Report to the Laeken European Council - Services of General Interest
Date: 2001-10-18
Institutions: European Commission
Subjects: State aid, application of EU law, consumer protection, economic development, private sector, provision of services, public service, report

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 17.10.2001
COM(2001) 598 final

REPORT TO THE LAEKEN EUROPEAN COUNCIL

Services of General Interest

(Presented by the Commission)

TABLE OF CONTENTS

1.

2.

Introduction.............................................................................................................. 3

Ensuring economically viable services of general interest in the internal market....... 5

2.1.

The compensation of public service obligations under state aid rules........................ 6

2.1.1. Community Framework............................................................................................ 6

2.1.1.1. The qualification of compensation as aid .................................................................. 6

2.1.1.2. The conditions of compatibility ................................................................................ 6

2.1.1.3. Notification .............................................................................................................. 9

2.1.2. Measures to improve legal certainty ......................................................................... 9

2.1.2.1. A two-phased approach ............................................................................................ 9

2.1.2.2. Further measures to increase transparency .............................................................. 10

2.2.

The Application of Community rules to the selection of the Provider ..................... 11

3.

Ensuring a high-level performance of services of general interest for European
citizens and businesses ........................................................................................... 12

3.1.

An efficient evaluation of the performance of services of general interest............... 12

3.1.1.

Sectoral Reporting.................................................................................................. 13

3.1.2. An annual evaluation in the framework of the Cardiff process ................................ 14

3.1.3. Benchmarking in other areas of services of general interest .................................... 16

3.2.

Developing the principles of Article 16 .................................................................. 16

4.

Conclusion ............................................................................................................. 20

Annex .................................................................................................................................. 22

2

An essential
building block
of European
societies

1.

1.

2.

Role recognised
by theTreaty
and the
Fundamental
Rights Charter

Public sector
intervention
in cases of
market failure

Two
Communications
set out principles
and objectives of
Commission
policies

3.

4.

1

2

INTRODUCTION

In a world of change, services of general interest remain an essential building
block of the European model of society. European citizens and businesses have
come to expect the availability of a wide spectrum of high-quality services of
general interest at affordable prices. These services contribute to the quality of
life of citizens and are a prerequisite for fully enjoying many of their
fundamental rights. Access to services of general interest by all their members
is one of the common values shared by all European societies. Services of
general interest contribute to the competitiveness of European industry and
strengthen the social and territorial cohesion in the European Union. They are a
vital component of the Community’s consumer protection policy. For the
accession countries well-functioning services of general interest are essential
for their smooth integration into the European Union.

The importance European citizens and businesses attach to maintaining and
developing such services is taken into account by the policies of the European
Union. At the level of the European Union, the role of services of general
economic interest has been explicitly recognised in Article 16 of the EC
Treaty, introduced by the Treaty of Amsterdam. More recently, the access to
services of general economic interest was also placed among the fundamental
rights of the European Union. Article 36 of the Charter of Fundamental Rights
of the European Union1, solemnly proclaimed at the European Council of Nice,
provides:

“The Union recognises and respects access to services of general economic
interest as provided for in national laws and practices in accordance with the
Treaty establishing the European Community, in order to promote the social
and territorial cohesion of the Union.”

The market, left to itself, does a good job of supplying many services of
general interest for many people. However, sometimes markets fail to deliver
socially desirable objectives and, as a result, services are underprovided by the
market. This can for example be because (i) the individual or the market fail to
appropriately value all benefits occurring in the future or generated for society
as a whole (e.g. in the case of education), (ii) a desire by society to encourage
the provision and use of “merit goods” and “club goods” such as museums, or
(iii) the society’s aspiration to ensure that all citizens, including the poorest can
have access to certain services of an adequate quality. In such cases public
sector intervention may be necessary.

The Commission has set out the principles of its policies and its objectives in
the area in two complementary communications on “Services of General
Interest in Europe” of 1996 and 20002. In its Communication of 1996 the
Commission clarified in particular that the provision and development of high-

OJ C 364, 18.12.2000, p. 1
OJ C 281, 26. 9. 1996, p. 3. and OJ C 17, 19. 1. 2001, p. 4

3

Concerns
expressed by
the European
Council at
Nice

quality services of general interest is fully compatible with the Treaty rules and
that the Treaty allows to take full account of the specificities of such services.
Recognising the need to increase legal certainty for Member States and
operators concerned the 2000 Communication explains the scope and criteria
of application of internal market and competition rules of the Treaty.

5.

The European Council of Nice of 7, 8 and 9 December 2000 noted “the
Commission’s intention to consider, in close cooperation with the Member
States, ways of ensuring greater predictability and increased legal certainty in
the application of competition rules relating to services of general interest”
and approved a Statement of the Internal Market Council of 28 September
2000 setting out two specific concerns:

–

–

internal market and competition rules should allow
“Application of
services of general economic interest
to perform their tasks under
conditions of legal certainty and economic viability which ensure inter
alia the principles of equal treatment, quality and continuity of such
services. There is a need here especially for clarification of
the
relationship between methods of funding services of general interest and
the application of the rules on State aid. In particular, the compatibility
of aid designed to offset the extra costs incurred in performing tasks of
general economic interest should be recognised, in full compliance with
Article 86(2).

to
The contribution made by services of general economic interest
economic growth and social well-being fully warrants
regular
assessment, in compliance with the principle of subsidiarity, of the way
in which their tasks are being performed, particularly in terms of quality
of service, accessibility, safety and fair and transparent pricing. Such
assessment could be conducted on the basis of exchanges of good
practice or peer review, contributions from the Member States and
reports by the Commission, at the appropriate level, for example under
the Cardiff process. Citizens and consumers could also be consulted,
inter alia, via a forum such as that on ‘The internal market in the service
of citizens and SMEs’.”

6.

Report addresses
these concerns

The European Council invited the Commission to report back on services of
general interest to the European Council at Laeken in December 2001. This
Report is submitted in response to this request. It does not intend to give a
comprehensive overview of the policies on services of general interest at
Community level and it does not replace the Communications of 1996 and
2000. These Communications and, in particular, the definitions, principles and
objectives set out therein remain valid3. The present Report serves the more
limited purpose of complementing these Communications by addressing the
specific concerns raised by the Internal Market Council and by taking account

3

For ease of reference, the definitions of terms used in the Communications of 1996 and 2000 are
set out in Annex

4

Public
authorities
are generally
free to
organise

Services of
general
interest need
financial
equilibrium

Treaty has
proven to be
sufficiently
flexible to
allow
financing

Commission has
already
taken
steps to increase
egal certainty

2.

7.

8.

9.

10.

4

5

of additional comments on the Communication of September 2000 received by
Member States and interested parties.

ENSURING ECONOMICALLY VIABLE SERVICES OF GENERAL INTEREST IN THE
INTERNAL MARKET

As a general rule, Community law leaves it up to the Member States to decide
whether they provide public services themselves, directly or indirectly (through
other public entities), or whether they entrust their provision to a third party.4
Where an economic activity with a Community dimension is exercised,
compliance with the rules and principles of the Treaty aiming at ensuring equal
treatment and fair competition between (public and private) operators meeting
the defined requirements guarantees that these services are managed under the
economically most favorable conditions available on the market.

Services of general interest should be able to fulfil their role in conditions of
financial equilibrium. Today a number of services of general interest can be
profitably provided under market conditions and do not require any additional
support. Other services of general interest need some form of support in order
to be viable. The borderline between these two categories of services is not
fixed but may evolve as a result of technological and economic developments.

funds or

from structural

from TEN
Whilst Community funding, e. g.
programmes, may contribute to their financing, it is up to the Member States to
ensure the financial stability of services of general interest. However, the
Treaty allows the Member States to grant the necessary support for services of
general interest that would otherwise not be economically viable. Moreover,
sector-specific directives addressing the issue of services of general economic
interest allow for the creation of funds or other mechanisms of compensation to
the possibilities of
finance the provision of those services. In principle,
Member States to grant financial support for the provision of a service of
general economic interest can be restricted by Community rules on state aid. In
practice, this Treaty framework has so far always proven to be sufficiently
flexible to allow the funding of services of general interest by Member States
wherever this was necessary.

Given the diversity of these services, of their organisation and their modes of
funding the application of the internal market and competition rules sometimes
raises complex issues.
In the Communication of September 2000 the
Commission therefore committed itself to continue to reflect on the best use it
can make of the instruments it has at its disposal to increase legal certainty.
Since then, the Commission has taken a number of measures in that respect that
are also of relevance for services of general interest5.

Except where otherwise provided in specific Community law, such as in the transport sector
On 12 January 2001, the Commission adopted three block exemption regulations on training aid,
on de minimis aid and on aid to small and medium-sized enterprises (OJ L 10, 13.1.2001, p. 20,
30, 33). Furthermore, the Commission has adopted guidelines on State aid for environmental

5

11.

2.1.

12.

Selection of
provider and
inancial
compensations
must still be
addressed
specifically

Many
providers
receive
financial
compensation

However, the discussion subsequent to the adoption of the Communication of
September 2000 has shown that in particular the application of Community
rules to the selection of one or more providers of a service of general economic
interest and the issue of financial compensation of public service obligations
under the state aid rules still need to be specifically addressed.

The compensation of public service obligations under state aid rules

Many providers of services of general interest receive some form of public
funding as a compensation for the public service obligations entrusted to them.
Public authorities in the Member States, providers of services of general
interest as well as interested third parties therefore need certainty as to the
application of state aid rules on such compensations.

2.1.1. Community Framework

13.

Focus on basic
principles

The general framework defined by the internal market and competition rules of
the Treaty have already been explained in detail in the Communication of
September 2000. Therefore, this section will be limited to recalling some basic
principles applying under the Community state aid rules to compensations
granted for fulfilling public service tasks.6

2.1.1.1. The qualification of compensation as aid

14.

Compensation
payments can be
state aid

A financial compensation granted by the State to the provider of a service of
general interest constitutes an economic advantage within the meaning of
Article 87 (1). Referring to the fact that Article 87 (1) does not distinguish
between measures of State intervention by reference to their causes or aims but
defines them in relation to their effects, the Court of First Instance confirmed
that financial advantages granted by public authorities to an undertaking in
order to offset the cost of public service obligations classify as aid within the
meaning of Article 87 (1)7. Subject to a possible development of the case law

protection (OJ C 37, 3.2.2001, p. 3), a communication on the methodology for analysing State
aid linked to stranded costs in the electricity sector
(http://www.europa.eu.int/comm/competition/state_aid/legislation/aid3.html#electricity) and a
communication on the application of state aid rules to public service broadcasting (C(2001)
3063, 17.10.2001). In its communication on “Certain legal aspects relating to cinematographic
and other audiovisual works” (COM(2001) 534, 26.09.2001) the Commission has provided a
general orientation with regard to state aid to the cinema sector. In addition, the Commission has
since adopted the State aid scoreboard 2001 (COM(2001) 412, 18.7.2001) and made available its
State aid register
The Commission services have prepared a working document explaining the application of state
aid rules to compensations in detail
CFI, Judgement of 27 February 1997, Fédération Française des Sociétés d'Assurances (FFSA)
and Others v. Commission, Case T-106/95, [1997] ECR II-229; confirmed in ECJ, Order of 25
March 1998, Case C-174/97 P, [1998] ECR I-1303; CFI, Judgment of 10 May 2000, SIC -
Sociedade Independente de Comunicação SA v Commission, Case T-46/97 [2000] ECR II-2125

6

7

6

of the Court, compensation payments must therefore be subject to the State aid
rules if the other conditions of Article 87 (1) are met8.

2.1.1.2. The conditions of compatibility

15.

Compensation
aid can be
compatible

Conditions of
compatibility
under Article
86 (2)

16.

8

9

10

11

If a compensation is caught by the general prohibition of State aid under
Article 87 (1)
it can still be compatible with Community law. Such
compensation can either qualify for one of the specific exemptions under
Articles 87 (2) and (3) or 73 in the case of inland transport or it may qualify for
a derogation under Article 86 (2) of the Treaty. Whilst the application of
Articles 87 (2) and (3) has not posed specific problems in the area of services
of general interest, and the application of Article 73 is specified in secondary
legislation9, the application of Article 86 (2) warrants further clarification.10
Article 86 (2) provides:

"Undertakings entrusted with the operation of services of general economic
interest or having the character of a revenue-producing monopoly shall be
subject to the rules contained in this Treaty, in particular to the rules on
competition, insofar as the application of such rules does not obstruct the
performance, in law or in fact, of the particular tasks assigned to them. The
development of trade must not be affected to such an extent as would be
contrary to the interests of the Community."

According to this provision, aid granted to a provider of a service of general
economic interest is in principle compatible with the Treaty if it is necessary
for the performance of its public service obligations. In its Judgement in the
FFSA case, the Court of First Instance held that: "the grant of State aid may,
under Article 90(2) of the Treaty, escape the prohibition laid down in Article
92 of that Treaty provided that the sole purpose of the aid in question is to
offset the additional costs incurred in performing the particular task assigned
to the undertaking entrusted with the operation of a service of general
economic interest and that the grant of the aid is necessary in order for that
undertaking to be able to perform its public service obligations under
conditions of economic equilibrium (Corbeau, paragraphs 17 to 19).
Determining whether the aid is necessary entails a general assessment of the
economic conditions in which the undertaking in question performs the
activities in the reserved sector, without taking account of any benefits it may
draw from the sectors open to competition." (para. 178)11.

These conditions are explained in the Commission Communication of September 2000, OJ C 17,
19. 1. 2001, p. 4
Regulation 1191/69 and Regulation 1107/70 which are currently the subject of proposals for
updating (COM(2000) 7 and 5 of 26.7.2000 respectively)
For the evaluation of the compatibility of compensations to public broadcasters reference should
also be made to the Protocol on the system of public broadcasting in the Member States, annexed
to the Treaty of Amsterdam, amending the Treaty on European Union (in force since 1st May
1999), OJ C 340, 10.11.1997, p. 109, and to the Commission communication on the application
of state aid rules to public service broadcasting of 17.10.2001
The numbering of the Treaty Articles has been changed by the Treaty of Amsterdam. The
Article referred to by the Court is now Article 86 (2)

7

17.

18.

19.

20.

Compatibility
that
requires
aid does not
exceed extra-
costs

Member
States have a
large margin
of discretion
regarding the
means

Compensation
granted on the
basis of a
selection
procedure

Case practice

The method applied by the Court consists in assessing the amount of extra-
costs resulting from the public service obligations, and in comparing this
amount with the amount of aid granted. If the amount of aid does not exceed
the amount of the extra-costs, this aid is in principle admissible on the basis of
Article 86 (2)12.

As regards the means to ensure the compensation, Member States have in fact a
large margin of discretion. Depending on the specific needs of the undertakings
concerned, these can receive annual subsidies, a preferential fiscal treatment,
lower social contributions etc. The decisive element for the Commission lies in
the fact that the value of these advantages does not exceed the extra-costs of
the undertakings concerned for the provision of a service of general economic
interest. Similarly, in accordance with Article 295 the Commission's approach
is neutral as regards the public or private nature of the undertakings concerned.
This choice is entirely up to the Member States.

If a service of general economic interest was attributed as a result of a fair,
transparent and non-discriminatory procedure13, as regards the services to be
provided and the amount of compensation, this amount of compensation is
normally deemed to be compatible with the requirements of Article 86 (2),
provided that the procedure was effectively competitive.

The Commission's experience shows that in practice there are relatively few
cases in which the amount of compensation was contested or even the subject
of a complaint. These problems arise essentially in sectors that were liberalised
fully or in part, like telecommunications, transport or postal services. They may
also arise in the broadcasting sector. The issues raised include possible cross-
subsidies from public service activities to non-public service activities as well
as the amount of compensation. In this regard, the Commission thinks that it is
necessary that the requirements of Commission Directive 80/723/EEC of 25
June 1980 on the transparency of financial relations between Member States
and public undertakings as well as on financial transparency within certain
undertakings14 are strictly respected. In particular, the Member States must put
in place the necessary safeguards so as to avoid that aid granted for the
provision of a service of general economic interest are in fact used, even if it is
only in part, to subsidise non-public service activities. Such cross-subsidies
cannot be accepted.

Entrustment
by public
authority

21.

The application of these principles requires however that
the obligations
imposed on the undertaking entrusted with the service are specified in an act of
in a contract concluded with the competent public
public authority or

12

13

14

For example, the Commission applied this approach in two decisions adopted in 1999. In these
decisions it was found that the amount of the compensation did not exceed the cost inherent in
the provision of the public service and was therefore compatible with Article 86 (2) (Decision of
24.2.1999, Kinderkanal/Phoenix Case NN 70/98, and Decision of 29.9.1999 BBC News, Case
NN 88/98)
In particular on the basis of an open tender, as provided for in the applicable legislation
OL L 195, 29.7.1980, p. 35, as last amended by Directive 2000/52/EC of 26 July 2000, OJ L
193, 29.7.2000, p. 75

8

authority15. The amount of the compensation must in any event be determined
on the basis of clear, transparent and non-discriminatory rules. For example,
Regulation 1191/69 provides in the area of inland transport for an exemption
from the obligation to notify compensation based on formulae laid down in
advance rather than on the retrospective making good of deficits.16

A derogation from the Treaty rules under Article 86 (2) must not affect the
development of trade to an extent contrary to the Community interest.

Furthermore, it should be noted that the Commission cannot authorise State aid
that is infringing other provisions of Community law17. In this respect, the
Commission considers that the compliance with the rules set out in Council
Directive 92/50/EEC, and with the rules and principles of the Treaty as laid
down in the Commission interpretative communication on concessions under
Community law on public contracts18, will considerably reduce the risk that the
award procedure infringes Treaty provisions other than Articles 86 to 88.

22.

23.

Affectation of
trade

Aid infringing
other provisions
of Community
law

2.1.1.3. Notification

Principle

Exceptions

24.

25.

15

16

17

18

19

20

21

22

In principle, all compensations qualifying as aid must be notified. According to
the case law of the Court of Justice the obligation of prior notification set out in
Article 88 is a general obligation covering all aid in order to prevent the
implementation of aid contrary to the Treaty19. Aid must therefore be notified
to the Commission before it is granted, even if an aid qualifies for a derogation
and is compatible with the Treaty.

In the current legal situation, there are only two relevant exceptions to this
obligation: First, a notification is not necessary if the aid granted is a « de
minimis » aid meeting the conditions of Commission Regulation 69/2001 of 12
January 200120. Second, compensations granted in conformity with the
requirements set out in Council Regulation 1191/69 of 26 June 1969 on action
by Member States concerning the obligations inherent in the concept of a
public service in transport by rail, road and inland waterway21 are exempted
from notification. Furthermore, the Commission will propose an adjustment of
procedures for notifying state aid in cases relating to compensation for public
service obligations on links to the Community's outlying regions and small
islands.22

Article 4 of Regulation 3577/92 on maritime cabotage provides for an exception in the area of
maritime transport
Council Regulation (EEC) 1191/69 of 26 June 1969 on action by Member States concerning the
obligations inherent in the concept of a public service in transport by rail, road and inland
waterway, OJ L 156, 28.6. 1969, p. 1
CFI, Judgement of 27 September 2000, BP Chemicals v. Commission, CaseT-148/97, [2000]
ECR II-3145 (para. 55, 77)
OJ C 121, 29.4.2000, p. 2
Case C-332/98 Coopérative d'Exportation du Livre Français (CELF) [2000] ECR I-4833
OJ L 10, 13.1.2001, p. 30
OJ L 156, 28.6.1969, p. 1
White Paper for an European transport policy for 2010 COM(2001)370 final, 12.9.200

9

26.

Compensation
schemes

It should be highlighted that, like in other areas of State aid, the Member States
can notify individual compensation projects or compensation schemes to the
Commission. When these schemes are approved by the Commission,
the
individual aid granted in accordance with these schemes do not normally have
to be notified to the Commission.

2.1.2. Measures to improve legal certainty

2.1.2.1. A two-phased approach

A two-phased
approach to
increase legal
certainty

1: a Community
framework

27.

28.

29.

2: An exemption
regulation, if and
to the extent
justified

In view of its commitment to continue exploring ways of increasing legal
certainty for services of general interest combined with an efficient application
of state aid rules the Commission held a meeting with representatives of the
Member States on 7 June 2001 in order to better understand the difficulties
encountered by the Member States in ensuring the financing of services of
general interest. Based on its discussions with Member States and interested
parties as well as on its case experience the Commission is considering a two-
phased approach.

As a first step, the Commission intends to establish during 2002, in close
consultation with the Member States, a Community framework for State aid
granted to undertakings entrusted with the provision of services of general
economic interest. Such a framework will
inform Member States and
undertakings of the conditions under which state aid granted as compensation
for the imposition of public service obligations can be authorised by the
Commission. It could in particular specify the conditions for the authorisation
of state aid schemes by the Commission, thus alleviating the notification
obligation for individual aid.

justified,

this framework, and,

if and to the extent

As a second step, the Commission will evaluate the experience gained with the
the
application of
Commission intends to adopt a regulation exempting certain aids in the area of
services of general economic interest from the obligation of prior notification.
This so-called block exemption would have to specify precise circumstances in
which public funding would not be considered as a State aid under the Treaty
as it does not fulfil all the conditions of Article 87 (1) and/or define precise
criteria that ensure that where such funding is State aid, it is compatible with
the Treaty. One example of such criteria could be the provision of a service of
general economic interest attributed in a fair, transparent, non-discriminatory
and competitive tendering procedure.23 The regulation could cover all areas of
services of general interest or be limited to specific sectors. It could also be
used to improve legal certainty in areas such as local and social services of
general interest. In order to prepare for the possible adoption of such a block

23

Another example can be found in the Commission’s proposal for a Regulation concerning the
granting of aid for the co-ordination of transport by rail, road and inland waterway, COM (2000)
5, 26.7.2000

10

exemption regulation, the Commission would need to submit in due time a
proposal for an amendment of Council Regulation 994/199824.

2.1.2.2. Further measures to increase transparency

Definitive a
priori list of
non-economic
activities
would not be
feasible

A section will
be added in
he annual
competition
report

Cases will
be
dentified in the
State aid register

Member States
must comply with
rules on selection
of provider

30.

31.

32.

2.2.

33.

24

25

26

27

28

Given that, as explained in the Communication of September 2000, all services
of general interest that do not constitute an economic activity are not subject to
the competition rules and the internal market rules, it has been suggested to the
Commission to produce a list of services of general interest that are of a non-
economic nature. As regards the distinction between economic and non-
economic activities the Court of Justice has consistently held “that any activity
consisting in offering goods and services on a given market is an economic
activity”25. In practice,
this
distinction does not create any problems. However, the abstract definition of
“non economic” service has proven to be very difficult. In addition, the range
is subject to technological,
of services that can be provided on a market
economic and societal change and has evolved over time. Therefore, whilst a
list of examples can of course be drawn up26, it would not be feasible to
provide a definitive a priori list of all services of general interest that are to be
considered “non economic”.

in most cases of services of general

interest

However, in order to further increase transparency with regard to competition
policy and services of general interest the Commission will in the future add a
to its annual report on
specific section on services of general
competition policy setting out how the competition rules were applied to such
services.

interest

Furthermore, the Commission will in the future identify cases relating to
services of general interest in its state aid register so as to facilitate access to
current case practice27.

The Application of Community rules to the selection of the Provider28

The Member States are free to decide how the service should be operated and
may decide to provide a public service themselves, directly or indirectly
(through other public entities). But where they decide to entrust the provision
of the service to a third party, they must follow the procedural rules and
principles which apply to the subsequent selection of the provider, as set out
below.

OJ L 142, 14.5.1998, p. 1
Judgement of the Court of Justice in joint cases C-180-184/98 Pavel Pavlov and Others v
Stichting Pensioenfonds Medische Specialisten [2000] ECR I-6451
Cf. the Commission Communication of September 2000, in particular paras. 28 – 30, and the
working document referred to in footnote 6
http://www.europa.eu.int/comm/competition/state_aid/register/
The rules and principles set out in this section concern the general legal framework and do not
take account of sectoral Community legislation or national legislation that is compatible with
Community law which may be applicable

11

34.

35.

36.

Exceptions

Public
procurement
directives

Award of
contracts not
covered by
public
procurement

37.

Public-private
partnerships

These rules and principles are derived from the Treaty and apply to all
contracts concluded by Member States for the provision of economic activities
within the meaning of the Treaty, independently of their qualification under
national law. However, a number of exceptions are enumerated in the Treaty.
The Treaty excludes from the application of these rules the activities connected
with the exercise of public authority and allows for derogations if they are
justified for reasons of public order, public security and public health.
Activities of a “non-economic” nature within the meaning of the Treaty are
also excluded from the scope of application of these rules and principles.29 In
addition, these Treaty rules and principles do not prejudge the possibility for
Member States to award special or exclusive rights for the management of
services of general economic interest where the conditions in Article 86, and in
particular Article 86 (2) are met30.

Where a contract by which a public authority entrusts the management of a
service of general interest to a third party fulfils the conditions provided for in
the Community directives on public procurement31, they constitute “public
contracts” within the meaning of these directives and their award must respect
the provisions set out in the above-mentioned directives.

Furthermore, in conformity with the case law of the Court of Justice, the award
of contracts that are not covered by the public procurement directives must
nevertheless comply with the relevant rules and principles of the Treaty, i.e. the
rules on the freedom to provide services and the freedom of establishment, as
well as the principles of transparency, equal treatment, proportionality and
mutual recognition. Compliance with these principles implies in general that,
save in respect of services to which the Treaty rules and principles are not
applicable in the situations described in paragraph 34 above, for the benefit of
any potential tenderer, a degree of advertising sufficient to enable the services
market to be opened up to competition and the impartiality of procurement
procedures to be reviewed is ensured32.

This is the case for service concessions and other forms of public-private
partnerships which are currently not covered by Directive 92/50/EEC. Public-
private partnerships usually refer to all forms of co-operation between public
and private sector for the management of services intended for the public.
Concessions have been qualified by the Commission as the acts attributable to
the State whereby a public authority entrusts to a third party the management
of services for which that authority would normally be responsible and for
which the third party assumes the risk. In the case of services concessions, the

29

30

31

32

Cf. para. 30 above
In the audiovisual sector, account should be taken of the Protocol on the system of public
broadcasting in the Member States, annexed to the Treaty of Amsterdam, amending the Treaty
on European Union (in force since 1st May 1999)
Cf. Directives 92/50/EEC, 93/37/EEC, 93/36/EEC, and 93/38/EEC
See Judgement of 7 December 2000 in the Telaustria case, aff. C-324/98 (para. 62)

12

38.

Application of
Community law
ensures high quality
at the best prices
available

39.

Commission will
examine further
measures for
clarification

3.

40.

Commission will
reinforce monitoring
of services of general
interest

Need for a
stronger
culture of
evaluation

3.1.

41.

33

operator bears the risk involved in operating the services in question, obtaining
a significant part of revenue from the exploitation by users33.

The Commission considers that the application of these principles and rules to
the selection of the provider can only have beneficial effects for the users as
well as for the economic operators. A correct application of these rules and
principles will ensure a better operation of services of general economic
interest by guaranteeing that they are entrusted to a provider that meets the
necessary requirements and at the most favourable market conditions. Thus the
consumers will enjoy high-quality services at the best prices available on the
market.

The Commission will examine whether additional measures are required to
further clarify the Community rules and principles applicable to the selection
of the provider of services of general interest.

ENSURING A HIGH-LEVEL PERFORMANCE OF SERVICES OF GENERAL
INTEREST FOR EUROPEAN CITIZENS AND BUSINESSES

In line with the principle of subsidiarity, it is generally up to the Member States
to define specific performance requirements for these services and to ensure
that
the
these requirements are complied with. At Community level,
completion of the internal market and the introduction of competition have
helped to improve the performance of a number of services of general
economic interest. Community initiatives have been undertaken at different
levels. First, the integration of services at the EU level is often an essential
element to guarantee the successful provision of the service. Examples of this
are the problem of air
the
infrastructures and market arrangements needed for the operation of the energy
internal market. The Commission has proposed and will continue promoting
and putting forward actions in those areas where the provision of services of
general economic interest has a distinct Community dimension. Secondly, and
to the extent
that services of general economic interest are regulated at
European level, the Community has also established the necessary framework
allowing to ensure that the provision of these services meets the relevant public
policy objectives. In order to be able to swiftly adapt this framework in line
with new technological, economic and social developments, the Commission
will reinforce the sectoral and horizontal monitoring of services of general
interest.

traffic congestion and the organisation of

An efficient evaluation of the performance of services of general interest

Building on a proposal made by the Commission in its Communication of last
September the European Council has called for a more systematic evaluation of
services of general interest in order to take account of their contribution to

For a more detailed analysis of the issue see the Interpretative Communication on concessions in
Community law (OJ C121, 29.4.2000, p. 2)

13

42.

Effective evaluation
facilitates adaptation
of policies

economic growth and social well-being. This is fully in line with the
Commission’s finding in its White Paper on European Governance34 that

“a stronger culture of evaluation and feedback is needed in order to learn from
the successes and mistakes of the past. This will help to ensure that proposals
do not over-regulate and that decisions are taken at the appropriate level.”

In the area of services of general
interest developing such a culture of
evaluation and feedback is particularly important given that in addition to the
economic performance of these services their performance with regard to other
public policy objectives must be monitored. An effective evaluation of the
performance of services of general interest allows to ascertain whether the
relevant public policy objectives are being met and facilitates the adaptation or
re-orientation of policies in line with technological changes, new consumer
needs and new public interest demands. The performance assessment is up to
is the
the competent authorities at the appropriate level. In most cases it
national, regional or local authorities that are responsible for monitoring and
evaluating the performance of such services. However, where a specific
framework exists at Community level, the Community institutions must also
assess the performance of the services concerned. In response to the request
made by the European Council the Commission will therefore

–

–

–

reinforce its sectoral reporting, and

introduce an annual horizontal evaluation in the framework of the
Cardiff process,

where appropriate, assist in benchmarking the effectiveness of measures
taken in the Member States to attain adequate performance of services of
general interest in areas not covered by sectoral reporting or the annual
evaluation.

3.1.1.

Sectoral Reporting

43.

Reinforce sectoral
reporting

The Commission has already evaluated the performance of services of general
economic interest in certain sectors that are regulated in specific Community
legislation. The sectoral reports have proven to be useful
tools for the
assessment and development of policies in specific areas. In particular, they
allow to address sector-specific issues in detail and to adapt reporting to the
requirements of the sectoral policy agenda. The Commission will continue and
improve its sectoral reporting and strengthen the focus on services of general
interest where necessary.

34

COM(2001) 428, 25.7.2001

14

Examples of sectoral reporting

In the telecommunications sector the Commission has started in 1997 to regularly submit evaluation
reports on the implementation of the regulatory measures adopted with a view to full liberalisation of
the sector35. These reports sketch out
the major developments in the market, analyse the
implementation of the regulatory principles covered by specific Community legislation and draw
conclusions regarding future policy developments. They are established in consultation with the
Member States and take account of information gathered from a large number of operators,
associations and other organisations in the sector.

the Commission has assessed the functioning of the internal market

In the energy sector,
in
electricity in a Communication of 16 May 200036. In a further Communication of 13 March 2001 the
Commission has evaluated regulatory and market developments in the European gas and electricity
industries, including inter alia the achievement of public service objectives and the development of
employment37. This Communication was preceded by a broad consultation of all interested parties,
i.e. social partners, generators, gas producers, transmission system operators, distributors, consumers
and other organisations. In preparation of the Communication, the Commission organised a public
hearing in which nearly 120 associations and companies participated.

In the postal sector, Directive 97/67 required the Commission to submit a report on the application
of the Directive including an assessment of the developments in the sector, in particular concerning
economic, social, employment and technological aspects, as well as quality of service. The
Commission submitted a proposal for an amendment of Directive 97/67 in May 200038. The
document was based on a series of comprehensive background studies39. The Commission will
submit the assessment before the end of the year.

In railway transport, Directive 01/12 requires the Commission to systematically monitor the market
development for railways.40 Within this framework, the Commission will monitor inter alia the
service levels for railway passengers transport and the financing of the railway market.41

In maritime transport, Regulation 3577/92 requires the Commission to submit a report on the
application of the Regulation relating to maritime cabotage, including the public service obligations
imposed as a condition to offer regular cabotage services42. The fourth report will be submitted in
2002.

3.1.2.

An annual evaluation in the framework of the Cardiff process

Horizontal
evaluation
his year

44.

In order to respond to the call for a regular assessment of services of general
interest, the Commission will produce a working document annexed to the

35

36

37

38

39

40

41

42

Cf. e.g. Sixth Report on the Implementation of the Telecommunications Regulatory Package,
COM(2000) 814 final, 7.12.2000
COM(2000) 297 final, 16.5.2000
COM(2001) 125 final, 13.3.2001
COM(2000) 319 final, 30.5.2000
Available at:

http://europa.eu.int/comm/internal_market/en/postal/evolframe/studies/index.htm

OJ L 75, 15.3.2001, p. 1
The Commission organises a hearing for rail passengers organisations on October 2001 in order
to discuss the service levels in railway passengers transport and to assess the need for EU rail
passengers rights for international rail passengers on the model of the one into force in the air
transport sector
OJ L 364, 12.12.1992, p. 7

15

Commission report on the functioning of product and capital markets ("Cardiff
report") to be adopted by the Commission in early December.

This is based on studies recently conducted for the Commission, questionnaires
sent to national authorities and regulators in different sectors and especially, on
an in-depth consultation of consumers in the 15 Member States. The evaluation
will consist in a horizontal monitoring of certain services of general economic
interest covering three areas.

(1) Monitoring market structure and performance

The evaluation will cover an assessment of the evolution of prices, market
concentration, entry, mergers and acquisitions, and other variables pertaining to
the economic performance of the relevant sectors taking into account different
consumer and user types. It will include updates of already existing indicators
and some new indicators resulting from on-going work conducted by
Commission services.

(2)

An economic and social assessment of public service obligations

This assessment will focus on the fulfilment of three main groups of public
service obligations across countries and sectors: access obligations, universal
service obligations, in particular pricing regulation and affordability of tariffs,
and qualitative and social aspects of service provision. In addition, this sector
will consider different forms of costing and financing arrangements and their
impact on competition and other dimensions of market performance. It will be
based on existing information about the regulatory framework, Member States'
implementation of Community and national rules and other evidence collected
by the Commission in the monitoring of the enforcement of Community
directives and regulations.

(3) Citizens’ opinions on the impact of liberalisation of services of general
economic interest

services of general economic

An extensive survey using “focus group” techniques has been conducted to
gather in-depth qualitative information on citizens’ views about the provision
of
information will be
complementary to the Eurobarometer launched last year. For this year’s
exercise, three groups have been identified: high income, low income and a
third group consisting of citizens especially sensitive to the provision of
services of general economic interest (pensioners, consumers living in remote
areas, …). The purpose of the exercise is twofold:

interest. This

–

–

to learn more about
aspects of the provision of those services;

the real importance citizens attach to different

to have a more qualified assessment of their views on the impact of
liberalisation processes, especially as regards universal and public service
obligations.

The sectoral coverage of the three parts of this horizontal evaluation has been
conditioned by data availability.

16

Commission will
reinforce
horizontal
monitoring in the
future

45.

46.

A communication
on evaluation
methodology in
2002

The Commission intends to improve and reinforce its horizontal monitoring in
the framework of the Cardiff process in the coming years. It will develop and
refine, in close co-operation with the Member States, a set of analytic tools and
a methodology necessary for an assessment of services of general economic
interest that will help to evaluate and guide policy-shaping at Community level.

In this context, it may be necessary to expand the range of topics currently
covered. Besides universal service obligations and other public service
obligations, other important issues such as the integration of these markets at
the EU level or the longer term impact of liberalisation (e. g. impact on
productivity, employment, growth and social and territorial cohesion) may
require a more in-depth treatment. This is not possible with the information and
resources currently available. It may also be necessary to establish a permanent
mechanism for the monitoring of citizens’ opinion and their evolution as well
as to expand that monitoring to other users and parties involved in the
liberalisation processes. In line with the principles on a reinforced culture of
consultation and dialogue set out
in the White Paper on Governance the
evaluation should take account of a broad basis of information. Therefore, all
stakeholders should also be consulted on specific issues. The Commission will
submit a Communication setting out its methodology for the evaluation of
services of general economic interest at Community level in the course of next
year.

3.1.3.

Benchmarking in other areas of services of general interest

47.

Commission is
prepared to work
on benchmarking
in other areas

In many areas
markets are best
suited to serve
he needs of users

3.2.

48.

49.

Community has
always applied a
structured and
gradual approach
to liberalisation

In areas of services of general interest not covered by sectoral reporting or by
the
the horizontal evaluation in the framework of the Cardiff process,
Commission is prepared to work with Member States and other public
authorities to introduce a system for benchmarking the effectiveness of
measures introduced to achieve an adequate performance of these services.
This pertains in particular to those services of general economic interest
provided under special or exclusive rights or under a natural monopoly since
such services require regulatory supervision. In many cases there will be a
Community added value in benchmarking the performance of regulatory
systems in order to draw on the wide variety of regulatory techniques in use
across Europe and to enable Member States to form a view on possible
improvements that could be introduced.

Developing the principles of Article 16

For many services of general economic interest open markets have proven to
be best suited to ensure that the needs of citizens and businesses are met. In the
sectors liberalised by Community measures competition has led to more choice
and lower prices for consumers and business users.

When introducing competition in a sector the Community has applied a gradual
and structured approach to liberalisation so as to ensure the continuity of the
services and to allow the operators concerned to adapt to a changing market
environment. Community measures have provided for additional transition
periods or derogations for individual Member States where this was necessary
to take account of specific circumstances. For example, the Directive fully
opening the Community telecommunications markets to competition provided

17

for additional transition periods of up to five years for Member States with
very small or less developed networks43. Directive 96/92 on common rules for
the internal market in electricity provided for an additional transition period of
up to two years for some Member States to take account of the specific
technical characteristics of their electricity systems44. Also Directive 98/30 on
common rules for the internal market in natural gas provides for the possibility
of temporary derogations in certain circumstances45.

Liberalisation legislation adopted at Community level has also never been
limited to the mere introduction of competition. The Community measures
always provide for safeguards allowing to ensure that services continue to meet
defined quality standards. The adoption of health and safety standards as well
as pricing requirements is also provided for in liberalisation instruments where
necessary. In general, these standards and requirements must be specified and
complemented by the competent national authorities. Experience has shown
that these safeguards allow the competent national authorities to effectively
ensure that service providers meet the relevant public service objectives and
quality targets in line with the principles underlying Article 16 of the EC
Treaty.

50.

Liberalisation at
Community level
has always been
accompanied by
safeguards

43

44

45

Commission Directive 96/19/EC of 13 March 1996 amending Directive 1990/388/EEC with
regard to the implementation of full competition in telecommunications markets, OJ L 74,
22.3.1996, p. 13
Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996
concerning common rules for the internal market in electricity, OJ L 27, 30.1.1997, p. 20
Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning
common rules for the internal market in natural gas, OJ L 204, 21.7.1998, p. 1

18

Examples of Safeguards in specific Community Legislation

In various sectors, Community institutions have adopted secondary legislation allowing to ensure that
public service objectives are met.

1.

Energy sector

In the directives on the internal electricity market46 and the internal gas market47 adopted jointly by
the European Parliament and the Council, respectively Article 3(2) provides that having full regard of
the relevant EC Treaty provisions,
in particular Article 86, Member States may impose on
undertaking in the electricity sector/natural gas sector, in the general economic interest, public
service obligations which may relate to security (including security of supply), regularity, quality and
price of supplies, and to environmental protection. Such obligations shall be clearly defined,
transparent, non-discriminatory and verifiable. They, and every revision thereof, shall be published
and notified to the Commission by Member States without delay. Furthermore, both directive allow
Member States to temporarily take additional safeguard measures in the case of a sudden crisis in the
energy market. The proposed directive amending directives 96/92/EC and 98/30/EC will reinforce
the provisions ensuring the attainment of public service objectives.48

2.

Telecommunications sector

For the telecommunications sector Directive 98/10/EC sets out a number of telecommunication
services that must be made available to all users, independent of geographical location, and at an
affordable price.49 This directive also defines quality of service and usage conditions as well as tariff
principles. In addition, Directive 97/33/EC sets out detailed provisions on costing and financing of
universal service in the telecommunications sector.50 Provisions on independent national regulatory
authorities are contained in Directive 90/387/EEC.51 The approach has been maintained in the
proposals for a new regulatory framework the Commission submitted in July 2000.52

3.

Postal sector

The Directive on postal services53 adopted jointly by the European Parliament and the Council aims
at a gradual and controlled opening of markets for competition. At the same time the Directive
obliges Member States to ensure as a minimum a universal service as described in its Chapter 2 and
involving the permanent provision of a postal service of specified quality at all points in their

46

47

48

49

50

51

52

53

OJ L 27, 30.1.1997, p. 20
OJ L 204, 21.7.1998, p. 1
COM (2001) 125 final, 13.3.2001
Directive 98/10/EC of the European Parliament and of the Council of 26 February 1998 on the
application of open network provision (ONP) to voice telephony and on universal service for
telecommunications in a competitive environment, OJ L 101, 1.4.1998, p. 24
Directive 97/33/EC of the European Parliament and of the Council of 30 June 1997 on
interconnection in telecommunications with regard to ensuring universal
service and
interoperability through application of the pronciples of Open Network Provision (ONP), OJ L
1999, 26.7.1997, p. 52
Council Directive 90/387/EEC of 28 June 1990 on the establishment of the internal market for
telecommunications services through the implementation of open network provision (ONP), OJ
L 192, 24.7.1990, p. 1, as amended by Directive 97/51/EC of the European Parliament and of the
Council of 6 October 1997, OJ L 295, 29.10.1997, p. 23
OJ C 365 E, 19.12.2000, p. 198, 212, 215, 223, 230, 238, 256
Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on
common rules for the development of the internal market of Community postal services and the
improvement of quality of service, OJ L 15, 21.1.1998, p. 14

19

territory at affordable prices for all users The.Directive also sets out
tariff principles, quality
requirements and standards and provides for a procedure for the harmonisation of technical
standards. National regulatory authorities are obliged to ensure compliance with the obligations
arising from the Treaty. These guarantees will remain in place under the proposed amendment of the
postal services directive.54

4.

Air transport sector

According to Article 4(1)(a) of the Regulation on access for Community air carriers to intra-
Community air routes55, a Member State, following consultations with the other Member States
concerned and after having informed the Commission and air carriers operating on the route, may
impose a public service obligation in respect of scheduled air services to an airport serving a
peripheral or development region in its territory or on a thin route to any regional airport in its
territory, any such route being considered vital for the economic development of the region in which
the airport is located, to the extent necessary to ensure on that route the adequate provision of
scheduled air services satisfying fixed standards of continuity, regularity, capacity and pricing, which
standards air carriers would not assume if they were solely considering their commercial interest. The
Commission shall publish the existence of this public service obligation in the Official Journal of the
European Communities.

5.

Public transport

The Commission has proposed a similar approach in its draft regulation on public services in public
transport56, currently under consideration by the Parliament and Council.

6.

Maritime transport

According to article 4 of the Regulation 3577/92 applying the principle of freedom to provide
services to maritime transport within Member States (maritime cabotage), a Member State may
conclude public service contracts with or impose public obligations as a condition for the provision
of cabotage services on shipping companies participating in regular services to, from and between
islands. Whenever a Member State concludes public service contracts or imposes public service
obligations, it shall do so on a non discriminating basis in respect of all Community shipowners.

54

55

56

COM (2000) 319 final, 30.5.2000
Council Regulation 2408/92/EEC of 23 July 1992 on access for Community air carriers to intra-
Community air routes, OJ L 240, 24.8.1992, p. 8
COM (2000) 7, 26.7.2000

20

51.

The Commission has so far taken account of Article 16 of the Treaty by
initiating sectoral policies based on the principles on services of general
economic interest underlying this provision. It has recently been suggested to
the Commission to consolidate and specify these principles in a single
framework Directive to be adopted on an appropriate legal basis. A framework
instrument could highlight the importance the European Union attaches to
services of general interest and could help to clarify some of the relevant
Community law concepts, in full respect of the principle of subsidiarity. The
Commission is examining this suggestion.

A framwework
directive for
services of
general interest ?

However, a framework Directive would necessarily be very general
in
substance and could not take account of the specificities that characterise each
service of general interest. Such a Directive could therefore not replace sector-
specific regulation and its added value in respect of sector-specific regulation
would have to be examined. As a horizontal measure, the Directive could in
general only set out minimum standards. In addition, a Directive should match
the high level of our ambition. The Commission will assess whether such a
instrument or whether, given the
horizontal directive would be the right
differences in the structure and organisation of different services of general
interest a sector-specific approach combined with high standards of horizontal
consumer protection is best suited for maintaining and developing high-quality
services of general interest at the European level.

52.

A new
subparagraph
added to Article 3
of the Treaty

It has also been suggested that the forthcoming Intergovernmental Conference
should decide to insert a reference to the promotion of services of general
interest in the Treaty by adding a new subparagraph to its Article 3. The
Commission made this suggestion already in its Communication of 1996 in
view of the Intergovernmental Conference preparing the Amsterdam Treaty. In
this Communication the Commission advocated the addition of a new
subparagraph to Article 3 to read as follows:

“ a contribution to the promotion of services of general interest.”

The Commission considers that Article 16 introduced by the Amsterdam
Treaty largely serves the purposes it pursued with this suggestion. However,
the insertion of a new subparagraph to Article 3 would also place the good
performance of these services clearly among the objectives of the Community.

4.

53.

CONCLUSION

Having considered the concerns raised subsequent
to the adoption of its
Communication on services of general interest in Europe of September 2000
the Commission intends to take a number of concrete actions.

Concrete
Commission
actions

(1)

In order to increase legal certainty and transparency in the application of
state aid rules to services of general interest and in the application of
Community rules to the selection of providers of services of general
interest the Commission will:

21

-

–

–

–

in a two-phased approach first establish a Community framework
for state aid granted for services of general eonomic interest in
2002, and then, if and to the extent justified by the experience
gained with the application of this framework, adopt a block
exemption regulation in the area of services of general economic
In preparation for a possible block exemption the
interest.
Commission will submit an amendment
to Council Regulation
994/1998,

add a section on services of general
to the annual
competition report setting out how the competition rules were
applied to such services,

interest

identify cases concerning services of general interest in the state aid
register,

examine additional measures to further clarify the Community
rules and principles applicable to the selection of the provider of
services of general interest.

(2)

In order to ensure an effective evaluation of services of general interest at
Community level the Commission will

–

–

–

improve its sectoral reporting and strengthen the focus on services
of general interest where necessary,

develop an annual horizontal evaluation in the frame work of the
Cardiff process and submit a Communication on its evaluation
methodology in 2002,

work with Member States and other public authorities on a system
of benchmarking in areas of services of general interest not covered
by sectoral reporting or the regular horizontal evaluation.

Furthermore, the Commission will examine the suggestion to consolidate and
specify the principles on services of general interest underlying Article 16 of
the Treaty in a framework directive.

22

ANNEX
DEFINITION OF TERMS

Services of general interest

This term covers market and non-market services which the public authorities class as being of
general interest and subject to specific public service obligations.

Services of general economic interest

This is the term used in Article 86 of the Treaty and refers to market services which the Member
States subject to specific public service obligations by virtue of a general interest criterion. This
would tend to cover such things as transport networks, energy and communications.

Public service

This is an ambiguous term since it may refer either to the actual body providing the service or to the
general interest role assigned to the body concerned. It is with a view to promoting or facilitating the
performance of the general interest role that specific public service obligations may be imposed by
the public authorities on the body rendering the service, for instance in the matter of inland, air or rail
transport and energy. These obligations can be applied at national or regional level. There is often
confusion between the term public service, which relates to the vocation to render a service to the
public in terms of what service is to be provided, and the term public sector (including the civil
service), which relates to the legal status of those providing the service in terms of who owns the
services.

Universal service

to market

Universal service, in particular the definition of specific universal service obligations is a key
accompaniment
liberalisation of service sectors such as telecommunications in the
European Union. The definition and guarantee of universal service ensures that the continuous
accessibility and quality of established services is maintained for all users and consumers during the
process of passing from monopoly provision to openly competitive markets. Universal service,
within an environment of open and competitive telecommunications markets, is defined as the
minimum set of services of specified quality to which all users and consumers have access in the
light of specific national conditions, at an affordable price.

23