EN Official Journal of the European Union C 366/4

Invitation to submit comments pursuant to Article 1(2) in Part I of Protocol 3 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice on potential State aid through a lease of an optical fibre previously operated on behalf of NATO

2014/C 366/05

By means of Decision No 299/14/COL of 16 July 2014, reproduced in the authentic language on the pages following this summary, the EFTA Surveillance Authority (‘the Authority’) initiated proceedings pursuant to Article 1(2) of Part I of Protocol 3 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice. The Icelandic authorities have been informed by means of a copy of the decision.

By means of this notice the EFTA Surveillance Authority gives the EFTA States, EU Member States and interested parties notice to submit their comments on the measure in question within one month of the date of publication to:

EFTA Surveillance Authority Registry Rue Belliard/Belliardstraat 35 1040 Bruxelles/Brussel BELGIQUE/BELGIË

The comments will be communicated to the Icelandic authorities. The identity of the interested party submitting the comments may be withheld following a request in writing stating the reasons for the request.

SUMMARY

1. Procedure

On 29 July 2010 the Authority received a complaint on behalf of Míla (1) concerning alleged unlawful State aid granted by the Ministry for Foreign Affairs in Iceland through leases for the use and operation of two optical fibres which were previously operated by the North Atlantic Treaty Organisation (‘NATO’). The Authority subsequently engaged in correspondence with both the complainant and the Icelandic authorities from the period August 2010 until November 2012.

On 21 November 2012, the Authority adopted Decision No 410/12/COL concluding that the lease by the Defence Agency of the Ministry for Foreign Affairs with Og fjarskipti (Vodafone Iceland) for the use and operation of an optical fibre did not involve State aid within the meaning of Article 61 of the EEA Agreement.

On 19 February 2013, Míla lodged an application to the EFTA Court for the annulment of the Decision. By Judgement of 27 January 2014 in Case E-1/13, the EFTA Court decided to annul the Authority’s Decision (2).

2. Description of the measure

In August 2007 a working group was appointed by the Ministry for Foreign Affairs, with the purpose to draw up proposals for streamlining the operation and utilisation of the NATO optical fibre (3). The main objectives of the working group was: (i) to lower the costs related to the operation and maintenance of the fibres; (ii) to improve public access to high speed connection, especially in rural areas of Iceland; and (iii) to encourage competition in data transmission on the domestic market. A call for tender for a lease of two of the three fibres was considered to be the most feasible way to achieve these objectives and receive favourable offers.

In April 2008, the State Trading Centre (i. Ríkiskaup) invited tenders for the use and operation of two out of three optical fibres to be leased out to two unrelated parties, with the intention of negotiating a lease for the duration of 10 years. The closing date for submitting offers was on the 19 June 2008.

Taking into account the objectives of the project, the assessment of offers was based on the following award criteria: (i) ‘stimulation of c’ompetition 40 out of 100 points; (ii) ‘rental charge’ 15 points; (iii) ‘commencement of services’ 10 points; (iv) ‘supply of services’ 10 points; (v) ‘number of network termination points’ 15 points; and (vi) ‘one tariff through the country’ 10 points.

The outcome of the tender was that five offers were received from four independent undertakings. All four companies submitting bids were deemed to meet the requirement of technical capacity to perform the project as well as the general and financial requirements. The two companies scoring highest on the basis of the award criteria were Fjarski ehf. (92,18 points) and Vodafone (89,67 points). Negotiations were entered into with those two companies. Due to the financial crisis in Iceland which began to take hold in the fall of 2008, negotiations did not take place until late 2009 and were subsequently finalised early 2010. Fjarski ehf. however decided to pull out of the project. A lease contract was therefore negotiated with Vodafone for only one of the two fibres.

The contract, concluded on 1 February 2010 between Vodafone and the Icelandic Defence Agency, provides for the use of an optical fibre belonging to the eight-fibre, 1 800 km long optical cable circling Iceland, as set out in the description of Project No 14477 by the Ministry for Foreign Affairs. The annual lease is set at ISK 19 150 000, indexed according to the building cost index. The term of the contract is 10 years. The price charged for the rental of the fibres was intended to cover as a minimum the government’s operating costs.

The Authority received a complaint in July 2010 from Mila relating to the contract referred to above. The complainant claims that the awarded contract involves State aid in the form of a rent for the use of the optical fibre at a price significantly below what a market investor would have deemed acceptable. Furthermore, it is claimed that by only charging for the operating costs of the fibres, the lessee was relieved of the financial burden normally incurred by companies in the same business and incurred by the complainant. In particular, an appropriate contribution to fixed costs and an adequate return on the capital investment was considered to be missing. The complainant also maintains that the method of selection laid down in the tender effectively excluded Míla from the tendering process, as it was the only party operating in the market and was therefore by definition unable to acquire 40 % of the points used in the selection evaluation for stimulation of competition. Míla did not submit a bid in the tender, as it already had sufficient capacity on its own five fibres in the same cable. However, for Míla’s potential bid to be successful, the rental price offered would have had to be much higher than the bids from other parties.

3. Comments by the Icelandic authorities

The Icelandic authorities submit that the leasing out of the NATO optical fibres does not constitute State aid as the award of the contract does not confer any economic advantage upon the lessee which goes beyond market conditions and furthermore claims that the measure does not entail the use of state resources and does not distort or threaten to distort competition. On the contrary, the lease and the tender procedure served to make infrastructure competition possible in the leased-line market where there was only one market player at the time. The measure therefore does not fulfil the conditions for constituting State aid within the meaning of Article 61(1) of the EEA Agreement.

4. Assessment

4.1. The presence of State aid

The property rights of the fibres lie with NATO whereas the Icelandic government has a wide-ranging right of use and other exploitation rights according to arrangements concluded between NATO and the Government of the United States of America. Given that the important factor is not the origin of the resources but the degree of control of the public authority, the presence of state resources cannot be ruled out. The Authority is therefore of the opinion that the lease of the optical fibre can be considered to involve the transfer of state resources within the meaning of Article 61(1) of the EEA.

An advantage, within the meaning of Article 61(1) of the EEA, is any economic benefit which an undertaking would not have obtained under normal market conditions, thus placing it in a more favourable position than its competitors. To assess whether a public authority has acted like a private economic operator, the European Courts have developed the ‘market economy investor principle’ (4), which in essence provides that State aid is granted whenever a state makes funds available to an undertaking which in the normal course of events would not be provided by a private investor applying ordinary commercial criteria. A closely related concept is the private vendor test the purpose of which is to assess whether a sale or leasing of assets carried out by a public body involves State aid, by examining whether a private vendor, under normal market conditions, could have obtained the same or a better price. According to established case law, national authorities can use public tendering for the purposes of establishing the market price and to ensure that a sale takes place under market conditions (5). The compliance with market conditions and whether the rental charge corresponds to market price can be established through certain proxies. The most important criterion for selection should be the highest price while also taking into consideration the requested contractual arrangements and other elements concerning the value of the optical fibres (6).

The complainant and the Icelandic authorities have presented seemingly conflicting views. The Icelandic authorities maintain that normal public procurement rules were followed, that the invitation for tender was well-publicised and that participation was open to all parties meeting the general, financial and technical requirements. Furthermore, the Icelandic authorities maintain that the criterion for selecting bids was applied to all potential bidders in the same way. Equality and fair competition were therefore ensured. The complainant however maintains that the method of selection laid down in the tender was flawed and that the price or leasing charge criterion was accorded an insignificant weight of just 15 %.

The EFTA Court, basing itself on the presumption that the Authority had in its decision applied the market economy investor test, considered that the award criteria in the tender did not reflect what a private vendor would consider relevant when tendering out a lease. The award criteria other than price appeared to reflect public policy or regulatory considerations, which a private investor would not consider to be relevant.

Bearing in mind the above, the Authority has doubts regarding the award criteria of the tender procedure and is not convinced that the tender procedure provided a reliable proxy for establishing a market price. Accordingly, the Authority cannot exclude that the measure under assessment may involve State aid. When faced with doubts, the Authority must open the formal investigation procedure.

4.2. Compatibility of the aid

On the basis of Article 61(3)(c) of the EEA Agreement ‘aid to facilitate the development of certain economic activities or of certain economic areas’ may be considered compatible with the functioning of the EEA Agreement, where such aid does not affect trading conditions and competition in the EEA to the extent that is considered to be contrary to the common interest. However, the Icelandic authorities have not put forward sufficient arguments demonstrating that the State aid involved could be considered compatible with Article 61(3) of the EEA. The Icelandic authorities have referred to the objective of the measure to increase public broadband access in assisted areas but have not provided documents to justify such arguments.

The Icelandic authorities have also submitted that if the Authority were to view the lease of the fibres as State aid, then it would qualify as a compensation for a service of general economic interest under Article 59(2) EEA. However, based on the information at hand the Authority cannot at this stage conclude on the compatibility of the measure on this basis. The Authority therefore invites the Icelandic authorities to provide further information in that regard.

Consequently, following its preliminary assessment, the Authority has doubts whether the lease of the optical fibres could be deemed compatible under Article 61(3)(c) of the EEA Agreement, at this stage. The Authority therefore invites the Icelandic authorities to provide the Authority with arguments to demonstrate that the lease could be considered to be compatible with Article 61 of the EEA Agreement.

5. Conclusion and invitation to submit comments

In light of the foregoing considerations, the Authority decided to open the formal investigation procedure in accordance with Article 1(2) of Part I of Protocol 3 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice with regard to the potential aid through a lease of an optical fibre previously operated on behalf of NATO.

Interested parties are invited to submit their comments within one month from publication of this notice in the Official Journal of the European Union.

In accordance with Article 14 of Protocol 3, all unlawful aid can be subject to recovery from the recipients.

(1) Míla’s core activities are the building up and operation of telecommunication networks in Iceland.

(2) Case E-1/13 Míla ehf. v EFTA Surveillance Authority, 27.1.2014 (not yet reported).

(3) Previously operated by the Radar Agency (i. Ratsjárstofnun) under the auspices of the US authorities, but subsequently taken over by the Defence Agency (i. Varnarmálastofnun). The Radar Agency operated three optical fibres in the approximately 1 800 km long, eight-fibre optical cable circling Iceland and its North-West region.

(4) See for example T-2/96 and T-97/96 Neue Maxhütte Stahlwerke and Lech-Stahlwerke v Commission [1999] ECR II-17, paragraph 104 and Joined Cases T-228/99 and T-233/99 Westdeutsche Landesbank Girozentrale and Land Nordrhein-Westfalen v Commission [2003] ECR II-435.

(5) See Joined Cases C-214/12 P, C-215/12 P and C-223/12 P Land Burgenland v European Commission [not yet reported], paragraph 93 and Case c-214/07 Commission v France [2008] ECR I-8357, paragraphs 59-60.

(6) Joined Cases T-268/08 and T-281/08 Land Burgenland and Austria v Commission [2012] ECR II-0000.