensated for by the influence that they might bring to bear as shareholders in the company, given that only a small minority of the Autonomous Communities have a merely symbolic shareholding in Tragsa.

100. The fact that the statutory regime which governs Tragsa’s operations does not give a clear, restrictive definition of the areas in which the Autonomous Communities can give Tragsa work – the general legislation on award procedures in Spain discussed in points 73 to 83 above is relevant here – is a further indication that Tragsa cannot be regarded as a joint executive service for the execution of restrictively defined works and services in the public interest. I have already described earlier the risks of abuse which such an open arrangement entails.

101. I therefore reach the conclusion that, operating under a statutory regime such as that in force, Tragsa cannot be regarded as an ‘instrument’ of the Autonomous Communities because they cannot exercise any control over Tragsa’s strategic and other significant decisions.

102. Since Tragsa cannot be regarded as an instrument of the Autonomous Communities, the obvious implication is that it is wrong that the contracts given to Tragsa by the Autonomous Communities should not be subject to a public award procedure.

103. The situation is, in principle, different for the tasks entrusted to Tragsa by the Spanish State Administration, of which it can indeed be regarded as an instrument.

104. It is apparent from the analysis of the legal framework within which Tragsa operates in points 61 to 65 of this Opinion that that legal framework does not fulfil the requirements of the second Teckal criterion either.

105. The Court ruled in Carbotermo and Consorzio Alisei ( ) that the requirement that the local authority must exercise over the person in question a control similar to that which it exercises over its own departments and that person must carry out the essential part of its activities with the controlling authority or authorities is aimed precisely at preventing distortions of competition.

106. Only where the person controlled carries out the essential part of its activities with the controlling authority or authorities alone can it be justified that that undertaking is not subject to the restrictions of the directives on public procurement, since they are in place to preserve a state of competition which, in that case, no longer has any raison d’être.

107. That implies that the person concerned can be viewed as carrying out the essential part of its activities with the controlling authority within the meaning of Teckal only if that undertaking’s activities are devoted principally to that authority and any other activities are only of marginal significance.

108. I have established in points 61 to 65 above that Tragsa’s activities with public authorities other than the Spanish State Administration and the Autonomous Communities and with private companies have accounted for between 7 and 8.5% of its total turnover in the last three years, and that the legal regime governing it does not place any restrictions on the scale of those activities.

109. Furthermore, if my argument that the Autonomous Communities cannot be regarded as controlling authorities in respect of Tragsa is followed, it must then be concluded that the requirement that the essential part of the activities must be carried out with the controlling authority is not satisfied, given that the activities with the Autonomous Communities account for more than 50% of Tragsa’s total turnover.

110. The condition that the essential part of the activities must be carried out with the controlling authority is a necessary requirement in order to prevent distortion of competition on the Community market, as the Court recently emphasised in Carbotermo and Consorzio Alisei. ( ) However, that condition is not sufficient.

111. Even if Tragsa did carry out the vast majority of its activities with the authority or authorities which control it, it would still be possible for it seriously to distort competition on sub-markets with its remaining activities. As I have already pointed out in points 66 to 72 above, as long as those activities are not kept completely separate in the organisation of this executive service, both for financial and accounting purposes and in terms of personnel and material resources, from the activities which it carries out as an executive service of one or more public authorities, it is in a position to use the advantages that it derives from its public status in competition with other operators in other sub-markets that are still open.

112. It is Tragsa’s hybrid nature as part internal executive service working for its controlling authority or the public authorities, and part entity competing for work from other public bodies such as local authorities and from private parties and companies, that makes a more detailed assessment of compatibility with Article 86(1) EC necessary.

113. In accordance with that provision, in the case of public undertakings Member States are neither to enact nor to maintain in force any measure contrary to the rules contained in the Treaty, in particular to those rules provided for in Article 12 EC and Articles 81 EC to 89 EC.

114. Now, if an internal executive service of a public authority seeks work on open sub-markets without adequate and transparent measures being taken to prevent any financial material advantages which that service derives from the fact that it carries out the essential part of its activities as an executive organisation of a public authority from being exploited in the competition on those open sub-markets, then the specific requirements of Article 86(1) EC are not satisfied.

115. That failure to take measures is contrary to Articles 43 EC and 49 EC in particular, since executive services of public authorities which also operate on open national markets can make it more difficult for potential candidates from other Member States to access those markets. ( )

116. The risks which arise, in the light of the prohibition of State aid, from the absence of transparent financial or accounting relations between the State or other public authorities, on the one hand, and public undertakings and companies, on the other, have in the past led the Commission to introduce rules on the basis of Article 86(3) EC. ( )

In the legal and factual situation that lies at the heart of the main proceedings, those risks are at least just as great. The absence of any specific safeguards in the legal regime that applies to Tragsa against open or covert forms of cross-financing between its activities as an executive service of the Administration and as an operator on open sub-markets therefore conflicts with Article 86(1) EC in conjunction with Articles 87 EC and 88 EC.

117. In points 78 to 83 above, I have examined in detail the risks which the application of provisions such as Articles 152 and 194 of the Spanish Law on Public Procurement may present for the sound operation of Community law on public procurement and for the fundamental freedoms of movement and the state of competition on the Community market.

118. Those risks lie in the fact that, if executive services as ‘instruments’ or independent entities which are fully controlled by the contracting authorities can also obtain, outside the scope of the competences or field of work laid down in their legal, administrative or private law constitutional regime, contracts from the administrations responsible for them for the provision of services, execution of works or production of goods, simply because they are available, the useful effect of the Community directives on public procurement may be seriously undermined or, where those directives are not applicable, serious obstacles may arise to the movement of goods and services between States and to freedom of establishment, and competition between those executive services or publicly controlled entities and private undertakings on the relevant markets may be seriously distorted. There is only one exception: where compelling public interest requirements provide justification for awarding work directly to an own executive organisation even if that work lies outside its legal or constitutional remit. Examples here would include natural disasters and similar exceptional circumstances, which may require the immediate involvement of all the resources which an administration has available.

119. It is precisely those consequences which the Court sought to prevent with the second Teckal criterion. If that criterion is to be effective, it must be interpreted in such a way that it also prohibits the award to ‘own’ executive services or publicly controlled entities of public contracts which lie outside their legal, administrative or constitutional remit.

120. Furthermore, the referring court has, in my view rightly, questioned the compatibility of provisions such as those of Articles 152 and 194 of the current Spanish Law on Public Procurement with Community competition law.

121. Such provisions clearly create a privileged position for own executive services or publicly controlled entities – acting as market operators outside their legal, administrative or constitutional remit – in the award of public contracts, and thus conflict with the provisions of Article 86(1) EC.

Question 3

122. The purpose of the Tribunal Supremo’s third question is obviously to determine whether the Court’s judgment in Spain v Commission ( ) has implications for the assessment of Tragsa’s legal position in the award of public contracts.

123. In that judgment, the Court concluded that an organisation such as Tragsa, which, despite its financial and accounting autonomy, is entirely subject to Spanish State control, must be regarded as one of the national administration’s own official departments within the meaning of the first subparagraph of Article 3(5) of Council Regulation (EEC) No 154/75 of 21 January 1975 on the establishment of a register of olive cultivation in the Member States producing olive oil (OJ 1975 L 19, p. 1).

124. As the Commission has rightly observed, that judgment of the Court concerns Tragsa’s activities on behalf of the Spanish State in establishing a register of olive cultivation.

125. In answer to the Spanish Government’s assertion that for the establishment of that register Tragsa, as an independent entity, had been given a private contract because of the requirements of confidentiality which such an activity had to satisfy, the Court ruled that Tragsa had to be regarded as an own executive organisation forming part of the Administration, to which the case-law developed in Teckal ( ) and ARGE ( ) applied in principle. The Court took the view that this was confirmed by Article 88(4) of Law 66/1997, ( ) in which it is established that Tragsa is required, as an instrument and technical service of the Administration, to carry out, either itself or using its subsidiaries, to the exclusion of third parties, any work entrusted to it by the General Administration of the State, the Autonomous Communities and the public bodies subject to them. ( )

126. I would point out here that the judgment in Spain v Commission primarily concerned whether the Kingdom of Spain was allowed to entrust to Tragsa the establishment of the olive cultivation register without a public award procedure.

127. The Court was not required on that occasion to consider questions such as those referred in the present case. For that reason, that judgment cannot be interpreted as meaning that Tragsa, as an executive service in the field of agricultural structural policy in the broad sense, must be regarded as an instrument of the General Spanish State Administration. That is consistent with my finding in point 103 of this Opinion.

D – Admissibility

128. In the analysis of the Tribunal Supremo’s first two questions, it emerged that both the legal regime under which Tragsa operates as an ‘instrument’ for, among others, the Autonomous Communities, the authority which that entity has to carry out work for public authorities other than the State Administration and the Autonomous Communities and for private parties and companies, and the rules contained in Articles 152 and 194 of the current Spanish Law may be criticised as being incompatible with the criteria which the Court formulated in paragraph 50 of the judgment in Teckal.

129. That incompatibility has legal implications concerning the applicability of Community directives on public procurement, the supply of services and the execution of works. It may also lead to conflict with Articles 43 EC, 49 EC and 86 EC.

130. The criticism spelled out above is also implied in the form of doubts in the order for reference.

131. The Tribunal Supremo makes its doubts particularly clear in paragraph ‘Four’ of the order for reference.

132. I am sure that the Court’s answers to the questions referred will, in the light of the doubts expressed, provide the referring court with useful guidance for its decision in the main proceedings.

133. The arguments put forward by Tragsa and the Spanish Government that the legal questions raised by the referring court in its order for reference are ‘new’, not relevant in an appeals procedure and therefore hypothetical and inadmissible are not at all convincing, in my view.

134. Firstly, the Court is usually extremely cautious in assessing the purpose and usefulness of the questions referred to it by the national courts in order to reach a decision in the main proceedings. Only where the questions are manifestly hypothetical in nature does the Court deem them inadmissible. ( )

135. From the description of the proceedings before various administrative and judicial authorities in Spain, it appears that the legal regime under which Tragsa operates has always been held to be compatible with the principles of national competition law. The fact that the Tribunal Supremo has also chosen to take account of the principles of Community law on public procurement and competition law is a step which does not in itself in any way render the resulting questions hypothetical.

136. Whether the Tribunal Supremo was authorised under Spanish law to take that step in the proceedings before it is a question which the Tribunal itself, as the highest national court in the present case, must and can answer. ( )

137. Nor can I agree with the Commission’s view that the factual and legal information provided in the order for reference is too concise. As has been made clear earlier, it provides sufficient information for a detailed analysis of the questions referred.

138. I have therefore come to the conclusion that the Tribunal Supremo’s questions are admissible.

V – Conclusion

139. On the basis of the foregoing findings, I propose that the Court give the following answers to the questions referred by the Tribunal Supremo:

– The Community directives on public contracts for the provision of goods and services and the execution of works do not, in principle, apply to a legal person governed by private law, such as Empresa de Transformación Agraria SA (Tragsa), which under its legal regime must be regarded as an ‘instrument’ of the administration which is required to carry out the work it is given by the relevant public authorities without contracts for pecuniary interest.

– The national rules of law on the subject must ensure that the relevant national authorities control the entity concerned, in the sense that they have a decisive influence over both its strategic objectives and its significant decisions, and ensure that the entity at the same time carries out the essential part of its activities with the public authorities which control it, so that any other activity is marginal.

– The requirement that the relevant public authorities must be able to have a decisive influence over both the entity’s strategic objectives and its significant decisions is not satisfied where the public authorities which use the entity as an executive service do not have a direct influence on the content of the legal regime that applies to it, or on the tariffs it may charge for its activities, and further as shareholders in the entity cannot exercise any decisive influence on its decisions.

– The requirement that the entity must carry out the essential part of its activities with the authorities that control it is not satisfied where the legal regime does not restrict the scale of the other activities so that they remain marginal.

– It follows from Article 86(1) EC that an entity which, for the essential part of its activities, acts as an executive service of the relevant public authorities must separate the activities which it carries out for other public authorities and for private persons in a transparent manner, both in terms of organisation and for financial and accounting purposes, from its activities as an instrument of the relevant public authorities.

– It follows from the same provision of the EC Treaty that national administrations may not entrust to a legal person operating as their own executive service contracts for the supply of goods and services or the execution of works, where those contracts have no connection with their public responsibilities or where the performance of those contracts falls outside the statutory remit of the legal person in question. The only exception is where there is objective justification for such work, such as in the case of natural disasters or similar exceptional circumstances.

– The national court must examine whether those conditions are satisfied in the legal and factual situation in the main proceedings.