EN Official Journal of the European Union L 300/1

EFTA SURVEILLANCE AUTHORITY DECISION

No 390/09/COL

of 7 October 2009

on the establishment of Mesta AS (Norway)

THE EFTA SURVEILLANCE AUTHORITY (1),

HAVING REGARD to the Agreement on the European Economic Area (2), in particular to Articles 61 to 63 and Protocol 26 thereof,

HAVING REGARD to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (3), in particular to Article 24 thereof,

HAVING REGARD to Article 1(2) of Part I and Articles 4(4), 6 and 7(3) of Part II of Protocol 3 to the Surveillance and Court Agreement (4),

HAVING REGARD to the Authority’s Guidelines on the application and interpretation of Articles 61 and 62 of the EEA Agreement (5), in particular the section on State aid in the form of public service compensation,

HAVING REGARD to the Authority’s Decision of 14 July 2004 on the implementing provisions referred to under Article 27 of Part II of Protocol 3 (6),

HAVING CALLED on interested parties to submit their comments pursuant to those provisions (7) and having regard to their comments,

WHEREAS:

I. FACTS

1. PROCEDURE

By letter dated 30 August 2004 the Authority received a complaint against the Norwegian authorities in relation to the establishment of Mesta AS which was created to take over the production activities carried out within the Public Road Administration in Norway (8). The letter was received and registered by the Authority on 2 September 2004 (Event No 291537).

Following various exchanges of correspondence (9), the Authority informed the Norwegian authorities by letter dated 18 July 2007 that it had adopted Decision No 350/07/COL to initiate the procedure laid down in Article 1(2) of Part I of Protocol 3 to the Surveillance and Court Agreement in respect of measures taken in the context of establishing Mesta AS (the ‘Opening Decision’).

By letter submitted on 7 December 2007 the Norwegian authorities forwarded comments (Event No: 456844). The Opening Decision was published in the Official Journal of the European Union and the EEA Supplement thereto and called on interested parties to submit their comments (10). The Authority received comments from four interested parties on 29 January as well as on 4, 21 and 27 February 2008 (Event Nos: 461463, 463234, 466015 and 467170). Additional comments were received on 4 April 2008 (Event No: 472381). By letters submitted on 21 February and 7 April 2008 (Event Nos: 463245 and 472529) the Authority forwarded these to the Norwegian authorities which were given the opportunity to react. By letter dated 23 May 2008 (Event No: 478082) the Norwegian authorities submitted comments.

During the autumn of 2008 and spring of 2009, the Authority and the Norwegian authorities have had informal contact via both telephone and electronic mail regarding the case. Information received by the Authority in this context has been consolidated by the Norwegian authorities in a letter submitted electronically on 6 July 2009 by the Ministry of Government Administration and Reform (Event no: 523766) (11).

2. BACKGROUND FOR THE EXISTENCE OF THE ALLEGED AID

2.1. THE COMPLAINT ALLEGING THE INVOLVEMENT OF STATE AID

The Public Road Administration in Norway is in charge of the construction and maintenance of national and county municipality roads, bridges and tunnels. Prior to 1 January 2003 the Norwegian Road Administration operated in-house production departments (hereinafter collectively referred to as ‘the Production Department’) via district offices which carried out the construction work on behalf of the Public Road Administration. However, in 2001–2002 the Norwegian authorities decided to carry out an overall restructuring of the in-house production activities. In this regard the Government proposed that the Parliament should separate the production activities from the Public Road Administration and transfer them to a limited liability company owned by the State (12). The administrative functions consisting of planning future construction activities, including the organisation of public tenders, remained within the state administration.

As a result, on 1 January 2003, the production activities of the Production Department within the Public Road Administration was separated from the State and transferred to a newly established company, Mesta AS. All assets, rights and obligations pertaining to the Production Department were transferred to Mesta AS as contributions in kind (13). The assets included machinery and equipment as well as service contracts entered into between the Production Department and the Public Road Administration. In return the State received shares in the new company. Currently, Mesta AS carries out construction and maintenance activities in competition with other operators active on this market.

The complainant has argued that Mesta AS has received State aid contrary to Article 61(1) of the EEA Agreement on four accounts: (i) the State has financed the restructuring costs; (ii) the fixed assets transferred to Mesta AS have been assessed at below market value in the opening balance; (iii) Mesta AS has been cross-subsidized as a result of the takeover by the company of the Production Department’s previous contract portfolio; and (iv) Mesta AS has not paid document and registration duties normally falling due in the case of transfer of ownership of real estate.

The following describes the facts relevant for assessing whether each of these alleged measures involve State aid.

2.2. RESTRUCTURING AND OTHER REORGANISATION MEASURES

It appears from preparatory legislative work that about 4 750 of all employees (totalling approximately 5 000) previously employed in the Production Department were to be transferred to the newly established company, Mesta AS (14). Upon transfer to Mesta AS, the employees would loose their status as civil servants. As the employees were entitled to refuse such a transfer it was necessary to give incentives to employees in order to encourage them to accept the transfer (15). In addition, in order to ensure the establishment of a commercially viable company it was necessary to reduce the workforce by approximately 1 700 to approximately 3 050 (16).

The preparatory legislative work sets out different ‘restructuring’ measures foreseen by the Norwegian authorities. Four measures consisted of (i) temporary maintenance of civil servant pension rights (17); (ii) maintenance of the right to a special retirement age (18); (iii) early pension packages; and various other measures involving (iv) moving, commuting, maintenance of salary and renovation of machines (19). These are referred to as the ‘restructuring measures’ and are financed by direct grants. Initially a further cost item (v) compensation for salary, was foreseen to be financed through direct funding (20). However, immediately prior to fixing the opening balance of Mesta AS the Norwegian authorities decided that the relevant costs should instead be covered by a capital contribution to Mesta AS in the form of equity.

The total cost of the four restructuring measures financed by a direct grant was initially estimated at NOK 1 468 million (discounted to present values) and foreseen to be reimbursed by the State to Mesta AS in instalments over a three-year period from 2003 to 2005 (21). These restructuring costs were not included in the opening balance of Mesta AS since the restructuring costs were to be funded by the State via the State budget for the three years of 2003, 2004 and 2005 (22).

It appears from the State budget for 2006 that Mesta AS has received a total of NOK 993,6 million from the State to cover restructuring costs (23). By 30 June 2008 Mesta AS had spent NOK 879,6 million of this amount while total restructuring costs were estimated to amount to NOK 1 097,8 million (until the year of 2013) (24). The Norwegian authorities have explained that although it was initially foreseen that the State should cover all restructuring costs (implying that if the original estimate of the restructuring costs of NOK 1 468 million would be insufficient the State would grant additional funds), the State budgets for 2007 and 2008 make it clear that Mesta AS will not be granted further restructuring funds than the amount already received of NOK 993,6 million (25).

The Norwegian authorities have explained that although very unlikely, if, at the end of the period, the restructuring costs should turn out to be less than the amount received by Mesta AS, the surplus amount must be repaid to the State.

In terms of regulation, the Norwegian authorities adopted an Act on the transformation of the production activities of the Public Road Administration to a State owned limited liability company which regulates some of the rights of employees who were transferred from the Public Road Administration for employment in Mesta AS (hereafter referred to as the ‘Mesta Act’) (26).

2.2.1. General

The Norwegian authorities have explained that the main challenge with respect to transferring employees from Production Department to Mesta AS was to enable the new company to operate on terms similar to that of its competitors and thereby create a level playing field. The Norwegian authorities decided to transfer the work force to Mesta AS and let Mesta AS (as opposed to the Road Administration) be in charge of implementing the measures involved in the transfer and reduction of the work force. These issues and their resolution formed part of and were a pre-requisite for the liberalisation and opening of the national road network market. The Norwegian State would not have opened this market without being able to establish a new company with sufficient staff. The Norwegian authorities have explained that this formed the background for the State’s negotiations with the trade unions on the transfer of employees from the Production Department to Mesta AS. The negotiations resulted in an ‘understanding’ between the parties on 4 June 2002 on a temporary continuation of certain civil servant rights and the possibility to offer measures, such as early pension, aimed at reducing the work force (27). The specific elements of this understanding are set out in the sub-sections below (28).

Prior to 1 January 2003 an interim board of directors of Mesta AS (the ‘Interim Board’) was established to represent the future company. The Norwegian authorities have explained that the Interim Board was not a party to any of the negotiations regarding the employees. However, the right to compensation for salary was included in the Mesta Act (29). By contrast, there was no law or other legal instrument regulating other civil servant rights.

Prior to describing the terms of the understanding it is useful to briefly outline the status of the employees in the Production Department prior to their transfer to Mesta AS: The Norwegian authorities have explained that the employees in the Production Department were employed by the State. It follows from Norwegian law that State employees hold the status of civil servants (30) and that for such employees membership of the State pension fund (‘Statens pensjonskasse’ or ‘SPK’) is mandatory (31). Hence membership of the SPK ensures civil servants pension rights. Furthermore, on the basis of a law setting out the terms on the right to a special (early) retirement age for civil servants, certain of the civil servants in the Production Department (such as chauffeurs and cooks) had the right to retire at a specific (early) age (32).

Since civil servant status is linked to State employment, employees transferred to Mesta AS ceased to be civil servants on 1 January 2003. If the employment measures at issue had not been adopted those employees would have lost the rights linked to their civil servant status (33). The Norwegian authorities have explained that under Norwegian law the transfer of the Production Department to Mesta AS qualifies as a ‘business transfer’ (34). With reference to the rules on the transfer of undertakings, the employment contracts of transferred employees were transferred to the new company, except with respect to pension rights (35). As the new employer did not form part of the State, the Norwegian authorities have explained that the civil servants employed in the Production Department were entitled to refuse transfer to Mesta AS. However, by refusing a transfer they would run the risk of being dismissed according to the generally applicable rules for civil servants unless another suitable position could be found: in such circumstances civil servants have a right of priority to vacant positions within the state administration (but not to compensation for salary) (36).

While employees could therefore choose to remain in State employment, transfer of the employees of the Production Department to the new entity (Mesta AS) was a prerequisite in order for the liberalisation to take place at all. In that light the Norwegian authorities had to offer the employees additional incentives to encourage them to agree freely to the transfer.

(i) Temporary maintenance of civil servant pension rights

As described above, the employees of the Public Road Administration had the status of a civil servant but lost this status upon their transfer to Mesta AS. Nonetheless, based on the above-mentioned understanding between the trade unions and the State, the employees were to benefit from maintaining civil servant pension rights during a transitional period of five years (i.e. from 1 January 2003 to the end of 2007). The State funding awarded to Mesta AS is intended to cover the additional costs for purposes of ensuring that employees would be guaranteed pension contributions equal to that of civil servants during the relevant period (37).

As stated above, membership of the SPK ensures pension rights of civil servants and the costs relating to such rights are paid into SPK. Therefore, in order to ensure the five-year transitional regime the membership of the SPK for the employees was maintained. Furthermore, in order to enable Mesta AS to pay contributions in respect of its employees Mesta AS applied for, and was granted, membership in SPK (38).

The State funding to Mesta AS is limited to the difference between the average costs of an ordinary private pension scheme and the (higher) costs of maintenance of membership in the SPK. While the original cost estimate was about NOK 395 million (39), the Norwegian authorities have stated that by 30 June 2007 accrued costs amounted to NOK 277,3 million (excluding administration costs) (40).

(ii) Maintenance of the right to a special retirement age

As referred to above, certain of the civil servants who were transferred to Mesta AS were entitled to retire at an earlier age (i.e., at 65 years) than the normal retirement age of 67 years. Under the terms of the understanding between the trade unions and the State, the employees in the Production Department, who at the time of the establishment of Mesta AS (i.e., on 1 January 2003) had 10 years or less left before retirement (that is, those who were 55 years or older), were granted the right to maintain their special retirement age of 65 years (41). This arrangement was made possible by the fact that the employees were still members of SPK as described above.

The State funding to Mesta AS covers the difference between the average costs of an ordinary pension scheme and the costs of maintaining the special retirement age. While the original cost estimate was about NOK 85 million (42) (including administration costs representing about 5 % of the total amount) total costs accrued by 30 June 2007 were NOK 26,5 million (excluding administration costs) (43).

(iii) Early pension packages

The understanding between the trade unions and the State also states that during a three year period (as of 1 January 2003 until the end of 2005) Mesta AS could offer employees, transferred from the Production Department, an arrangement according to which they would be able to retire with pension at the age of 60 rather than the normal retirement age of 67 years (44). Early pension could be offered at the discretion of the company based on an individual assessment of employees (45).

The State funding to Mesta AS covers the difference between the average costs of an ordinary private pension scheme and the costs of offering early pension. In legislative preparatory works the State funded costs of offering early pension arrangements (including administration costs representing about 5 % of total costs) were estimated to amount to NOK 911 million (46). The Norwegian authorities have explained that about 470 employees made use of this arrangement and by 30 June 2007 the total costs accrued were NOK 691,9 million (excluding administration costs) (47).

(iv) Moving, commuting, maintenance of salary and renovation of machines

According to preparatory budgetary documents, this cost item covers costs for purposes of moving (‘flyttekostnader’); commuting (‘pendlergodtgjørelse’); maintenance of salary (‘bibehold av lønn’); and renovation of machines (‘maskiner–sanering’) (48). The Norwegian authorities have explained that it also involves costs related to moving offices (‘kontor–flyttekostnader’); moving maintenance and support offices (‘støttepunkter–flyttekostnader’); and transfer of archives (‘arkivoverføring’).

With the exception of the measure relating to maintenance of salary (which has not been put into effect and hence did not incur any costs) all measures were carried out at the time of the establishment of Mesta AS and lasted until the end of 2005. While the total costs pertaining to all measures were originally estimated to amount to NOK 77 million (49), the Norwegian authorities have explained that, per January 2006, total costs accrued amounted to approximately NOK 82,4 million (excluding administration costs). The State paid for the costs (50).

This item includes costs incurred in relation to relocating leading or administrative personnel in order to take up employment at Mesta AS. As the personnel took up positions in different locations within Mesta AS than those where such personnel previously worked within the Public Road Administration, certain employees had to move domiciles to take up their new employment. Examples of costs include actual, documented moving costs (‘faktiske, legitimerte kostnader ved boligkjøp’), paid absence for purposes of moving (‘flyttepermisjon’) and travel costs in relation to inspections of new property (‘visningsreise’).

This item also covers costs considered necessary to ensure that leading or administrative personnel took up employment within Mesta AS at premises far away from their domicile. Examples of costs include commuting costs between the domicile and work (‘hjemreise’), costs for double rent (‘Dekning av husleie’) (51) driving allowance between domicile and work (‘kjøregodtgjørelse’) and board allowance (‘kostgodtgjørelse’).

This item involves costs for moving from the offices of the Public Road Administration to the central headquarters and regional offices of Mesta AS. Examples of costs are cleaning out of old offices (‘Rydding og rengjøring av gamle kontorer’); packing office material up (52) and transporting it to the new offices (‘Pakking og transport’); preparation, furnishing and upgrading of new offices at Mesta AS (‘Klargjøring, innredning og oppgradering av nye kontorer’); as well as costs for the administration of moving activities (‘administrasjon av flyttning’).

This item includes costs for purposes of moving from old offices to new local maintenance and support offices as well as reorganising former operation and support offices into new operation and support offices for Mesta AS. It includes the establishment of a new IT system which was necessitated by the fact that the Production Department had shared an IT system with other departments within the Public Road Administration. Specific examples of costs are cleaning up of old operation and maintenance support offices (‘rydding og rengjøring av gamle driftsstøttepunkt’), packing office material up and transporting it to the new offices (‘pakking og transport’), preparation, furnishing and upgrading of new operation and maintenance support offices (‘Klargjøring, innredning og oppgradering av driftsstøttepunkt’) and administration of moving activities (‘administrasjon av flytting’).

This item includes costs for purposes of installing electronic and physical archives in Mesta AS. It covers the costs involved in separating relevant archives from other irrelevant archives within the Public Road Administration as well as the costs related to the establishment of new archives in Mesta AS. Examples of costs included are the costs for assessing the extent of necessary resources for each archive (‘Ressursbehov pr. arkiv’), photocopying (‘kopiering’), transport (‘frakt’), preparation (‘klargjøring’) and quality assurance work (‘kvalitetssikring og sikkerhetsarbeid’).

Although this cost item would suggest that it covers costs related to repairing or renovating machines this is not the case. The authorities have explained that prior to the reform, the Production Department had carried out works in which context machinery and other equipment had been left at the building and restoration sites (53). Hence this cost item consisted of the residual liability of previous work contracts and involved cleaning up of sites (‘opprydding’) and removing, scrapping and transporting unnecessary machinery (‘fjerning, skroting, og fraktkostnader’). The machines to be removed were old, wrecked, and not of any use for the business and did therefore not form part of any value assessment of the machines (or the business as a whole) (54). The Norwegian authorities have explained that Mesta AS assigned part of the work to sub contractors on commercial terms. The other part of the work was carried out by Mesta AS itself at an hourly cost based rate (exclusive of profit margin) which was therefore lower than the market rate for similar work at the time (55). The Norwegian authorities have submitted documentation listing bills from sub contractors and the prices charged by Mesta AS itself (56).

(v) Compensation for salary

The cost item of compensation for salary (‘ventelønn’) does not form part of what the Norwegian authorities would refer to as ‘restructuring costs’. Nonetheless the compensation for salary formed part of the incentives offered to encourage employees to transfer to Mesta AS. It should be viewed in the light of the need to reduce the size of the work force.

While the employees transferred from the Production Department lost their civil servant status, certain specific rights derived from this status were nonetheless maintained for a limited period. Certain of these rights are regulated in the Mesta Act (57). Section 4 of the Mesta Act provides that during a period of three years after commencing employment in Mesta AS on 1 January 2003 employees who are subsequently dismissed and meet certain conditions (for example minimum employment of one year) have the right to be offered an appropriate position within the state administration (‘fortrinnsrett til annen statlig stilling’) or, if a position cannot be offered, the right to receive compensation for salary (‘ventelønn’).

Compensation for salary is regulated by the Act on civil servants (58). It is an arrangement whereby civil servants who have been given notice for reasons of redundancy and who have not been offered another suitable job will (subject to the conditions and time limitations set out in the Act) be entitled to 2/3 of the salary as of the date on which notice was given.

Although the costs relating to compensation for salary initially formed part of the restructuring costs the Ministry of Labour later decided that the estimated costs should rather be taken into account when identifying the size of the equity of Mesta AS. In other words, the means to finance the relevant costs would be injected by the State in Mesta AS as equity (59). The rationale for this approach was that funding through equity should result in a more careful use of dismissals as a reorganisation tool in the new company. Instead, more use should be made of other (cheaper) reorganisation instruments, such as leave of absence with reduced pay and pension packages etc.

While it was originally foreseen that 450 employees would be covered by the compensation for salary scheme with total costs of about NOK 512 million (60), this estimate was updated in October 2002 and changed to 150 employees with total costs of approximately NOK 150 million (61). Hence, it was the latter amount which was taken into account when determining the equity of Mesta AS.

In order to keep costs down Mesta AS made use of the following (cheaper) alternative workforce reducing instruments (62). Nonetheless, the Norwegian authorities have explained that the combined costs for such measures and compensation for salary total NOK 359 million (of which NOK 255,1 million had been spent by 21 December 2008) and exceeds therefore by far the amount injected to cover such costs:

Termination packages which is an arrangement according to which employees terminate employment without benefiting from compensation for salary in return for receiving up to a years salary as well as financial assistance to find other employment.

Pension packages is an arrangement whereby employees at the age of 62 will terminate employment in return for being guaranteed 66 % of the salary until the retirement age at 67 years and the right to continue to earn normal pension rights during this period.

Leave of absence with reduced salary is an arrangement to induce employees who would acquire the right to receive early pension (at the age of 60) between 2003 and 2005 to terminate before by offering such employees to terminate immediately in return for paying them 66 % of the salary up to the point in time at which they would have acquired the right to early pension.

2.3. VALUE OF MACHINERY AND EQUIPMENT (‘MACHINERY’) AND REAL ESTATE AND BUILDINGS (‘REAL ESTATE’) IN THE OPENING BALANCE

The following provides an overview of the process of establishing the value of the fixed assets in the final opening balance of Mesta AS. For purposes of this process two auditors were engaged: Ernst & Young, was engaged by the Public Road Administration in order to establish the new company while the Ministry of Transport and Communication engaged Deloitte & Touche in order to undertake a quality check of the value assessment of the assets and the proposal for an opening balance as well as verifying the process, methods and principles applied in this context. Subsequently, Ernst & Young became the auditor of Mesta AS.

In brief, in May 2002 the auditors commenced assessing the value of the assets based on the simulated continuity principle (i.e., reconstructed book value) but changed the evaluation principle to ‘real value’ in August 2002. Individual (or group) assessments were carried out in respect of both machinery and real estate (described in detail under section 2.3.1). In October 2002 the auditors made an assessment of the fair value of the total business of Mesta AS as a going concern on the basis of the discounted cash flow method (described in detail under section 2.3.2). The discounted cash flow showed that the total value of the business (i.e., the operational capital) was less than the value resulting from individual asset assessments. Since the Norwegian Limited Liability Company Act provides that equity cannot exceed the total value of the business the value of the individual (or groups of) assets was reduced.

2.3.1. Value assessment of assets separately

(vi) Machinery

For purposes of assessing the value of the assets, the Public Road Administration, Arthur Andersen & Co AS, the attorney to the Norwegian Government, ViaNova and Skagerak Forsikringsmegling AS prepared a report dated 10 MAY 2002 ENTITLED THE OPENING BALANCE (63). The evaluation was, in principle, based on ‘book value’. However, since the State administration is not subject to the Accounting Act (64), the values appearing in the books of the Production Department had to be re-construed to what they would have been, had the Production Department been subject to general accounting law (65). Thus the evaluation principle was rather ‘retroactive creation of book value’ or simply ‘simulated continuity’. Based on this, the value of machinery stated in the books of the Production department on 1 January 2002 of NOK 1 111 million was adjusted to NOK 866 million. On 1 January 2003, the value was further adjusted to NOK 747 million.

However, a subsequent report dated August 2002 entitled the Opening balance (66) prepared by the Public Road Administration, Ernst & Young, Via Nova and Skagerak Forsikringsmegling AS, reveals that in July 2002 it was decided that the assets of the Production Department to be transferred to Mesta AS should be assessed on the basis of the principle of ‘real value’ instead of ‘simulated continuity’ since the former is a more transparent valuation principle.

The report dated December 2002 entitled Opening balance Supplement: Value assessment of assets , prepared by the Public Road Administration, Ernst & Young, Via Nova, OPAK and Skagerak Forsikringsmegling AS presents the value of machinery based on real value (67). To determine the real value two approaches were followed: For certain groups of machinery the starting point was the book value as registered in the State administration, adjusted for the application of value added tax, depreciation periods and some discretionary assessments. For other groups of machinery the values were based on external evaluations and prices (68). On that basis the real value of machinery was estimated at NOK 572 million while the total value of all assets was estimated at NOK 1 162 million (69).

Ernst & Young have subsequently explained that calculations appearing in the abovementioned report, which uses as its starting point the simulated continuity book value of NOK 747 million in order to arrive at a real value of NOK 572 million, are misleading. According to Ernst & Young such calculations have not formed part of the process for determining the real value of machinery to be transferred to Mesta AS.

(vii) Real estate

In the May 2002 report entitled the ‘Opening balance’ the book value of real estate registered by the State administration on 1 January 2002 was NOK 596 million. Following exclusions of real estate not to be transferred to Mesta AS and adjustments on the basis of the simulated continuity principle, the value was estimated at NOK 277 million.

Following the change of evaluation principles from simulated continuity to real value, real estate was assessed by an independent real estate expert, OPAK. The Norwegian authorities have submitted an expert assessment dated 28 August 2002 in which OPAK assessed the value of 375 properties to approximately NOK 336 million (70). A follow-up report dated 31 October 2002 prepared by OPAK found that following, amongst others, the addition of 16 properties, the approximate value of real estate was NOK 395 million. Ernst & Young have explained that subsequently, exclusions of properties not to be transferred to Mesta AS and corrections for rented properties (71) brought the value of real estate to NOK 331 million (72).

The December 2002 report entitled ‘Opening balance Supplement: Value assessment of assets’ shows that while the value of real estate based on the principle of simulated continuity was NOK 596 million, the application of the principle of real value resulted in a value of NOK 331 million.

2.3.2. Value assessment based on discounted cash flow

In parallel with, but separately from, the individual asset assessments an assessment was made of the fair value of the total business as a going concern on the basis of the discounted cash flow method, summarised in a report dated October 2002 entitled: ‘Value assessment’ prepared by Ernst & Young (73). The report concludes that by applying the discounted cash flow method the operational capital (74) is approximately NOK 600 million (within an interval of +/– 5 %). The analysis was based on a cash flow assessment for 2003–2012 for which period a negative present value of NOK 300 million and a terminal value of plus NOK 900 million was estimated (75). The rate of return was fixed at 6,7 % nominal return on total assets after tax (76).

Ernst & Young have explained that the operational capital (of NOK 600 million) is composed of total assets less short-term debt. By comparison, the estimate resulting from the individual asset assessment was NOK 1 162 million. If short-term debt (of NOK 464 million) is excluded from NOK 1 162 million, the operational capital (77) is NOK 698 million. This is higher than the operational capital of NOK 600 million resulting from an assessment based on the fair value of the total business (i.e., the discounted cash flow method). The Norwegian Limited Liability Company Act provides that the equity cannot exceed the total value of the business and it was therefore necessary to reduce the value of the assets (78). Hence Ernst & Young reduced the value of the assets in order to bring the operational capital to NOK 619 million. This is shown in the following (79):

Fixed assets 1 053 Current assets 109 Short term debt (464) Net 698 Downward adjustment machines (25) Downward adjustment real estate (54) Total downward adjustment (79) Value after downward adjustment 619 Debt (pensions) 319 Equity 300 Equity in cash 1 600 Total equity in opening balance 1 900

As is apparent from the above a downward adjustment of NOK 79 million was made. Due to the high uncertainty of the value of real estate and machines, the downward adjustment was allocated to those assets in the manner indicated below:

Estimated real value of machinery 572 Purchases 44 Downward adjustment (25) Value in opening balance 591 Estimated real value of real estate 331 Purchases 4 Downward adjustment (54) Value in opening balance 281

2.3.3. Quality check

In parallel with the process for determining real value, Deloitte & Touche had initiated (in October 2002) an exercise for checking the very first asset assessments (based on simulated continuity) against the results of the discounted cash flow. On this basis Deloitte & Touche found that the (simulated continuity) value of the fixed assets had to be reduced from NOK 1 137 million (80) to NOK 937 million (i.e. by NOK 200 million) (81).

2.3.4. Value assessment in final opening balance

The final opening balance of 1 January 2003 prepared by Mesta AS with assistance of Ernst & Young, ViaNova Plan and Trafikk AS (attached as Annex A) shows a total value of fixed assets of NOK 977 million (82).

The final opening balance confirms that the value of machinery of NOK 572 million identified in the December 2002 report (entitled ‘Opening balance Supplement: Value assessment of assets’) was adjusted downwards by NOK 25 million to NOK 547 million. The addition of further investments and minor adjustments brought the final value of machinery to NOK 594 million.

Following certain purchases of NOK 4 million the value of real estate was NOK 335 million and the downward adjustment of NOK 54 million (necessitated by the result of the discounted cash flow method) meant that the value of real estate was NOK 281 million.

2.4. TRANSFER OF TRANSITIONAL CONTRACTS AND THEIR VALUE IN THE OPENING BALANCE

2.4.1. The construction contracts

The Norwegian authorities have explained that as of 1 January 2003 all new construction contracts (for works such as roads, tunnels, docks and bridges) were subject to a public procurement procedure.

However, the existing construction project had to be transferred to Mesta AS in order to continue the completion of ongoing construction projects. The existing contracts varied in terms of complexity and duration but all expired in the course of one or two years after the establishment of Mesta AS. The Norwegian authorities have explained that the construction contracts were transferred to Mesta AS at the prices originally fixed for such contracts. In the view of the Norwegian authorities such prices reflect market prices. Prior to 1 January 2003 a fair part of the construction contracts were tendered out and the Public Road Administration therefore gained some experience with the level of the market price. Moreover, the prices of internal construction contracts between the Public Road Administration and the Production Department had to be concluded in compliance with internal guidelines which contained rules on how to price internal contracts (83). According to the internal guidelines the price experience obtained in the context of open tenders has to form the basis for fixing the prices of internal contracts: Either such public tender prices should be used directly, or the prices of internal contracts should be based on estimates tested against the market and (where relevant) reduced to the market level (84). In either case the overall condition of the Road Administration was that prices fixed in internal agreements should reflect the price level of the market (85). Finally, the Norwegian authorities also clarified that apart from taxes and duties imposed on all services fiscal and other regulatory requirements did not influence the price at which the contracts were transferred (86).

The prices at which the construction contracts were transferred to Mesta AS were the same as those used for purposes of determining the revenues of the contracts in the discounted cash flow analysis.

2.4.2. The operation and maintenance contracts

102 existing operation and maintenance contracts (‘funksjonsavtaler’) were taken over by Mesta AS (87). These contracts, which covered works such as road surface, marking, drainage, gritting as well as flooding and avalanche, would all expire within a period of maximum four years, i.e. the third quarter of 2006. In terms of duration they fall in four categories set out below. Upon expiry of the operation and maintenance contracts the Public Road Administration put about 25 % of the contracts up for public tender per 1 September each year in the following manner:

— Category A: 24 contracts, which expired during the autumn of 2003;

— Category B: 25 contracts, which expired during the autumn of 2004;

— Category C: 27 contracts, which expired during the autumn of 2005;

— Category D: 26 contracts, which expired during the autumn of 2006.

While each category covers contracts covering geographic areas evenly spread throughout Norway (so as to ensure continued stability in service provision) the categories also correspond to the level of difficulty as regards the work to be carried out. In this regard, Category A include the simplest contract work in small areas (that is, areas which pose minimum challenges as regards the traffic and weather conditions and the type of road) while Category D includes contract work of a difficult character both in terms of the road (such as mountain and cliff roads) and traffic and weather. Categories B and C cover contract work between the two extremes.

The Norwegian authorities have explained that the prices of the services provided under the operation and maintenance contracts entered into by the Production Department were maintained upon transfer of the contracts to Mesta AS.

2.4.3. The value at which the contracts were transferred

The prices at which the contracts have been transferred appear from an excel spreadsheet submitted by the Norwegian authorities which is similar to the spreadsheet previously submitted by Veidekke ASA (88). Following the Opening Decision the Norwegian authorities have updated the estimate of the total price at which the construction contracts have been transferred to Mesta AS from NOK 2 960 million to NOK 2 942 million (89). The Norwegian authorities have also updated the estimate of the total price at which the operation and maintenance contracts have been transferred to Mesta AS from NOK 5 750 million to NOK 5 866 million. The overview does not indicate the price of individual contracts.

2.4.4. Price level resulting from subsequent tenders

A report commissioned and published by the Directorate of Public Roads, ViaNova Plan and Trafikk AS covers an analysis of the price level of contracts in December 2003 (the ‘ViaNova Report’). The ViaNova Report shows that a number of transitional operation and maintenance contracts transferred to Mesta AS were subject to public tenders in January 2003. One of the conclusions in the report was that the cost level of the transitional contracts which have been subject to public tenders during 2003 appear to be about 32 % below the original cost level of comparable transitional contracts transferred to Mesta AS. The Norwegian authorities have commented that it is correct that the Public Road Administration did not enter into re-negotiations for purposes of obtaining a price reduction in respect of the (remaining) transitional contracts.

The Norwegian authorities have submitted an overview of the prices resulting from tendering out operation and maintenance contracts between 2003 and 2006. The amounts represented in the overview submitted by the Norwegian authorities are (with some discrepancies) similar to those stated in an Excel spreadsheet submitted by Veidekke ASA which also includes a table comparing the winning (i.e., lowest) offer in each tender procedure with the prices at which the contracts were transferred. The comparison submitted by Veidekke ASA shows that in respect of contracts tendered out in 2003 to 2006 the resulting winning prices were generally lower than the prices at which the contracts were previously transferred to Mesta AS. Moreover, the overview also shows that the prices submitted in offers by Mesta AS (itself) in subsequent tenders are lower than the prices at which the contracts have been transferred to Mesta AS (90):

(million NOK) Tender year Winning price Amount by which contract transfer price exceeds winning price Amount by which contract transfer price exceeds Mesta AS’ tender offers 2003 1 226,6 94 67 2004 1 605,2 328 282 2005 1 857,1 760 563 2006 7 455,5 948 900

The overview of operation and maintenance contracts put up for public tender between 2003 and 2006 submitted by the authorities shows that Mesta AS won 14 out of 24 contracts tendered out in 2003. In 2004 Mesta AS won 13 out of 25 contracts while in 2005 Mesta AS won 20 out of 29 contracts. In 2006 Mesta AS won 21 out of 30 contracts (91). This means that out of a total of 108 contracts Mesta AS won 68 contracts which equals about 62,7 %.

2.4.5. Previous price examinations and experience of the Public Road Administration

The Norwegian authorities have explained that prior to the establishment of Mesta AS the Norwegian Parliament supported five test/pilot contracts which the Public Road Administration had planned to put up for public tender. The authorities have explained that the resulting prices were used to evaluate this type of contract internally (both in the period before and after the decision to establish Mesta AS in 2001). The prices have, however, not been used as a basis for fixing the prices of the transitional contracts. Upon queries by the Authority of the reason for this, the Norwegian authorities have explained that it had been decided that the value of the transitional contracts should be determined on the basis of the cost base for the contracts.

According to the authorities the winning prices of the five test/pilot contracts were as follows:

— Bærum (1998) five years: NOK 74 940 000

— Nedre Romerike (1999) five years: NOK 56 000 000

— Ibestad Dyrøy (1999) four years: NOK 30 418 400

— Lågendalen (2000) four years: NOK 45 706 323

— Våler og Åsnes (2001) five years: NOK 39 018 023.

In December 2000 the Public Road Administration issued a report in which it examined the competitiveness of the operation and maintenance services of the Production Department (92). The report contains preliminary results of August 2000 and the ability to compete has been calculated by identifying the relation between the calculated costs of a contract and the agreed price. In the case of the contracts of the Production Department the costs represented 94 % of the price while with respect to contracts entered into by private entrepreneurs the costs represented 71 % of the price. It appears that the test/pilot cases formed the basis for coming to this conclusion. On page 7 of the report the Bærum contract is listed as having an average annual value of NOK 15 million as a result of the public tender. This figure is a result of price per km of 125 000 × 120 km road which equals NOK 15 million (or NOK 75 million during five years) (93). The Nedre Romerike contract is listed in the report with an annual value of NOK 11,2 million. The price per km is 50 000 × 198 km road which equals NOK 9,9 million (or NOK 49,5 million during five years) (94).

Aside from this, it appears, from questions posed by the transport committee in the Parliament to the Ministry of Transport in 1999–2000 concerning the situation of the Public Road Administration, that an analysis had been carried out in Akershus which showed that the price level of the operation and maintenance contracts was 20-25 % above those of the private contracts (95). Moreover, in a press release dated 17 April 2001 the Public Road Administration refers to the fact that a comparison between, on the one hand, four contracts under which maintenance and operation services were provided by private operators, and on the other hand, contracts under which the Production Department carried out corresponding services, showed that the lowest price offer amongst the private providers was about 15–20 % lower than that of the Production Department.

2.4.6. The transitional contracts and the opening balance

The Norwegian authorities have explained that the transitional contracts were assets which formed part of the discounted cash flow and were therefore taken into account when assessing the total value of Mesta AS. However, based on the results of the discounted cash flow the value of the contract portfolio (96) was too low to be allocated any value (97).

2.4.7. Temporary public service obligation

The Norwegian authorities have explained that in accordance with Article 59(2) EEA the Norwegian authorities imposed an obligation on Mesta AS as of 1 January 2003 to carry out a public service obligation in the form of operation and maintenance services on the national road work. The obligation was gradually phased out in order to cease on 1 September 2006. The public service task is described in detail in a report on standards for operation and maintenance issued by the Public Road Administration of 1999 (updated in 2003) (98). The report lays down the fundamental requirements for ensuring that the standard of the operation and maintenance works are sufficient for maintaining road safety via setting concrete standards or actions with respect to tunnels, drainage, road coverage, bridges, quays and pavements (the ‘Standardisation Report’) (99). The Standardisation Report also lays down specific standards in relation to reliable winter maintenance to ensure maintenance of road safety. The service task has been entrusted to Mesta AS via a provision in each contract awarded to Mesta AS by giving a short overview of the relevant standards and referring to the Standardisation Report for operation and maintenance.

The Norwegian authorities have explained that the entrustment to Mesta AS of the above described public service task was to guarantee a sufficient level of road safety up until September 2006. In this regard the authorities have explained that the Public Road Administration is responsible for road safety and ensuring a minimum standard by means of supervising and monitoring repairs and maintenance (100). Up until 1 January 2003 this task involved monitoring mainly the works of one service provider, i.e., the Production Department. However, after that date this task would take on a new dimension since road maintenance work would be subject to public tenders and hence carried out by a number of different service providers. In this regard it appears from preparatory legislative works that the rationale behind a gradual opening of the market was to ensure that the Public Road Administration could continue to adequately control and ensure that road standards and safety would be kept at a satisfactory level (101).

The Norwegian authorities have further explained that this is also the motivation behind tendering out the most risky and demanding contracts at the end of the process while the simplest and smallest were tendered out first (102). By leaving the most challenging contracts to the end, the Public Road Administration would already have obtained a fair amount of experience from having supervised and monitored several service providers after the first tender rounds. The Public Road Administration would therefore have the best possible conditions for maintaining control of the level of road safety by the time the more challenging contracts were tendered out (103).

With respect to payment of compensation for the public services the Norwegian authorities have submitted the following tables providing an overview of the costs, revenues and rate of return in respect of the services provided by Mesta AS under the transitional operation and maintenance contracts (104). In this context the Norwegian authorities have explained that Mesta AS maintained separate accounts for each transitional contract during 2003 to 2006. Hence all revenues (and costs) set out in the following tables are directly related to the operation and maintenance transitional contracts.

Table 1 shows that in relation to total capital invested in Mesta AS, capital has been allocated to the transitional operation and maintenance contracts with the same proportion as that which the share of revenue from the transitional contracts represents out of total revenue.

Mesta AS – capital allocation

(million NOK) Total Capital 2003 2004 2005 2006 Opening balance 2 686 3 989 4 291 4 643 Closing balance 3 989 4 291 4 643 4 340 Average 3 338 4 140 4 467 4 492 Total turnover Mesta 6 386 5 899 6 076 4 492 Total turnover operation and maintenance 3 645 3 613 3 235 3 253 Share of operation and maintenance turnover compared to total turnover 57 % 61 % 53 % 55 % Capital allocated to operation and maintenance 1 905 2 536 2 378 2 460 Share of operation and maintenance capital allocated to transitional contracts (%) 96 % 81 % 60 % 30 % Share of operation and maintenance capital allocated to transitional contracts (NOK) 1 835 2 050 1 437 748

The following table provides an overview of the costs, revenue and the actual rate of return obtained by Mesta AS on the basis of the transitional operation and maintenance contracts during 2003 to 2006. The Norwegian authorities have specified that no specific rate of return were fixed in advance in respect of the transitional operation and maintenance contracts.

Mesta AS: Revenue, costs and rate of return for transitional operation and maintenance contracts

(million NOK) 2003 2004 2005 2006 Total Revenue 2 116 1 871 1 293 586 5 866 Profit before tax (105) 277 175 199 151 802 Profit after tax 199 126 144 108 577 Profit margin 9 % 7 % 11 % 18 % Capital allocated to transitional contracts 1 835 2 050 1 437 748 6 070 Actual return on capital 10,86 % 6,15 % 9,98 % 14,50 %

The Norwegian authorities have explained that the average rate of return in the operation and maintenance market, that is, the ‘reference rate of return’ is the weighted average cost of capital (‘WACC’) after tax of 8,42 % (106).

The following table provides an overview of the composition of the reference rate of return.

Composition of reference rate of return

Weighted average cost of capital (WACC) Risk free interest (107) before tax 3,85 % Market rate risk premium (108) 5,00 % Total capital beta 0,90 Net debt/equity Equity beta 1 Cost of equity after tax 8,85 % Cost of outside capital Risk free interest before tax 3,85 % Premium on loan 2,50 % Cost of outside capital before tax 6,35 % Tax rate 28 % Cost of outside capital after tax 4,57 % Weighted average cost of capital (WACC) Cost of equity 8,85 % Share of equity 90 % Weighted cost of equity after tax 8,00 % Cost of outside capital after tax 4,6 % Share of outside capital 10 % Weighted cost of outside capital after tax 0,5 % WAAC cost of total capital after tax 8,42 %

The reference rate of return of 8,42 % is based on a beta value of 1 which has been fixed by reference to:

— Observations of the beta value over a 40 month period (2002–2007) of 15 comparable companies (such as Veidekke ASA, Skanska AB-B SHS, PEAB AB) (109);

— the rate of return is correlated on the basis of Morgan Stanleys ‘All Country World Index’ (110);

— the equity share has been considered to be in line with the sector average (based on 15 comparable companies) (111).

Finally, the following table shows the difference between the reference rate of return and the actual return obtained by Mesta AS on the operational and maintenance contracts in the relevant years.

Rate of return

2003 2004 2005 2006 Total Mesta: rate of return 10,86 % 6,15 % 9,98 % 14,5 % Reference rate of return 8,42 % 8,42 % 8,42 % 8,42 % Surplus return 2,44 % –2,27 % 1,56 % 6,08 % Surplus return (in million NOK) 44,8 –46,4 22,5 45,5 66,4

2.5. DOCUMENT DUTY AND REGISTRATION FEES

According to the Mesta Act real estate transferred from the Production Department to Mesta AS was to be registered in the Norwegian real estate registry as a ‘name change’ (112). This meant that Mesta would have its real estate registered in the real estate registry without incurring document duty and registration fees which normally fall due in the case of transfer of title to property in Norway (113).

In Norway an administrative practice, referred to as the ‘continuity principle’ provides for an exemption from payment of document duty and registration fee in cases where the undertaking is considered to ‘continue’ in some form. Two circulars have been issued by the Ministry of Justice on the application of the continuity principle. According to the First Circular, which was applicable on 1 January 2003, only mergers between limited liability companies can benefit from the continuity principle (114). The Second Circular extends this practice to de-mergers and conversions as of 1 July 2005 (115).

2.6. GROUNDS FOR INITIATING THE PROCEDURE

On 18 July 2007, the Authority adopted the Opening Decision to initiate a formal investigation on the basis of the preliminary finding that the measures taken in the context of establishment of Mesta AS could involve State aid which would not qualify for any of the exemptions provided for in the EEA Agreement (116). The Authority therefore had doubts that the relevant measures could be considered to be compatible with the functioning of the EEA Agreement. The relevant measures concern the restructuring measures, value assessment of assets, transitional contracts transferred to Mesta AS and the lack of payment of document duty and registration fees.

3. COMMENTS FROM THIRD PARTIES

Comments have been received from four interested parties after the Opening Decision following which the Authority and various interested parties have had a comprehensive dialogue on the issues involved.

3.1. ARNTZEN DE BESCHE – MESTA AS

The law firm, Arntzen de Besche (‘Arntzen’) has submitted comments on behalf of Mesta AS.

On the issue of state compensation for restructuring measures Arntzen submits that the key issue is whether the costs represent a liability of the state. It is only if this is not the case that the restructuring costs may be considered to form part of the normal budget of Mesta AS and a reimbursement for such costs represents an economic advantage. Based on the ‘Combus’ judgment the decisive issue is whether the compensation ‘lightens the burdens normally assumed in an undertaking’s budget’ and it is only relief from such costs which constitute an economic advantage (117).

A distinction must be drawn between compensation of (i) costs incurred in the normal operation of a company and (ii) imposed costs which are therefore not incurred in the normal operation of the company and do not correspond to cost obligations of competitors. Compensation of the latter type of costs may, as in this case, merely offset or neutralise a structural disadvantage by ensuring a level playing field and do therefore not constitute State aid. On this basis Arntzen submits that compensation for restructuring measures to Mesta AS originate in a State liability with the objective of offsetting structural disadvantages and does therefore not involve State aid.

In the event the Authority should find that the restructuring measures do involve State aid, Arntzen submits that the aid is compatible since it allows Mesta AS to compete on a level playing field in a market just opened for competition. Since the production arm of Mesta AS was previously the State’s in-house service provider, Mesta AS was established with an organisation unfit for competition. Without compensation Mesta AS’ competitive position would be affected. The Commission has in its decision on ‘Destia’ considered that the opening of the market is a Community objective in the common interest (118). Moreover, the guidelines on State aid linked to stranded costs aim at facilitating the transition of undertakings to a competitive market. Indeed aid (limited in time and effects) for attaining a common objective of facilitating transition from a closed market to a (partially) liberalised market is in the common interest and serves to counterbalance distortion of competition. In this context attention is drawn to that Mesta AS must repay any excess restructuring funds.

As regards the evaluation of machinery Arntzen submits that upon changing the evaluation principles from book value to real value the discounted cash flow analysis established a value of the business of NOK 600 million. The allocation of the value to the assets does not change the overall value and does therefore not raise State aid issues. Based on the result of the discounted cash flow analysis, the value of the assets (including short-term debt) was reduced from a real value of NOK 698 million to NOK 619 million. Hence the adjustment represented NOK 79 million not NOK 200 million.

With respect to the transitional contracts Arntzen submits that Mesta AS was only compensated for the cost of providing services under the relevant contracts and did therefore not receive any economic advantage within the meaning of the State aid rules. Arntzen further submits that for purposes of establishing an advantage the Authority must establish a reference price which, when compared to the actual price of the contracts transferred to Mesta AS, will constitute the economic advantage. It is only if the Authority can demonstrate that undertakings existing on 1 January 2003 could provide similar services at a cheaper price that the prices at which the contracts were transferred to Mesta AS were overpriced. The burden of proof is on the Authority.

Arntzen further submits that, in fact, there was no market price on 1 January 2003 since all operation and maintenance services were carried out in-house and a de facto monopoly was created on 1 January 2003 with the establishment of Mesta AS. The prices resulting from the public tenders of the pilot projects cannot be used as reference prices: First, the Authority has not established that other undertakings were actually ready and able to deliver the relevant services at a cheaper price. Considering the importance of the case the Authority ought to carry out a detailed assessment of whether other undertakings were actually ready to provide the relevant services at a cheaper price. It is only if this is the case that State aid may be involved. Secondly, while the price levels resulting from the public tenders of the pilot contracts were lower than the prices at which the contracts have been transferred to Mesta AS, the two groups of contracts are not similar. This means that the pilot contracts cannot be considered to represent the market price. In this regard it is noted that the original contract price of one of the pilot contracts, i.e., the Bærum contract, was raised with 25 % due to additional works. A large part of such additional works is included in the base price of the transitional contracts transferred to Mesta AS. Finally, the Authority does not have information demonstrating that undertakings which won the pilot contracts or the contracts tendered out after 2003 actually cover their costs of providing the services. If the undertakings do not cover their costs it is not an efficient opening of opening the market.

3.2. THOMMESSEN – VEIDEKKE ASA

The law firm, Thommessen Krefting Greve Lund AS (‘Thommessen’), has submitted arguments on behalf of Veidekke ASA.

As regards the restructuring measures, Thommessen submits that the Combus judgment recognises that State financing of cost inefficiencies originating in past labour legislation does not constitute State aid provided it is proportional to the structural disadvantage. Any compensation beyond the difference between the costs of the structural disadvantage and relevant labour costs of a comparable undertaking is State aid. The State intervention should not alleviate Mesta AS from pension obligations incurred in the past but only from structural disadvantages for the future (i.e., as of 2003 onwards). Thommessen submits that Mesta AS was overcompensated for the structural disadvantages. The Authority should therefore verify whether the overstaffing of Mesta AS resulted in some benefits for the company which meant that the structural disadvantage (of overstaffing) was overrated. In other words, the Authority must clarify whether the disadvantage of overstaffing was neutralised by access to surplus and cheap work force. In this regard attention is drawn to the fact that Mesta AS’ profitability was significantly better than first anticipated during the first three years of its existence. St.prp. nr 1 (2007–2008) shows that the funds awarded for each year covered more than the relevant liability of the restructuring measures, thus indicating overcompensation.

In particular, the Authority should verify whether the State had the possibility to retransfer, reallocate or replace some employees instead of offering them early pension. The Authority should request the Norwegian authorities to produce evidence showing that early pension was necessary for handling the personnel issue. The Authority should verify whether the authorities only compensated for the difference between average costs of an ordinary private pension scheme and membership in the state pension fund and whether compensation was limited to civil servants. The Authority is requested to verity whether costs for maintenance of special retirement age are costs normally included in the budget of an undertaking and therefore not a structural disadvantage meaning that the compensation may amount to State aid. The Authority should also assess the transaction under directive on the transfer of undertakings.

Thommessen also states that the ‘Government’s guidelines states that the employer may apply for continued membership to the Labour ministry. If refused the individual may be linked to the pension scheme through so called closed membership arrangement’ and asks whether closed membership has been considered as an alternative to compensation Mesta AS for restructuring measures. Thommessen submits that Mesta AS might have taken on an obligation which it was not obliged to take on. If the restructuring costs of Mesta AS in this regard is a consequence of voluntarily taking over (or maintaining) obligations, this is a decision of Mesta AS. Compensation for costs which Mesta AS was not legally bound to observe are costs normally included in the budget of a company and state funding for this purpose constitutes State aid.

Compensating restructuring costs may be compatible under Article 61(3)(c) EEA provided the conditions of necessity and proportionality are respected. In this regard the aim of increasing the efficiency of the former Production Department must be balanced against the objective to make the market more competitive. Thommessen submits that the competitiveness of Mesta AS has indeed materialized via a high share of public procurement contracts won at the cost of effective competition in the market. Mesta AS is, by far, the largest player with a market share of 60 %. The steadily decreasing number of bidders in public tenders confirms this. The problem is that Mesta AS was overcompensated for its structural disadvantages. The market has simply moved from an oligopolistic market to a duopolistic market with Mesta AS as the dominant player. The Authority must review that the measures in question do not confer an advantage with market distortion as a consequence.

On the issue of asset evaluation Thommessen submits that the Authority must examine the case independently of whether the opening balance complies with Norwegian accounting and company regulations. In this regard Thommessen submits that the Norwegian limited liability Act includes a rule to ensure that the share capital contribution is not beyond fair value. However, while the Board of Directors may be liable for an assessment beyond fair value there is no liability for assessments below fair value. Therefore, Thommessen expects a separate independent expert evaluation of whether the assets have been fixed at market value.

Thommessen agrees that the assets should be based on fair value as a going concern which could be based on a discounted cash flow analysis. According to section 4(2) of the Norwegian Accounting Act the analysis must be based on the principle of ‘best estimate’. However, Thommessen submits that the estimate submitted by the Norwegian authorities is not in accordance with this principle but has been based on one-sided arguments to bring down the value of the assets. First, although the discounted cash flow analysis acknowledged that there are inherent uncertainties, the fair value assessment of the individual assets showed that the real value was substantially higher and so the discounted cash flow analysis should have been adjusted upwards. Secondly, it appears from the discounted cash flow analysis that the terminal value was NOK 900 million but that this was adjusted downwards because the cash flows over the period 2003–2012 were estimated at –300 m. Thommessen submits that the uncertainties in setting up Mesta AS and how it would perform were exaggerated and were aimed at adjusting the fair value of the assets downwards. Thirdly, the external evaluation of 18 machinery groups was estimated to NOK 424 million. This is considerably higher than NOK 148 million which was the resulting value of evaluating an even higher number i.e., 37 machinery groups. Thommessen submits that it is incomprehensible how machinery of Mesta AS, larger in quantity than that of Veidekke ASA, is fixed at a market price below that of Veidekke ASA. The Authority should investigate this. Finally, Thommessen submits that it is unusual that the fair value of a going concern does not contain any goodwill.

Aside from this Thommessen submits that the downward adjustment of NOK 200 million of machinery and NOK 50 million of real estate (i.e., the difference between NOK 331 million and NOK 281 million) involves advantages because a lower evaluation of assets means that depreciation is lower and hence operating income is higher. The extra operating income is State aid. Moreover, the higher the evaluation of the assets, the higher the required rate of return should be. Hence a lower assessment means that the annual profits of the Norwegian authorities are too low and the difference between that, and the profits based on a correct assessment, amounts to State aid.

As to the transitional contracts, Thommessen welcomes that the Norwegian authorities acknowledge the difference between the market price (resulting from public tenders) and the price at which the transitional operation and maintenance contracts were transferred; the difference being about NOK 2 billion (119). As to the argument of the Norwegian authorities that the estimated gross revenue of the contracts form part of the opening balance and that it is not necessary to assess the market value of them, Thommessen submits that the discounted cash flow analysis incorrectly presupposes that the contracts have been transferred at market value (120). As to the argument that no market price or reliable indicators of a market price existed on 1 January 2003, the Norwegian authorities are ignoring the prices resulting from the pilot cases, the market price in similar markets of other Nordic countries and the market price resulting from public tenders undertaken in 2003 and onwards.

Hence Mesta AS was compensated for structural disadvantages by restructuring funding of NOK 993,6 million, cash injection of NOK 1 600 million and excess prices of the transitional contracts transferred to Mesta AS. Mesta AS has been compensated twice for the same restructuring costs. The Norwegian authorities were aware that the market price was 25–30 % below the internal pricing between the Production Department and the Public Road Administration – which is precisely the reason for the liberalisation of the market. Reference is made to Report of December 2000 issued by the Public Road Administration which finds that the costs of the Production Department was far higher than the costs of similar contracts entered into by private entrepreneurs. Hence Thommessen submits that the market price was well documented. Finally, Thommessen submits that if the market price should be established on the basis of the costs of Mesta AS, the relevant cost base of Mesta AS is the cost base existing after the restructuring measures have been paid off, that is, the cost base of a ‘competitive’ Mesta AS compared to the cost base of a Mesta AS subject to restructuring costs which has been (or will be) compensated. If the cost base of a competitive Mesta AS is taken into account Thommessen submits that Mesta AS has been overcompensated with about NOK 1 81 million (which is the difference between the prices at which the contracts were transferred and the prices resulting from subsequent tenders).

3.3. SCHJØDT

As regards restructuring measures, the law firm, Schjødt, which have submitted comments on behalf of an anonymous complainant, points out that funding to maintain benefits derived from the civil servant status does not constitute State aid if such funding is granted to individual persons on the basis of objective criteria and does not result in benefits to certain companies. Conversely funding for employee benefits which constitutes part of the normal burden of companies constitutes State aid. Hence, the question is what may be considered to constitute the normal financial burden of companies. Schjødt submits that State aid is only involved insofar as the benefit goes beyond what employees recruited on the market would be offered. The Combus judgment (which has never been appealed) showed that direct payments to employees in return for renouncement of the civil servant status involves no aid to the company (121). However, the Combus judgement was delivered when there was a lot of uncertainty about structural disadvantages and in any event it is not clear whether the facts in Mesta AS is similar to those in Combus and hence whether Combus forms a reliable precedent for the present case.

Schjødt submits that compensation for moving personnel, commuting, moving offices, moving support and maintenance offices etc. qualify as State aid which appears not capable of being found compatible. Also, expenses related to renovation of machinery cannot be compensated and at the same time count as a negative asset.

Schjødt objects to considering restructuring aid for Mesta AS as compatible by reference to the State aid Guidelines on rescue and restructuring measures. Mesta AS and its predecessor was, and is, not in difficulty within the meaning of these guidelines which are in any event not applicable to new firms emerging from reorganisations.

As to the evaluation of assets Schjødt points out that an independent assessment might provide guidance for purposes of assessing the alleged under evaluation of the assets. The under-evaluation together with the cash injection of NOK 1 600 million could result in an equity ratio in excess of what would follow from a proper application of private market investor principle. In the context of verifying this it should also be verified whether the Norwegian authorities have foregone the payment of an adequate return on their investments.

As to the transitional contracts Schjødt points out that the arguments of the Norwegian authorities assume that (i) the contracts should be transferred at market price in order not to constitute aid; and (ii) that their actions must be assessed on the basis of the information available at the relevant point in time, implying that subsequent evidence (which shows that the prices of the transitional contracts were above market price) cannot be taken into account (122). However, Schjødt submits that evidence, post factum, can be taken into account to the extent that it just corroborates information available at the relevant point in time. The Norwegian authorities were aware that the prices of the contracts transferred to Mesta AS were in all likelihood above the market price. Indeed the driving force behind the reorganisation was efficiency gains and ‘more value for less money’ (123). It appears from a report issued in 2001 by Statskonsult that as of 1996 Oslo Municipality exposed its road operation and maintenance activities to competition which resulted in a cost reduction in the field of operation and maintenance of about 20 %. Finally, the Report issued in 2001 by the Public Road Administration itself also showed that the operation and maintenance contracts awarded to private operators were more competitive than those performed by the Production Department.

Rather than acting on the basis of the information available to them, the Norwegian authorities ignored previous experiences and transferred the contracts at prices above the market price. Schjødt submits that the Norwegian authorities cannot write off such information. The authorities could easily have applied a general reduction rate the contract portfolio. Schjødt further submits that an approval of excess pricing may not be authorised as Mesta AS has already been compensated for restructuring measures, and the contract prices were not based on public tenders nor did they include an adjustment mechanism. The Mesta AS case is therefore entirely different from the Destia case (124).

The Norwegian authorities repeatedly state there were no private operators on the market for operation and maintenance although it appears from St. prp. nr. 1 (2001–2002) that 30 % of operation and maintenance works is put up for competition between market operators. Moreover, the aforementioned Statskonsult report states that while most operation and maintenance work is carried out by the Public Road Administration in 2000, 28 % had been put on the market. As regards the attainment of relevant skills by the Public Road Administration for tendering out works Schjødt points out that the Public Road Administration had been using that skill via the operation and maintenance agreement (‘funksjonsavtale’) with the Production Department so that by 2003 the skill should have been attained. The authorities have not explained how the skills for tendering out works to market operators would be any different from the skills used in the context of the agreements with the Production Department.

Finally as to document duty Schjødt submits that the exemption amounts to an economic advantage for Mesta AS and that the continuity principle is not valid as there is no actual transfer of title. The facts of the Mesta AS case are similar to that of the Entra case, and hence as in the Entra case, the advantages granted to Mesta AS constitute State aid. Since the value of real estate has been adjusted downwards in the opening balance the amount of aid cannot be calculated on that basis but must be assessed on the basis of the market value of the transferred real estate.

3.4. WIERSHOLM – SKANSKA

The law firm, Wiersholm, submitted comments on behalf of Skanska.

Wiersholm submits that a rate of return fixed on the basis of assets evaluated below the market price does not comply with the private market investor test. Wiersholm points out that, as referred to by the Authority, there is considerable uncertainty with respect to the value of fixed assets and fails to see how the Norwegian authorities have complied with the private market investor test. The Norwegian authorities have failed to explain why not all groups of machinery were subject to external review of real values (which included only 18 out of 55) as well as the reason for the differences in evaluation methods between the different groups. Wiersholm submits that an independent evaluation is necessary. Considering the extent of figures submitted in this case, the doctrine according to which the transfer of assets at book value does not constitute aid (i.e. the ‘book value doctrine’) adopted by the Commission in its decision on Destia cannot be directly applied (125). Reference is made to the Authority’s decision in Arcus (126) in which production facilities and other assets were transferred from a State monopoly to the Arcus Group. In the Arcus case the Authority found that the transferred assets were assessed at below market value with an amount of NOK 264 million and that the State was undercompensated by the same amount. The transaction implied that the Arcus Group received State aid in the same order. The decision shows that a scrutiny of the evaluation of assets in the Mesta AS case is relevant.

As to the transitional contracts, Wiersholm refers to the Authority’s statement in the Opening Decision from which it appears that a contract price below market price involves an economic advantage for the service provider. According to Wiersholm the position of the Norwegian authorities is that it is not so important whether the contracts were transferred to Mesta AS at market price. The main point is that the gross revenues of the contracts are included in the cash flow analysis and has been taken into account in the opening balance of Mesta AS as contribution in kind. However, the Norwegian authorities have also stated that the transitional contracts constituted only a small part of this value. Wiersholm submits that the authorities cannot disregard the necessity of establishing a market price by reference to gross revenues in the discounted cash flow. The Commission clearly stated in its opening decision on Destia that the mark-up constitutes State aid: ‘This confers an economic advantage to Tieliikelaitos [Destia], which is financed through State resources: Tieliikelaitos [Destia] obtains from the State more money than a normal market operator would obtain for an equivalent service.’ (127)

Skanska disagrees with the argument of the Norwegian authorities that no market price existed at the time of establishing Mesta AS. A market price already existed via the pilot contracts and Veidekke ASA’s analysis, referred to in the Opening Decision, clearly demonstrates a difference between the prices at which the contracts were transferred and the prices resulting from subsequent tendering of the same contracts. Expectations of subsequent price reductions do not imply that there was no economic advantage involved in the prices at which the contracts were transferred to Mesta AS. The authorities try to justify the pricing policy by arguing that the market was not entirely open to competition in 2003–2006. However, Mesta AS benefited from the overpriced contracts still in force during the opening of the market. Indeed Mesta AS’ average price level has increased during the transitional period while Skanska’s average price level has been stable. This is based on an analysis of tenders involving both construction contracts as well as operation and maintenance contracts during the period between 1 August 2002 and 1 February 2008. It appears from this analysis that Mesta AS’ average prices have evolved from being 20 % below those of Skanska to become higher than the price level of Skanska. This shows that the contracts transferred to Mesta AS involved an economic advantage amounting to State aid.

4. COMMENTS BY THE NORWEGIAN AUTHORITIES

4.1. RESTRUCTURING AND REORGANISATION MEASURES

The Norwegian authorities have argued that no State aid is involved in the State funding for restructuring measures.

In this regard the Norwegian authorities have argued that Mesta AS was established on 1 January 2003 with a number of disadvantages originating in the fact that the Production Department formed part of the State administration and that the employees held a civil servant status. Disadvantages included the transfer to Mesta AS of an excessive number of employees (1 700) for whom civil servant pension rights (or alternative rights) were maintained for a transitional period. Mesta AS paid the additional costs of maintaining such rights during the transitional period (128). The intention behind granting Mesta AS funding for the restructuring measures was to compensate Mesta AS for having been established with costs which are inappropriate for commercial operations, such as the additional pension costs of civil servants, and which no competitors have. The Norwegian authorities consider that such costs (which are subject to compensation) derive from obligations incurred as a consequence of the Production Department having formed part of the State administration and constitute therefore a State liability. Hence compensation for such costs does therefore not constitute an economic advantage for Mesta AS.

In addition, the Norwegian authorities have submitted that it could have achieved the same result by undertaking the relevant restructuring measures prior to the transformation of the Production Department into Mesta AS. However, this would have been time consuming, less cost efficient and consequently delayed the liberalisation process. In this context the Norwegian authorities note that if the restructuring measures would have been undertaken prior to the transformation no aid would have been involved and the net effect for Mesta AS is the same irrespectively of whether the measures are carried out before or after. In the view of the Norwegian authorities the fact that the alternative approach would not raise State aid issues shows that compensating for restructuring costs does not entail an economic advantage for Mesta AS.

In support of their arguments the Norwegian authorities refer to the Combus case where the Court of First Instance found that compensation for measures intended to offset a structural disadvantage does not constitute State aid (129). In that case the Danish Government paid DKK 100 million to civil servants for waiving their civil servant status (and related rights) in the context of being transferred to Combus. The Norwegian authorities also point out that the Court of First Instance stated that the Danish Government could have achieved the same result by not transferring the officials to Combus: ‘… the Danish Government could have obtained the same result by reassigning their officials within the State, without paying any particular bonus, which would have enabled Combus to employ immediately employees on a contract basis falling under private law.’ (130)

The Norwegian authorities have argued that based on the Combus judgment the decisive issue is whether compensation lightens the burdens normally assumed in an undertaking’s budget. Such compensation is to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions. According to the authorities the statement warrants an approach according to which a distinction should be drawn between ‘costs that have been incurred in the running of the company and costs that have been imposed on the Company, but which have not been incurred in the normal course of the Company’s budget’. The authorities consider that compensation for the latter costs does not amount to an economic advantage but compensates merely for a structural disadvantage which its competitors do not have.

Separately from this, the Norwegian authorities have argued that if the financial obligation is ‘included’ in the contribution in kind this reduces the overall net value of the business and the transferor may therefore compensate for such financial obligations so as to keep them neutral. The contribution in kind to Mesta AS involved a number of items involving disadvantages not suited for commercial operations. Instead of reducing the value of the contribution in kind the authorities have maintained the original value and instead compensated for the disadvantages of the restructuring measures.

In support of the argument that the value of the contribution in kind remained unaffected by the financial obligations (and that the authorities should therefore compensate for the negative impact of such obligations) the Norwegian authorities have referred to the Net Present Value calculation and the equity of Mesta AS. In this regard reference is made to Deloitte & Touche which in its 12 December 2002 Report (131) states that ‘The [restructuring] costs are estimated on the basis of existing plans for reductions in the workforce and existing salary agreements. The company will take over the existing employment agreements and must cover these costs, but the costs derive from obligations belonging to the state and will therefore be covered through appropriations in 2003, 2004, and 2005.’ And ‘The restructuring of the company implies costs that must be observed as a lag from the past as a public entity and are as such already incurred at the time of establishment. The company will take over the existing employment agreements and must cover these costs, but the costs derive from obligations belonging to the state and will therefore be covered through appropriations in 2003, 2004 and 2005.’ Deloitte & Touche also states that this was also the reason that Mesta AS was granted funding to cover the restructuring costs (which did not form part of the opening balance) on an ongoing basis over three years.

The Norwegian authorities argue that the owner must be able to offset the same disadvantages as a private purchaser would have required if the Production Department would have been sold without being caught by the State aid rules: If the Production Department would have been sold, a purchaser would discover that the structure would be inappropriate for commercial operations and demand (i) a reduction, corresponding to the disadvantages in the purchase price; or (ii) that the seller (i.e., the authorities) covers the costs necessary to make the business fit for commercial operations.

(a) Early pension, maintenance of civil servant pension rights and maintenance of special retirement age

The Norwegian authorities recall that early pension was offered to reduce employees which were civil servants. According to the Norwegian authorities it is incorrect to maintain that such an arrangement implies that Mesta AS received the benefit of the work carried out by such employees without paying the full costs of their employment terms. It would have been more expensive for the State to keep the employees than to transfer them to Mesta AS and reimburse the latter for early pension arrangements (132). Hence compensation for early pension falls outside Article 61(1) EEA.

The Norwegian authorities argue that compensation for maintenance of civil servant pension is a direct consequence of the employee’s previous status as civil servant and should therefore be considered as a liability of the Norwegian authorities. The same conclusion applies to maintenance of the special retirement age scheme (from which certain employees benefited during their employment in the Production Department). In both cases the compensation has only covered the difference between the additional costs for civil servant pensions or special retirement age scheme, on the one hand, and an ordinary pension scheme, on the other. No competitors of Mesta AS have been imposed such obligations in respect of their employees and hence compensation for these measures do not involve State aid within the meaning of Article 61(1) EEA.

(b) Moving offices, moving of support and maintenance offices, transfer of archives, moving

The costs of moving of offices were not a result of activities carried out in Mesta AS but were incurred as a consequence of the geographical location of the Production Department. Also, the costs for moving support and maintenance offices originate from activities carried out prior to the establishment of Mesta AS and can therefore not be considered as costs normally assumed in an undertakings budget but derive rather from State obligations. The same goes for the costs for transferring archives. Contrary to the Authority’s statement in the Opening Decision this is also true for the moving costs incurred by personnel of the Production Department which had to move domiciles to take up employment in the new premises of Mesta AS. In this regard the Norwegian authorities have also pointed out that it was necessary to offer key personnel incentives in order to minimise the risk that they would resign. Finally, commuting costs during two years (i.e., up until 1 January 2005) for key personnel were also a result of the activities in the Production Department to discourage such personnel from leaving Mesta AS.

(c) Conclusion and arguments on compatibility

Based on the above, the Norwegian authorities conclude that none of the measures for which restructuring funding has been provided involves an economic advantage to Mesta AS. In fact, since the State has awarded Mesta AS only NOK 993,6 million to cover restructuring costs (although the estimated total restructuring cost amount to NOK 1 097,8 million) Mesta AS is undercompensated with about NOK 104,2 million (133).

Should the Authority nonetheless come to the conclusion that State aid is involved in the restructuring measures, the Norwegian authorities have submitted that the aid is compatible by reference to Article 61(3)(c) as (i) the measures pursues an objective of common European interest; (ii) the restructuring of Mesta AS is necessary to achieve this objective; and (iii) the aid does not adversely affect trading conditions to an extent which is contrary to the common interest.

As to the pursuit of a common European interest, the Norwegian authorities argue that the opening up of markets to competition is a Community objective in the common European interest (134). In the present case the establishment of a State owned undertaking to compete on a level playing field with new entrants was a necessary step in the context of opening up the market. The Norwegian authorities recall that the national authorities remain free to decide on how the opening of the market should take place. The authorities also note that the opening of the road operation and maintenance markets for competition is better for competition than any of the alternatives of continuing to carry out the services within the State, or open up the market for competition only in part.

Finally, when the effect on competition is considered account must be taken of the overall economic effect of restructuring the road maintenance and operation activities: Mesta AS was established with a structural disadvantage compared to its competitors. Hence from an economic perspective Mesta AS was not in a situation comparable to that of its competitors as Mesta AS bore the burden derived from the former Production Department within the State. Therefore, when analysing the effects on competition account must be taken of the principle of neutrality set out in Article 125 EEA. In the view of the Norwegian authorities this means that it must be acceptable to compensate Mesta AS for structural disadvantages for purposes of establishing a commercially geared company. The authorities also note that the aid for the restructuring measures was limited to what was necessary in order to open up the market for competition. Finally, the process has not adversely affected trading conditions to an extent contrary to the common interest.

4.2. TRANSITIONAL CONTRACTS

The Norwegian authorities point out that the prices at which both the construction contracts and the operation and maintenance contracts were transferred to Mesta AS are the same as those used for determining the generation of revenue in the context of the discounted cash flow analysis. Hence the contracts, as assets, formed part of the assessment of the total value of the business which in turn formed part of the contribution in kind. There is therefore no State aid within the meaning of Article 61(1) EEA in the contracts as contribution in kind. Consequently it is not necessary to assess whether the contracts were transferred to Mesta AS at market price.

In any event, with respect to the construction contracts the Norwegian authorities point out that due to having followed internal guidelines, the prices at which the construction contracts were transferred correspond to the price level resulting from public tenders.

As regards operation and maintenance contracts, on 1 January 2003 there was no market price, or any reliable source indicating a market price since all operation and maintenance services were carried out by the Production Department (135). In the view of the Norwegian authorities the market for operation and maintenance works was not opened for competition on 1 January 2003 but only on 1 September 2003 (and only in part) (136). Until 1 January 2003 the Public Road Administration had been responsible for 100 % of the operation and maintenance works in relation to the public road network. Since there was therefore no market for the relevant services on 1 January 2003, there was no alternative than to transfer the transitional contracts at the cost based prices previously fixed in the Production Department. None of the third party comments weaken this point of view.

In this context the Norwegian authorities have also argued that the reason that there was no (mature) market was because private operators were not prepared to provide the relevant services for maintaining road safety on 1 January 2003 (137). It was therefore considered in the best interest of all to open the operation and maintenance market gradually: A gradual opening would ensure a rational allocation of the contracts because operators would be relieved from having to prepare bids in respect of the full contract portfolio on one and the same day. A gradual opening would also be in line with the need for operators to gradually increase skills as service providers during the transitional period and hence a maturation of the market (138). Finally, a gradual opening would be administratively easier and allow the Public Road Administration to develop the skills as a purchaser of the relevant services (139). According to the Norwegian authorities preparatory legislative work confirm this approach by highlighting that such elements were the reason that the market was not yet mature for competition on 1 January 2003 (140).

In the event that the Authority should consider that market operators were in a position to provide the relevant services the Norwegian authorities argue that there were no reliable sources referring to prices lower than those fixed in the transitional contracts. The five pilot contracts could not have been used as reference prices as they formed part of a process for ‘professionalising’ the Public Road Administration. This process included the preparation of a model contract on operation and maintenance which should be tested out by means of internal operation and maintenance contracts (141) and the five pilot contracts (142), thereby allowing the Public Road Administration to gain experience as a ‘contracting authority’. The purpose of the pilot contracts was therefore not to test the market for a market price.

Moreover, the bids submitted for the pilot contracts varied considerably (for example, for the Våler/Åsnes contract the highest bid was NOK 63 million while the lowest was NOK 30,4 million). Such variety demonstrate that the market was immature and the prices could therefore not have constituted a reliable indication of the price level (143). Moreover, as the pilot contracts represent less than 2 % of the total road network (1 000 out of a total of 54 000 kilometres) they cover a small geographic area. Furthermore, the duties under the pilot contracts covered additional works (144). An illustrative example is the Bærum contract won by Selmer ASA at an original contract price of NOK 74 940 323. However, additional works meant that NOK 18 726 793 had to be added, thereby increasing the contract price with 25 %. The volume of additional works in the pilot phase shows that the Public Road Administration miscalculated the work load involved in operation and maintenance contracts. However, such additional works were included in the transitional contracts transferred to Mesta AS. In this regard the authorities draw the attention to the fact that Report 118 warns against comparing experiences obtained in the context of the Bærum contract with other contracts (145). In the view of the Norwegian authorities the pilot contract prices could therefore not be used as reliable market price indicators.

Aside from this the Norwegian authorities object to the suggestion in the Opening Decision (and as reiterated by Veidekke ASA) that the price level of the first group of operation and maintenance contracts subject to public tendering in 2003 could be representative for establishing a price level for the remaining transitional operation and maintenance contracts. The Norwegian authorities argue that this price level is not reliable as the market of operation and maintenance services is not mature even today in the sense that it is impossible to foresee the results of a public procurement procedure. The significant difference between the highest and the lowest bids in the contracts illustrate this. The lowest difference was 2 % while the highest difference was 113 %. This is not a sufficient basis for identifying a market price. The Norwegian authorities questions whether a market price can be established by reference to the lowest bid in an immature market. The Norwegian authorities consider that the price level of the transitional contracts did not exceed ‘what should be regarded as a sustainable market price at the time the transitional contracts were transferred …’. In any event the assessment must be based on the facts available at the time of establishing the company.

However, should the Authority come to the conc