2002/782/EC: Commission decision of 12 March 2002 on the aid granted by Italy to Poste Italiane SpA (formerly Ente Poste Italiane) (Text with EEA relevance.) (notified under document number C(2002) 921)
Date: 2002-03-12
Institutions: European Commission
Subjects: Italy, State aid, application of EU law, control of State aid, postal service, provision of services

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Official Journal of the European Communities

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COMMISSION DECISION

of 12 March 2002

on the aid granted by Italy to Poste Italiane SpA (formerly Ente Poste Italiane)

(notified under document number C(2002) 921)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2002/782/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Com-
subparagraph of
munities,
Article 88(2) thereof,

and in particular

the first

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

Having called on interested parties to submit their comments
pursuant to the provisions cited above, (1),

Whereas:

I. PROCEDURE

(1)

(2)

(3)

On 24 April 1997 the Commission received a complaint
stating that Italy had granted State aid to Ente Poste
Italiane (hereinafter EPI). The complainant asked the
Commission to check whether the aid measures were
justified under Community law. The Commission
requested preliminary information by letters dated
27 May and 21 October 1997, to which the Italian
authorities replied on 28 July 1997 and 2 and 23 Febru-
ary 1998.

On 14 July 1998 the Commission decided to initiate
proceedings under Article 93(2) (now Article 88(2)).

By letter dated 4 August 1998 the Commission informed
its decision to initiate proceedings under
Italy of
Article 88(2) of the EC Treaty in respect of the measures
(hereinafter the opening decision).

( 1) OJ C 367, 27.11.1998, p. 5; OJ C 28, 3.2.1999, p. 5.

(4)

(5)

(6)

(7)

(8)

The Commission learnt from reports in the press that
Italy was planning to grant additional aid, while the
procedure was pending. By letter of 15 July 1998
the Commission asked for information on the new
measures, which was furnished by the Italian Govern-
ment by letter of 7 August 1998. The Commission
decided to extend the Article 88(2) procedure to the new
measures on 16 September 1998. Italy was informed of
this decision by letter dated 12 October 1998 (herein-
after the extending decision).

The Commission decisions to open and extend the
procedure were published in the Official Journal of the
European Communities. In both decisions the Commission
invited interested parties to submit their comments on
the measures referred to by the complainant and other
measures identified by the Commission itself.

Only the complainant submitted observations to the
Commission by letters dated 2 March 1999 and
1 December 1999. The Commission forwarded the
observations to Italy, which was given the opportunity
to respond. Its comments were submitted by letter of
29 June 1999, registered by the Commission on 30 June
1999.

The Italian authorities submitted further observations by
letters of 23 October and 14 December 1998. The
Commission requested additional information by letters
of 15 December 1998, 25 February, 30 March and
16 December 1999, 11 May 2000 and 1 January 2001.

The Italian authorities provided the information request-
ed by letters of 17 February, 28 April, 29 June, 30 July,
20 August and 30 September 1999, 18 September and
21 February 2000, 23 January and 28 February 2001.

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Meetings were held with the Italian authorities on
11 December 1998, 9 February, 12 March, 1 June,
15 June, 7 October and 26 October 1999. Meetings
were held with the complainant on 28 July 1998,
15 January 1999, 28 April and 13 July 2000.

(9)

By letter dated 6 December 2001, registered by the
Commission on 13 December 2001, the complainant
informed the Commission that it would be withdrawing
the complaint that had triggered the investigation. The
complainant said that, with the introduction of the
postal Directive at the end of 1999, a new market
situation had developed in Italy that nullified the com-
plaint.

II. THE LEGAL BACKGROUND

The relevant Community legislation

(10) On 15 December 1997 the European Parliament and
the Council adopted Directive 97/67/EC on common
rules for the development of the internal market of
Community postal services and the improvement of
quality of service (2) (hereinafter the postal Directive)
which provides the general framework for a partial
liberalisation of the postal sector at Community level. In
this connection the Commission adopted a notice on
the application of the competition rules to the postal
sector and on the assessment of certain State measures
relating to postal services (3)
(hereinafter the postal
notice) which sets out ‘the Commission’s interpretation
the relevant Treaty provisions and the guiding
of
principles according to which the Commission intends
to apply the competition rules of the Treaty to the postal
sector in individual cases’ (4).

(11) The postal Directive entered into force on 10 February
1998 and Member States were given one year to comply
with it. The postal Directive and the postal notice can
provide guidance in assessing the present case, even
though some of the measures examined in this Decision
were taken before their entry into force.

The postal Directive

(12) The postal Directive stipulates that Member States shall
provide a ‘universal service involving the permanent
provision of a postal service of specified quality at all
points in their territory at affordable prices for all
users’ (5). This universal service should include at least
postal items up to two kilograms and postal packages
up to 10 kilograms. As regards the parcel service, the
national authorities may increase the weight limit of the
universal service up to 20 kilograms.

(13)

In principle, the universal service is not reserved. How-
ever, the Directive also acknowledges that the provision
of the universal service might require special compen-
sation. Therefore, ‘to the extent necessary to ensure the
maintenance of universal service, the services which may
be reserved by each Member State for the universal
service provider(s) shall be ... correspondence ... the price
of which is less than five times the public tariff for an
item of correspondence in the first weight step of the
fastest standard category ... provided that they weigh less
than 350 grams’ (6). If necessary, cross-border mail and
direct mail can also be reserved within the same limits.

(14) Article 14 of the Directive lays down precise rules,
which the universal service providers must apply in
order to establish a separate accounting system. It reads
as follows:

‘1. Member States shall take the measures necess-
ary to ensure, within two years of the date of entry
into force of this Directive, that the accounting of the
universal service providers is conducted in accordance
with the provisions of this Article.

The universal service providers shall keep separ-
2.
ate accounts within their internal accounting systems
at least for each of the services within the reserved
sector on the one hand and for the non-reserved
services on the other. The accounts for the non-
reserved services should clearly distinguish between
services which are part of the universal service and
services which are not. Such internal accounting
systems shall operate on the basis of consistently
applied and objectively justifiable cost accounting
principles.

( 2) OJ L 15, 21.1.1998, p. 14.
( 3) OJ C 39, 6.2.1998, p. 2.
( 4) Notice relating to postal services.

(5) Postal Directive, Article 3(1).
(6) Postal Directive, Article 7(1).

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3.
The accounting systems referred to in para-
graph 2 shall, without prejudice to paragraph 4,
allocate costs to each of the reserved and to the non-
reserved services respectively in the following manner:

(a)

(b)

costs which can be directly assigned to a particu-
lar service shall be so assigned;

common costs, that is costs which cannot be
directly assigned to a particular service, shall be
allocated as follows:

(i) whenever possible, common costs shall be
allocated on the basis of direct analysis of
the origin of the costs themselves;

(ii) when direct analysis is not possible, com-
mon cost categories shall be allocated on
the basis of an indirect linkage to another
cost category or group of cost categories
for which a direct assignment or allocation
is possible; the indirect linkage shall be
based on comparable cost structures;

(iii) when neither direct nor indirect measures
of cost allocation can be found, the cost
category shall be allocated on the basis of a
general allocator computed by using the
ratio of all expenses directly or indirectly
assigned or allocated, on the one hand, to
each of the reserved services and, on the
other hand, to the other services.

4.

(...)

5.
National regulatory authorities shall ensure that
compliance with one of the cost accounting systems
described in paragraphs 3 or 4 is verified by a
competent body which is independent of the universal
service provider. Member States shall ensure that a
statement concerning compliance is published period-
ically.

(...)’.

(17) Before the postal Directive entered into force,

the
Programme Contract of 17 January 1995 concluded
between EPI and the Ministry of Telecommunications
(hereinafter the 1995 contract) required EPI gradually to
adopt a system of separate accounting complying with
the principles of transparency, objectivity and equality
of treatment in order to ensure effective competition for
all non-reserved services. In particular, Article 11(2) of
the 1995 contract stipulated that the separate accounting
should ensure that there was no cross-subsidisation
between reserved and non-reserved sectors. Article 12
to define the basic
required the Ministry and EPI
parameters of an accounting system capable of allocating
the revenue, costs and capital used for the provision of
each service on the basis of the activities required for its
production.

(18) Article 13 provides that a certified auditing firm (società
iscritta all’albo speciale delle società di revisione) must
certify compliance with the principles of separation of
accounts contained in Article 11 of the contract.

(19) The same obligation in Article 7 of the contract was
incorporated into Law No 662 of 1996 which requires
EPI to have separate accounts, in particular separating
costs and revenue relating to services provided under a
statutory monopoly from those obtained from services
provided in a system of open competition.

(20)

Lastly, the Directive of the President of the Council
of Ministers of 14 November 1997 (7) requires the
accounting system of the universal service provider to
the distinctions between postal services and
reflect
financial
services and to allow separate financial
accounts for each cost centre to be established by
allocating to each area of activity all the costs which
concern that area.

(15) The obligation referred to in paragraph 2 entered into

force on 10 February 1999.

(21)

(16) The postal Directive was transposed into Italian legis-
lation by Decree-Law No 261 of 22 July 1999 which
entered into force on 6 August 1999. Article 7(2) of the
Decree-Law reproduces Article 14(2) of the Directive.
Article 7(3) of the Decree provides that the auditing firm
responsible for certifying the accounts of the universal
service provider must also check that the accounts
comply with the abovementioned rules on separate
accounting.

In order to comply with the obligation of separate
accounts contained in these provisions as well as in
Article 14 of the postal Directive and Article 7 of Decree-
Law No 261/99, EPI and later PI adopted an accounting
system based on the methodology called activity-based
costing.

(7) Italian Official Gazette No 293, 17.12.1997, p. 31, ‘Guidelines

for restructuring the Italian Post Office’.

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(22) Activity-based costing differs from traditional costing. It
reduces the pool of non-attributable common costs by
tracing some of them through activities to products.
This is done on the basis of statistical studies establishing
causality links, on the one hand between activities and
overhead consumption (cost drivers) and on the other
between activities and products (activity drivers). This
method is particularly suitable for industries with a high
level of common costs like post offices.

(26) On the basis of the information provided by the Italian
authorities, the Commission examined the activity-based
costing methodology adopted by EPI and PI, the separate
accounts and the annual audited reports and concluded
that it reflects a correct allocation of PI costs among its
different activities (9).

(23)

In line with the criteria set out in Article 14(4) of the
its
postal Directive, PI allocated the whole cost of
operations on the basis of objective drivers to its different
products (full and proportional cost allocations). First,
it allocated the costs that can be attributed directly to a
particular product to that product. It then applied the
activity-based costing method to the remaining costs (8).
With this method it is possible to determine the cost
of each activity (e.g. managing, providing services,
computerising the business, etc.) and the proportion of
that activity which is ‘consumed’ by each product.
Therefore any service sold by PI, whether universal or
not, reserved or non-reserved, bears a proportionate
amount of the total costs incurred by PI in producing
that service. Unlike other postal operators, PI does not
identify individual components of its costs (for instance
the cost of maintaining post offices in unprofitable
locations) as a cost attributable solely to the public
service. In this way PI also allocates a proportion of the
cost of the territorial network and any other common
cost to the commercial services.

(24) This accounting system makes it possible to calculate

the profit or loss of each product sold by PI.

(25) The auditors entrusted with the task provided for in
Article 14(5) of the postal Directive, Article 13 of the
1995 contract and Article 7(3) of Decree-Law No 261
of 22 July 1999 have certified the separation of accounts
of EPI and PI since 1996. No observations on the
consistency and conformity of the separate accounts of
EPI and PI have ever been made by the auditing firm.

(27) Accordingly, given the particular circumstances of the
present case, where the public postal operator provides,
almost exclusively, services of general economic interest
(see below), the Commission concludes that the separate
accounting of EPI and PI can be used to assess the costs
and revenues of the various services provided by the
Italian public postal operator as well as to determine the
net extra cost of the general service task entrusted to EPI
and PI. Where the net extra cost of that task is higher
than the overall value of the supplementary aid granted
to PI, the Commission has no need to verify the existence
of cross-subsidies benefiting a particular competitive
activity of PI (10).

The postal notice

(28) The postal notice makes clear that ‘cross-subsidisation
does not distort competition when the costs of reserved
activities are subsidised by the revenue generated by
other reserved services since there is no competition
possible as to these services. ... The same could be said
of subsidising the provision of reserved services through
revenues generated by activities open to compe-
tition’ (11). However, postal operators ‘should not use
the income from the reserved area to cross-subsidise
activities in areas open to competition’ (12). The notice
concludes that,
if services were offered systematically
and selectively at a price below average total costs, the
Commission would, on a case-by-case basis, investigate
the matter under Article 81, or under Article 81 and
Article 86(1) or under Article 87 of the Treaty.

(9) On the basis of this information the Commission finds that the
methodology has been applied consistently and on a statistically
significant number of accounts and that the ‘resource drivers’ and
the ‘activity drivers’ are objective since they are the result of
thorough statistical and empirical research and analysis of EPI’s
structure. In addition, the system is revised and improved on a
yearly basis.

( 8) Only 0,8 % of the costs were deemed not to relate to the provision
of services and were not allocated using the activity-based costing
method.

(10) Case T-106/95 FFSA [1997] ECR I-911, paragraph 188.
(11) Postal notice, section 3.2.
(12) Postal notice, section 3.4.

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(29) According to the notice, ‘the definition of the reserved
area has to take into account the financial resources
necessary for the provision of the service of general
economic interest.’ The notice underlines the need for
internal accounting systems which identify separately
costs and revenues associated with the provision of the
different services.

Government to undertake a drastic transformation of
the postal operator. It issued Decree-Law No 487 of
1 December 1993, converted into Law No 71/1994,
which transformed the APT into EPI, an ente pubblico
economico (separate accounting entity) with effect from
1 January 1994.

(30)

Section 3.4 of
the notice states that the prices of
competitive services should ‘... in principle be at least
equal to the average total costs of provision. This means
covering the direct costs plus an appropriate proportion
of the common and overhead costs of the operator’.

(36)

Law No 71/1994 transferred to the newly established
EPI all assets and liabilities, staff and business previously
managed by APT. At the same time, the losses incurred
at 31 December 1993 by APT were taken over by the
Treasury.

The Italian postal market

(37) The 1995 contract entered into between EPI and the

Ministry entrusted EPI with the following activities (13):

(31) The postal service had been provided in Italy by
Amministrazione Poste e Telegrafi (hereinafter APT), a
branch of the Italian Ministry of Posts and Telecommuni-
cations, since the entry into force of Decree-Law No 884
of 14 June 1925.

(32)

In addition to providing postal services, APT was
responsible for collecting post office savings and provid-
ing a payment system. The collection of post office
savings was introduced by Law No 2729 of 1875,
subsequently amended by Decree of the President of the
Republic No 156 of 1973. The obligation to provide a
payment system was introduced by Decree No 1541 of
6 September 1917 and amended by the same Decree
No 156/1973.

(33) Operating as part of the Ministry, APT was not entitled
to set the rates and prices for its services, which were
fixed by the Ministry itself. It had no independent legal
status, was not a separate legal entity from the Ministry
and had limited accounting autonomy. APT accounts
were an integral part of the Ministry budget and had to
be approved every year as part of the annual financial
legislation concerning the State budget.

(34) During this period, any APT profits or losses were
automatically transferred to the Treasury (responsible
for the State budget).

— provision of universal and reserved postal services
(ordinary, express and registered mail, telex and
telegraph services, etc.),

— provision of other non-reserved universal services
(parcels weighing up to 20 kg, payment of State
pensions, payment system, collection of post office
savings on behalf of Cassa Depositi e Prestiti, postal
current accounts, telex and telegraph services, etc.).

(38) The 1995 contract also allowed EPI to provide in open
competition other postal, telecommunication, financial,
insurance and distribution services.

(39) The 1995 contract also imposed other obligations in

relation to the activities entrusted to EPI:

— binding quality standards for postal, financial and

telecommunications services (14),

— for all services classified as universal

(ordinary,
express and registered mail, telex and telegraphic
services, delivery of parcels up to 20 kg, payment
of State pensions, collection of post office savings
on behalf of Cassa Depositi e Prestiti, postal current
accounts, etc.), an obligation to provide the said

(35) APT’s poor financial performance coupled with the
provision of low-quality services prompted the Italian

(13) Article 1 of 1995 contract.
(14) Article 3(1) to (4) of the 1995 contract.

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services throughout the Italian territory, irrespec-
tive of the economic equilibrium of post offices
located in areas of little trade (15),

(42)

In order to offset the net cost borne by the firm in
fulfilling its general interest task, the Italian State granted
EPI various supporting measures:

— for the distribution of newspapers and publications
of non-profit organisations, application of a prefer-
ential tariff set by law, which is lower than the
normal tariff otherwise applicable (16),

— other obligations (reduced rates for election cam-

paigns, etc.) (17).

— exclusive management throughout Italy of a num-
ber of services (so-called ‘reserved services’, as
defined by Law No 662/1996, including ordinary,
registered and insured mail, telex and telegraph
services and stamp services (19),

— direct annual reimbursements in various forms (20).

(40)

(41)

It is thus clear that all the activities referred to in the
previous recital were entrusted to EPI by the 1995
contract as services of general economic interest, the
State having required the provision of those services to
have a social and economic objective (18). EPI was
required to provide all these services regardless of their
profitability and to maintain a large network of post
offices, even in areas where the turnover would not
justify a direct presence from an economic point of view.
Overall, EPI operates a network of over 14 000 offices
throughout Italy.

Lastly, as regards the possibility for EPI to set the prices
for its services, a distinction must be made between
different periods. Up to 1996 the Ministry controlled
the price of the services provided by PI. Between 1997
and the entry into force of Decree-Law No 261/99 the
Ministry retained control only for the services reserved
to EPI, the latter being authorised by Law No 662/96 to
set the price for other postal services freely. Following
the implementation of the postal Directive, Decree-Law
No 261/99 reintroduced a different degree of control by
the Ministry in the fixing of the price for both reserved
and non-reserved universal postal services.

( 15) Articles 3(6)(c) and 6(1) of the 1995 contract.
( 16) Article 6(2) of the 1995 contract.
( 17) Article 6(3) of the 1995 contract.
( 18) Article 6 of the 1995 contract, which inter alia concerns the
public service obligations, refers to all the services classified as
universal by the same contract in Article 1. Article 1 in turn
financial and telecommunication
refers to universal postal,
services. For instance,
the financial services in
in the past,
question have been described as a service provided in the interest
of the population living in centres where there are no financial
institutions who would otherwise not have access to the banking
and financial market. By the same token Article 1(e) of the
abovementioned 1997 Directive of the President of the Council
of Ministers refers to the need to provide compensation for
universal service obligations in the postal area and in the financial
sector (postal banking).

(43) By Ministerial Decision of 1997 (CIPE decision of
10 December 1997) EPI was transformed into a joint
stock company, Poste Italiane SpA (PI), with effect from
28 February 1998 (21). Relations between PI and the
State continue to be regulated on a transitional basis by
the 1995 contract until the new one is concluded (22).

(44)

In 2000 a new Programme Contract was signed by PI,
the Ministry of Telecommunications and the Treasury
(hereinafter the new contract) (23). The new contract
reflects developments in postal
legislation since the
1995 contract and in particular the new market situation
created following the introduction of the postal Direc-
tive.

(45) Unlike the 1995 contract, the new contract does not
contain any universal obligation or any binding quality
standard with regard to financial and telecommunication
services.

(19) The reserved area was redefined following the implementation
of the postal directive by decision of the Ministry of Communi-
cation of 2 February 2000 (Italian Official Gazette No 29,
5.2.2000).

(20) Indeed, as from 1994 the turnover generated in the reserved area
has never been sufficient to cover the costs incurred by EPI and
PI in providing the universal postal services.

(21) In the present decision, for the sake of clarity the term EPI will
be used to refer to both EPI and PI, save where otherwise
specified.

(22) PI’s separate accounts of 1999 are based on the 1995 contract.
(23) Italian Official Gazette No 221, 21.9.2000.

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III. DESCRIPTION OF THE MEASURES

— the covering of APT losses incurred before 1993,

(46) The complainant alleges that non-notified State aid was

granted to EPI in the form of:

— a further capital injection when EPI was transfor-

med into PI.

— initial capital of ITL 50 billion (EUR 25 million);

— additional

funding

of

ITL

1 287

billion

(EUR 660 million);

(49)

— exemption from corporate equity tax (24).

(47) The complaint also refers to an additional measure,
provided for in Law No 662/1996, consisting of the
granting of ITL 300 billion to offset the costs of the
preferential tariff for the press.

(48)

In addition to the measure referred to in the complaint,
the Commission decisions opening and extending the
procedure referred to a number of measures that, in its
view, might constitute State aid under Article 87. More
precisely, it stated that in order to carry out its final
assessment it needed more information on the following
measures:

— a

capital

injection

of

ITL 1 337 billion

(EUR 685 million) in EPI,

— exemption from the corporate equity tax,

— possible overpayment by the State for the franking,
pension payment and post office savings collection
services,

— reimbursement of the net costs relating to the
universal
the
ITL 300 billion provided for by Law No 662/96
referred to in the complaint),

obligations

(including

service

— financial support provided by the State for EPI’s

investment plan,

— payment by the State of the instalments (principal
and interest) relating to loans obtained by EPI,

( 24) As introduced by Decree-Law No 394/92; the temporary annual
tax on all Italian companies of 0,75 % of the balance sheet net
equity was later abolished with effect from the fiscal year 1998.

In the extending decision the Commission referred to a
debt write-off provided for by Law No 3 of 7 January
1999 (hereinafter the 1999 debt write-off). The Italian
State decided to write off an amount APT owed to the
Treasury which had been included in the EPI accounts.
The write-off amounted to ITL 5 168 billion: more
ITL 4 666 billion to close the so-called
specifically,
‘management
orders’,
ITL 479 billion for pensions paid to postal workers in
1993, and ITL 23 billion for pension provisions earmar-
ked by the Treasury for a given category of workers
made redundant between 1 January and 31 July 1994.

and money

savings

of

(50)

In examining the financial relations between the State
and PI the Commission must assess all the abovemen-
tioned measures under the State aid rules. To that end it
must examine relations between PI and the State up to
1999, the year of formal adoption of the measure that,
from a chronological point of view, is the last measure
identified by the Commission decisions opening and
extending the investigation.

(51) At present the Commission does not consider it necess-
ary to extend its investigation beyond 1999 as it
does not have any information relating to that period
indicating that the Italian State overpaid PI to carry out
its general
interest tasks. The Commission naturally
reserves the right to come to a different conclusion
should it decide to investigate the financial relations
between PI and the Italian State in the period after 1999
and subsequently obtain different information.

(52)

For the purpose of conducting its investigation in an
orderly and meaningful way, the Commission,
in its
opening decision, identified two different periods to be
covered by its investigation. The first runs from 1959 to
1993 and the second from 1994 to 1999, the year of
the last measure identified in the Commission decisions
defining the scope of the present investigation.

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The period 1959 to 1993 and the measures relating to
that period

(53) As stated in the opening decision, the Commission
focused its analysis primarily on the measures taken
after 1994 as their effect on competition is far greater. It
should be noted, however, that when APT was transfor-
med into a separate accounting entity (EPI) by Law
No 71/94, the Treasury ordered the cancellation of all
the cash advances with which it had been covering APT’s
losses from 1959 to 1993, totalling ITL 31 169 billion
(EUR 15,9 billion).

— defining, by means of appropriate agreements, the
amount of the remuneration due to EPI for the
financial services entrusted to it (post office savings,
payment of pensions, etc.),

— providing for an accounting separation between
the Ministry and the new entity in charge of the
postal service (the newly established EPI),

— adopting the operational procedures of commercial
undertakings, in terms of both decision-making
processes and organisational structure (e.g. creating
a Board of Directors which APT did not have).

(54) As indicated by the Italian authorities in their comments
on the extending decision, the sum of ITL 4 689 billion
must be added to this amount because it relates in
reality to losses generated before 1994. The losses were
identified at a later stage due to accounting difficulties,
but they must be dealt with in the context of the time to
which they actually relate. The sum consists of the first
and second instalment of
the 1999 debt write off
provided for by Law No 3/99 and referred to in the
opening decision.

(58)

Law No 71/94, therefore, operated a drastic change in
the provision of the postal service, especially as regards
the possibility of offering new products and setting more
competitive prices and conditions. In addition, it should
be noted that the managerial autonomy of EPI was again
increased by Law No 662/96 which gave EPI the power,
for a short period until the entry into force of Decree
Law No 261/99, to set the prices of all non-reserved
services, without seeking clearance from the Ministry.

(55) Overall,

therefore,

the State wrote off a debt of

ITL 35 858 billion incurred by APT before 1994.

(59) The significance of the change was also reflected in the
equity capital and funds allocated to EPI: this fact
underlines the operational, organisational and account-
ing separation between APT and the new EPI.

The period 1994 to 1999

(56) As indicated in the opening decision and afterwards in
the extending decision, the Commission focused its
investigation on the support granted after 1994,
in
particular up to 1999. As a result, the Commission
investigation covers the legal and financial relations
between Italy and EPI defined by Law No 71/94 and the
1995 contract.

(57)

Law No 71/94 completely changed both the organis-
ation of the postal service and the operating structure of
APT by:

— allowing EPI a greater role in setting the rates for
its services, on the basis of the criteria defined in
the Programme Contract (25), with ex post control
by the Ministry,

(60)

It can therefore be concluded that Law No 71/94 marks
the start of a new period in the operation of the Italian
public postal operator and in the manner in which the
task previously entrusted to APT is regulated and
financed by the State, entrusted to EPI and carried out
by it.

(61) Once EPI was set up, the general legal instrument with
the most significance for the purpose of the Commission
investigation is the abovementioned 1995 contract since
it regulates relations between EPI and the State. The
contract governed relations between EPI and the Italian
State up to and including 1999. During that period the
competitive activity engaged in by EPI and later by PI (26)
was limited to around 10 % of their respective turnover.
In particular, according to the information at
the
Commission’s disposal, it seems that during this period
PI did not supply any significant parcel services specifi-
cally dedicated to business customers.

( 25) Article 8(2) of Law No 71/94; postal tariffs had previously been
set directly by the Ministry of Posts and Telecommunications.

(26) A service which is provided by PI and is not covered by a
universal obligation or by any other general interest obligation.

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(62) As stated above, a new contract entered into force in
2000 to regulate financial relations between PI and the
Italian State and to allocate the supply of general
economic interest services in the new market created
after the implementation of the postal Directive.

to and carried out by EPI, and is defined and financed by
the State. This change almost coincided with the entry
into force of Decree-Law No 261/99 implementing the
postal Directive and redefining the rules regulating the
market for postal services in Italy. Since the period
1994 to 1999 is a homogeneous one it is reasonable for
the Commission to treat these years together.

(63) Under the new programme contract, a considerable
number of services (i.e. all the financial and telecom-
munications services provided by PI, amounting to
roughly 40 % of PI’s turnover) previously classified as
universal and subject to pre-determined quality stan-
dards are no longer so classified. It is therefore clear that
the new contract marks another important change in
the way the general economic interest task is entrusted

(64) On the basis of the information acquired in the course
of the procedure, the Commission concludes that in the
period 1994 to 1999 EPI and PI benefited from the
following measures which might constitute State aid
under Article 87 of the Treaty.

Table 1

Support measures granted to EPI and PI

1994

1995

1996

1997

1998

1999

Total

(in ITL billions)

1 Initial capital injection into EPI

1 328

2 Exemption from corporate equity tax

[...] (*)

[...]

[...]

[...]

3 Initial capital injection into PI

3 000

4 Reimbursement of cost of postal universal

400

400

400

400

480

services

5 Contribution to the cost of preferential

distribution rates for newspapers

106

300

300

645

6 Result of universal financial services

[...]

[...]

[...]

[...]

[...]

[...]

7 Repayment of loans granted to APT

[...]

[...]

[...]

[...]

8 Subsidised interest rate on loans

[...]

[...]

[...]

[...]

[...]

[...]

TOTAL

[...]

[...]

[...]

[...]

[...]

[...]

17 960

Source: Information from Italian authorities, balance sheets.
(*) Business secret.

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(65) The calculation of the amounts shown is based on the
moment when the aid was authorised for EPI or PI,
rather than when it was actually paid, as the latter
generally took place much later, in some cases even after
some years. As a result, in terms of present value, the
total amount of aid would be lower than indicated
above: this is the potential maximum amount of the aid.
The Italian authorities have not contested this prudent
approach.

(69) Reimbursement of the costs arising out of the postal
public service obligations (measure 4) for the period
1994 to 1996 was provided for by Law No 662/1996.
Law No 449/1997 provided for the reimbursement in
1998 and Law No 488/1998 for the reimbursement in
1999.

Detailed description of the measures relating to the
period 1994 to 1999

(fondo di dotazione)

(66) Article 7 of Law No 71/1994 provided for an initial
injection of capital
into EPI
(measure 1) of ITL 50 billion, and then for an extraordi-
nary capital injection of ITL 1 278 billion, to be granted
as follows: ITL 968 billion in 1994, ITL 168 billion in
1995 and ITL 142 billion in 1996. The funds were
aimed at helping the former APT to become a more
competitive and commercially oriented body and at
assisting EPI’s business plan.

(67) Article 9 of Law No 71/1994 exempted EPI from the
corporate equity tax (measure 2), which had been
introduced by Decree-Law No 394 of 30 September
1992 and converted into Law No 461/1992. The
tax was a temporary tax applicable to commercial
undertakings over the period 1993 to 1998, and was
calculated as 0,75 % of the net equity of the company as
shown in the company’s balance sheet. As EPI was a
commercial undertaking, it would have been liable for
the tax but was exempted under Article 9 of Law No 71/
1994.

(70) The contribution to the costs of the subsidised rates for
the distribution of newspapers and non-profit publi-
cations (measure 5) was regulated by Law No 662/1996
and its implementing measures (and previously by Law
No 71/94, the 1995 contract and Law No 549/95). EPI
and PI were obliged to apply substantially lower rates
than the normal ones to the distribution of various kinds
of publications which the State regarded as deserving
special treatment. The State provided for the partial
reimbursement of the difference between the normal
rate and the reduced one by granting certain sums to EPI
(see Table 1 above). Article 41 of Law No 448/1998 laid
down that PI was to apply the normal rate for the
distribution of these publications from January 2000.
Accordingly the State ceased granting aid to PI for the
distribution of newspapers (27).

(71) Measure 6 (result of universal financial services) covers
the various payments made by the State and State
bodies (28) for different financial services, entrusted to PI
and classified by the 1995 contract as universal, which
exceed the cost of providing all universal financial
services. The amount shown is the operating margin for
the universal financial services sector as a whole (29).

(72) Measure 7 (repayment of loans granted to APT) concerns
the financing by the State of the investments made by
APT and then transferred to EPI. Under Laws Nos 39/
1982, 887/1984, 41/86 and 227/75, APT made a
number of investments in order to upgrade its structures

(68) The initial capital

injection into PI (measure 3) was
provided for by Article 53(13) of Law No 449 of
27 December 1997: the State would provide PI with a
capital injection of ITL 3 000 billion in connection with
the transformation of EPI into Poste Italiane SpA. The
capital injection was to be granted in three tranches of
ITL 1 000 billion in 1999, 2000 and 2001. The capital
injection was entered into PI’s accounts as from 1998,
although the actual payment took place according to the
above timetable.

(27) The entry into force of the new law was postponed to 1 January

2002 by Law No 344/2000.

(28) These payments are the sums that the State and other public
bodies allocate to PI for the payment of pensions and other
financial services as well as for the collection of post office
savings. The latter service consists in collecting savings on behalf
of the State (more precisely CDDPP) through current accounts
(conti correnti postali) and savings products (buoni and libretti
postali). For more details on the way these services operate see
the opening decision.

(29) Due to the lack of analytical accounting data, the amounts for
1994 and 1995 were rounded upwards by the Commission as
the difference between total operating result and the operating
result of the postal and telecommunications services.

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and better perform its activities (such as mechanisation
of the postal service). The laws provided that the State
(the Treasury) would offset the annual payments made
by the postal operator to reimburse loans granted by
Cassa Depositi e Prestiti (hereinafter CDDPP) to finance
the investments. The measure operated as follows:
CDDPP granted the loans to APT; when EPI paid an
instalment the Treasury reimbursed either both the
interest and the principal (Law No 887/1984) or only
the principal (Laws Nos 39/82, 41/86 and 227/75). As
the Italian authorities have confirmed, when EPI was set
up it continued to benefit from the investments made
under those Laws. The same holds for PI.

(73) However, in 1998, 1999 and 2000 the Treasury did
not reimburse PI
for the instalments paid on the
abovementioned loans, pursuant to Law No 449/97.
Accordingly, the measure was not applied in those three
years.

(74) Moreover, as regards the loans granted by CDDPP in
respect of which EPI was liable for interest payments (30)
(Laws Nos 39/1982 and 41/86 and some of the loans
granted under Law No 227/75), the annual interest rate
applied by CDDPP was 3,7 %, except for a portion of
the loans granted under Law No 227/75 on which the
interest rate averaged 9,75 %. As will be shown below,
this interest rate is lower than the interest rate that APT
could have obtained on the capital market (measure 8).

IV. COMMENTS FROM THIRD PARTIES

had refrained from imposing fines on EPI for failing to
meet the obligations of the programme contract. The
non-imposition of fines would have given EPI a financial
advantage constituting State aid under Article 87.

(77) The Commission rejected this complaint by letter of
July 1999 as the alleged infringement appeared to be
unfounded and the 1995 contract did not provide for
any sanctions. In the same letter the Commission invited
the complainant to provide further data in support of its
complaint. The complainant did not respond to the
Commission’s invitation.

V. COMMENTS FROM ITALY

(78) The Italian Government argued in its reply that: (i) none
of the measures examined by the Commission constitute
State aid but rather compensation — even if only partial
— for the extra costs of the public service obligations
imposed on EPI and PI; (ii) EPI and PI did not benefit
from any over-compensation; in particular, the financial
services provided to the State were remunerated at
market prices or at prices lower than the actual costs
incurred by EPI and PI
for their provision, (iii) the
measures must be seen as a one-off reorganisation of the
postal service in Italy.

(75) The complainant was the only third party to submit
observations on the opening and extending decisions.
It did not present any particular arguments in its
correspondence with the Commission concerning the
compatibility of the measures in question with the
common market or whether the measures distorted
competition on the market in which PI was active.

(79) As regards point (i), the Italian authorities argue that the
total amount of compensation received by EPI and PI in
various forms does not cover the net extra cost incurred
by the firm in accomplishing its public service task.
According to the Italian authorities, even if the measures
identified by the Commission did constitute aid, EPI
would still be under-compensated for its general interest
obligations.

(76)

It is worth recalling, however, that the complainant’s
observations on the opening decision referred to
additional assistance granted to EPI and PI in the period
1994 to 1999 which might have constituted additional
State aid. In particular, the complainant alleged that Italy

( 30) With regard to these loans the Treasury does not offset the

outflow relating to the reimbursement of the interest.

(80) With regard to point (ii), the Italian authorities argue
that the financial services provided to the State by EPI
and PI were remunerated at market prices and that
therefore the firm did not enjoy any advantages.
In
particular,
the remuneration provided by the State,
through CDDPP, for the collection of post office savings
and accounts was below the market remuneration
for comparable services, i.e. bank current and savings
accounts.

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(81) As far as point (iii) is concerned, the Italian authorities
state that all the measures referred to by the Commission
in its opening and extending decisions should not be
regarded as separate operations. Rather, they constitute
a single process initiated by Law No 71/1994 and aimed
at transforming the postal operator from a branch of the
public administration into a full commercial undertaking
for listing on the stockmarket.

(82) Given the complexity of the financial and organisational
relations between the former APT and the State, the
process of identification of the initial net equity of EPI
and PI has been gradual and lengthy, and the capital
injections into EPI and PI of ITL 4 337 billion should be
seen as aimed at separating the assets and liabilities of
the newly formed EPI. As these measures therefore do
not constitute the granting of fresh financial resources
or the covering of losses generated by EPI and PI, they
do not constitute State aid. Furthermore,
the initial
capital of ITL 6 047 billion granted to EPI was overesti-
mated by ITL 2 100 billion and was reduced accordingly.
The State was thus entitled to reintegrate EPI’s initial
equity by the same amount.

(83) According to the same line of reasoning, the exemption
from the corporate equity tax is not State aid because it
was justified by the fact that, if the State had levied the
tax, it would also have had to grant a higher initial
equity to EPI. By the same token the loans granted for
APT’s investments were to be paid for by the State
(interests and principal). When EPI and PI substituted
APT in respect of these investments, the State kept on
paying for the loans as originally provided for. Thus the
measure should not constitute State aid.

(84)

Lastly, the Italian authorities argue that the Commission
should not apply the market economy investor principle
in assessing the funding measures concerning firms
involved in the provision of services of general economic
interest as such firms do not by definition operate in
normal market conditions.

VI. ASSESSMENT OF THE MEASURES

(85)

For a State measure to constitute State aid within the
meaning of Article 87(1) of the Treaty, the following
requirements must be fulfilled:

(a)

it must be granted by a Member State or through
State resources in any form whatsoever;

(b)

it must distort or threaten to distort competition
by favouring certain undertakings or products;

(c)

it must affect trade between Member States.

(86) As regards the measures referred to in the opening
decision (but not referred to by the complainant), the
Commission concludes that they do not constitute State
aid. The measures are the following:

— payments for the collection and distribution of post

for the various public administrations,

— the third tranche of
(ITL 23 billion).

the 1999 debt write-off

(87) As regards the collection and distribution of post for the
public administrations, it is a service that EPI provides
to the State and which is paid for by the State. In general,
the price for that service does not require analysis under
Article 87 of the Treaty insofar as the State payment
does not exceed the market price for that service.

(88) The State usually paid APT a flat-rate for the postal
services supplied to the public administration. When EPI
was set up, this payment system was not changed until
1997. Article 2(17) of Law No 662/1996 then stipulated
that the service would be provided on the basis of the
rates in force. No charges would be levied, however, for
certain postal services (e.g. mail to and from the President
of the Republic, the Pope, the unions, etc.). Accordingly,
in the years following the adoption of that Law, the
payment of postal services by the public administration
does not pose any problems from the standpoint of the
rules on State aid. The Italian authorities stated that, in
1997, the price paid by the State on the basis of Law
No 662/1996 was about ITL 300 billion.

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(89)

In the period 1994 to 1996, the State paid on average
ITL 330 billion which, taking account of the fact that
certain services were free in the new system and that in
Italy, in the first half of the 1990s and until 1997, the
volume of post was constantly decreasing, is substan-
tially in line with the price paid after 1996. The
Commission concludes, therefore, that the measure did
not give EPI a particular advantage and does not
constitute State aid.

(90) The third tranche of the 1999 debt write-off totals
ITL 23 billion for pension provisions earmarked by the
Treasury for a given category of workers made redundant
between 1 January and 31 July 1994.

(91) On the basis of information provided by the Italian
authorities, the Commission has concluded that the debt
write-off relating to 1999 does not constitute State aid.

(92) The pensions paid by the Treasury amounting to
ITL 23 billion in the first half of 1994 should have been
paid by the State as soon as EPI was set up, as in the case
of any other commercial enterprise. The debt write-off
did not confer any advantage on EPI since from the
outset it constituted a debt incurred by the State.

(93) All the other measures described above may constitute
State aid within the meaning of Article 87 of the Treaty
as they involve State resources, favour the recipient and
have a potential effect on trade between Member States.

Aid granted to Member States or through State resources
in any form whatsoever

(94) As far as the nature of the funds is concerned, the
Commission notes that funds granted in the form of
capital
funds
injections and to cover APT’s losses,
granted for the pension payment service, contributions
to the costs of the universal service obligations in the
postal sector, the distribution of newspapers and the
reimbursement of investments made by APT are all
granted direct by the State out of its own budget.

nevertheless directly affects the public budget. The State,
in fact, forgoes tax revenues which it is legally entitled
to claim and which it would normally have claimed. It is
thus clear that this measure also involves State resources.

(97) As regards the interest subsidies on loans granted by
CDDPP and the funding granted by CDDPP for the
financial services entrusted to EPI (e.g. collection of post
office savings), the Commission notes that CDDPP was
set up and is fully controlled by the Treasury, which
appoints its managing board. According to Court of
Justice case-law,
to determine whether a
measure can be considered to be State aid under
Article 87 of the Treaty, ‘no distinction should be drawn
between cases where aid is granted directly by the State
and cases where it is granted by public or private bodies
established or appointed by the State’ (31). Accordingly,
although the funds did not derive directly from the State
budget, it is clear that they have the characteristics of
State resources.

in order

Aid that distorts or threatens to distort competition by
favouring certain undertakings or the production of
certain goods

for a financial measure to be
(98) Under Article 87(1),
considered State aid,
it must give the recipient an
economic advantage. On the basis of this principle, the
Court has on several occasions ruled that the notion of
State aid within the meaning of Article 87 should not be
limited to capital grants or subsidies but should also
include all measures which, while not having the nature
of a subsidy, are capable of producing the same econ-
omic effects (32).

(99) The covering of the losses incurred by APT gives an
economic advantage to APT alone as it eliminates a cost
which would normally have been included in its budget.

(95) Thus there is no doubt that these measures constitute

State resources.

(96) Although the exemption from the corporate equity tax
does not involve direct cash outflow for the State, it

(31) Case C-305/89 Italy v Commission [1991] ECR I-1603.
(32) See Case C-387/92 Banco Exterior [1994] ECR I-877, para-
graph 13, where the Court held that ‘the concept of aid is thus
wider than that of subsidy because it embraces not only positive
benefits, such as subsidies themselves, but also interventions
which, in various forms, mitigate the charges which are normally
included in the budget of an undertaking and which ... have the
same effect’.

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(100) All the measures listed in Table 1 are capable of giving
EPI and PI an economic advantage within the meaning
of Article 87.

(105) The exemption granted to EPI from corporate equity tax
(measure 2) may be regarded as a direct subsidy as it
eliminates a cost item which would otherwise have been
included in the budget of the recipient (34). The measure
is thus capable of conferring an economic advantage.

(101) As regards the capital contributions to both EPI and PI
(measures 1 and 3) totalling ITL 4 328 billion, according
to well-established case-law (33) capital injections made
with State resources under conditions not acceptable to
a private investor operating in a market economy confer
a direct advantage on the recipient company and thus
can constitute State aid under Article 87. The recipient
may, in fact, use these resources to finance its expendi-
ture and investments without the need to seek loans
institutions or to obtain an adequate
from financial
return on the resources received.

(106) Measures 4 and 5 concern payments made exclusively
to EPI and PI by the State or a public body. The measures
are thus likely to give the recipient an economic edge
over other firms.

(102) On the basis of EPI’s past economic record and its
predicted future performance, the State could not expect
a return that would have been acceptable to a private
investor. The former APT was so heavily loss-making
and for such a long time that no private investor could
reasonably have expected an acceptable return on an
investment of ITL 1 328 billion in EPI. And indeed the
latter’s financial position in the first years following the
injection continued to deteriorate.

(107) The State funding of the investments made by APT in
upgrading its structure and improving its performance
(measure 7), which was subsequently transferred to EPI,
eliminates the cash disbursements that EPI would have
incurred if it had had to pay for the investments itself.
As stated above, APT was granted loans by CDDPP and
was obliged to repay them. EPI inherited the obligation.
The State measure in question, however, allowed the
Treasury to offset the payments resulting from that
obligation by reimbursing the amounts the firm pays
each year to CDDPP.

(103) The

to

be

same

applied

reasoning

the
can
ITL 3 000 billion injected into PI, given that neither its
previous nor its forecast results would encourage a
private investor to expect an acceptable return.
In
particular, according to PI’s business plan submitted by
the Italian authorities as part of these proceedings, PI
was expected to return to conditions of economic
balance only in 2002, additional losses being expected
over the period 1999 to 2001. The return on the
investment, although the company was expected to
break even in 2002 would not have been acceptable to
a private investor operating in a market economy.

(108) Thus the advantage deriving from this measure consists
in the offsetting by the State of the sums that EPI pays
every year to CDDPP to reimburse the loans. In practice,
the effect of the measure does not differ in any respect
from a direct grant of funds on a yearly basis (35).

(109) According to established case-law (36), the granting by
State-controlled entities such as CDDPP of loans at a

(104) Thus, as the two capital injections were granted under
conditions that would have not been acceptable to a
they are capable of conferring an
private investor,
economic advantage on the recipient within the meaning
of Article 87(1).

( 33) Communication to the Member States on the application of
Articles 92 and 93 of the EEC Treaty and of Article 5 of
Commission Directive 80/723/EEC to public undertakings
operating in the manufacturing sector, OJ C 307, 13.11.1993,
p. 3.

(34) See footnote 32.
(35) As the Treasury reimburses principal and interest on loans
granted under Law No 887 of 1984 the amount of the advantage
comprises the annual repayment of principal and interest. For
other loans the Treasury offsets the reimbursement of
the
principal, but the interest is paid by EPI and PI (Laws Nos 39/82,
41/86 and 227/75). In this case the advantage is limited to the
annual repayment of the principal. However, as will be shown
below, even when EPI paid the interest it benefited from an
advantage due to the low interest rate.

(36) Case C-142/87 Belgium v Commission [1986] ECR 231.

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reduced interest rate (measure 8) may constitute State
aid. As noted above, EPI was required to pay interest on
certain loans granted by CDDPP. The average interest
rate paid by EPI and then by PI on loans granted under
Laws Nos 39/82, 41/86 and 227/75 was 3,7 % a year.
The average interest rate on the remaining loans granted
under Law No 227/75 was 9,75 %.

(113) On the basis of the foregoing,

it can be concluded
that, apart from the public service obligations, all the
abovementioned measures are likely to have conferred
an advantage on EPI and then PI within the meaning of
Article 87.

(110) In order to determine whether the interest rate gave PI
an advantage, it is necessary to compare it with the rate
which PI would have obtained in the same period on the
capital market (37). The Commission believes that in the
present case the average interest rate for long-term loans
to businesses published by the Italian Central Bank is a
reliable reference point (38). The difference between the
interest rate actually paid by PI and the average interest
rate for long-term loans to businesses constitutes the
advantage enjoyed by PI. The amounts indicated in
Table 1 are calculated accordingly (39).

(111) The Italian authorities have argued that some of the
loans were used to finance investments in upgrading
APT structures for the provision of general
interest
postal services. Had EPI paid a higher interest rate, the
cost of the universal service would also have been
higher.

(112) The Italian authorities have not been able to quantify
the additional cost of the universal service that EPI
would have borne if it had paid a higher interest rate,
nor have they submitted detailed information to allow
the Commission to estimate the amount. The Com-
mission cannot therefore accept this argument.

Aid that affects trade between Member States

(114) The third condition to be met for State measures to be
covered by Article 87 is that they should have an actual
or potential effect on trade between Member States. EPI
operates in the postal and financial sectors, where
competition is present either in a direct form from other
operators providing the same service, including some
based in different Member States, or indirectly from
other operators providing substitutable services.

(115) There was some competition in the postal sector in Italy
even before the gradual
liberalisation promoted by
Community legislation. In particular, express mail ser-
vices, parcel services dedicated to business customers
and logistical services have been developed in Italy by
private undertakings, some of which are based in other
Member States (40).

(116) As far as financial services are concerned (post office
current and savings accounts and payment services), PI
competes with operators offering financial products,
such as banks and financial operators, that can to a large
extent be substituted for PI’s products. The post office
current and savings accounts, which are used for both
payment and savings purposes, are in competition with
bank current accounts and saving products. It should be
noted in this connection that PI has gradually integrated
its payment system with the banking payment system to
which all Italian banks are connected, thus enhancing
substitutability between post office financial products
and banking products.

(117) The banking sector has been open to competition for
many years (41) and there is extensive trade between

( 37) Case T-16/96 Citiflyer [1998] ECR II-757.
( 38) According to Bankitalia statistics the latter rate was as follows:
1994 10,22 %, 1995 11,44 %, 1996 10,68 %, 1997 8,26 %;
1998 6,22 %; 1999 4,46 %. On some of the loans granted under
Law No 227/75 the interest rate was 9,75 %. This rate became
higher than the market rate from 1997 and so there is no aid
element from that year onward. The 1994 rate is a Commission
estimate on the basis of the data published by Bankitalia.

( 39) Difference between the average rate applied by banks on long-
and medium-term loans to firms and the rate actually paid by
EPI and PI
to CDDPP, multiplied by the average amounts
outstanding each year on the different loans granted by CDDPP
for which the repayment of the interests is the sole responsibility
of EPI.

(40) TNT and DHL can be cited as examples of foreign-controlled

undertakings.

(41) See for instance Case 267/86 Van Eyke [1988] ECR 4769 and
paragraph 23 of the Advocate-General’s opinion; Case C172/80
Zuchner [1982] ECR 2021. See also Council Directive 88/361/
EEC of 24 June 1988 for the implementation of Article 67 of the
Treaty (OJ L 178, 8.7.1988, p. 5) and Second Council Directive
89/646/EEC of 15 December 1989 on the coordination of laws,
regulations and administrative provisions relating to the taking-
up and pursuit of the business of credit institutions and amending
Directive 77/780/EEC (OJ L 335, 10.12.1989, p. 67).

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Member States. Several banks from different Member
States operate in Italy, either directly through branches
or representative offices, or indirectly by controlling
Italian-based banks and financial institutions.

cost incurred in fulfilling its public service tasks in
the period covered by the Commission’s investigation
(1994 to 1999).

(118) In the light of the foregoing it is clear that any State
measure giving EPI or PI an economic advantage may
affect trade between Member States under Article 87.

Services of general economic interest

(119) In order to assess a financial measure benefiting a firm
entrusted with a general interest task, it is necessary to
determine whether the aid aspect of the measure should
be ignored owing to the specific public service obli-
gations imposed on that firm (42). In other words, it is
essential to check whether the financial measure in
question provides more support than the additional net
cost borne by the firm in fulfilling its tasks. As the Court
of Justice has consistently held (43), Member States are
entitled to ensure that undertakings entrusted with a
general interest task perform their task in conditions of
economic equilibrium. If the support does not exceed
the net extra cost, then the measures do not constitute
State aid since the firm does not in practice benefit from
an advantage within the meaning of Article 87(1).

(122) In its communication on services of general interest in
Europe (44) the Commission stressed that the question of
compensation should be examined in the light of three
principles:

1.

neutrality;

2.

freedom of the Member States to define what they
regard as public service;

3.

proportionality.

(123) The first principle, neutrality, means that the Community
is neutral as regard the public or private ownership of
the firms providing the service. Compliance with this
principle is not an issue in the present case.

(124) The freedom of Member States to define a service
of general economic interest
is limited only by the
Commission’s monitoring of abuses or obvious errors.
‘However, in every case, for the exception provided for
by Article 86(2) to apply, the public service mission
needs to be clearly defined and must be explicitly
entrusted through an act of public authority (including
contracts). This obligation is necessary to ensure legal
certainty as well as transparency vis-à-vis the citizens
and is indispensable for the Commission to carry out its
proportionality assessment’ (45).

(120) As stated above, Italy has argued that all the measures
examined by the Commission in this Decision are
intended to offset the net extra cost incurred by PI in
fulfilling its public service tasks. Italy has also stated that
the support granted by these measures does not exceed
the net extra cost incurred by PI.

(125) With regard to ‘definition’ and ‘entrusted’ quoted above,
the 1995 contract constitutes the legal instrument which
sufficiently clearly defines and entrusts to EPI a number
of general economic interest services.

(121) Having taken all this into account, the Commission
must first assess the measures in question by considering
the fundamental question of the proportionality of the
compensation received by PI in relation to the net extra

(126) Proportionality means that the methods used to fulfil
the general interest tasks should not create unnecessary
is necessary to
distortion of trade or exceed what
the task. The
guarantee the effective fulfilment of
performance of the general
interest service must be
ensured and the firm entrusted with such tasks must be
able to bear the specific burden and the extra net costs
involved.

( 42) See Case C-53/00 Ferring paragraph 23, not yet reported.
( 43) See for example Case C-320/91 Corbeau [1993] ECR I-2533.

(44) OJ C 17, 19.1.2001, p. 4.
(45) Paragraph 22 of the communication.

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(127) It is therefore necessary in this case to quantify the total
net extra costs of the public service obligations imposed
on EPI by the1995 contract and then compare the
amount of the net extra cost with the advantages granted
to EPI by the State.

(128) As indicated above, EPI complied with the postal
Directive by introducing separation of accounts which
makes a distinction between costs and revenues for the
interest products and costs and revenues for
general
other products. In the present case, where PI was only
marginally active outside the area of general economic
interest services during the period under investigation,
the Commission can quantify the net extra cost of the
public service obligation imposed on EPI on the basis of
the certified separation of accounts.

(loss) the operating result of each service performed
under a general
interest obligation and the relevant
portion of the financial charges, it is possible to calculate
the total net extra cost incurred by the firm in fulfilling
its general service task.
In this method, all routes,
profitable and unprofitable, are included in the calcu-
lation. At the same time, any income or positive margins
achieved by certain general economic interest services as
well as income generated in the reserved area are
automatically deducted from the overall net extra cost
of the general economic interest services. On the other
hand, the costs and revenues of products for which no
general interest obligation is imposed are not included
(even when they are sold on unprofitable routes) in the
calculation of the net extra costs of the general economic
interest services.

(129) As already stated, the system gives the operating result
of each EPI product. By adding (profit) or subtracting

(130) The Commission calculated that the net extra cost of the
public service task (46) entrusted to EPI and then PI in
the period 1994 to 1999 is as follows:

Table 2

Net extra cost of the general service task entrusted to EPI and PI

1994

1995

1996

1997

1998

1999

Total

3 654

2 226

2 746

3 153

3 404

3 433

18 656

(in ITL billion )

(131) The high net extra cost is due to a number of factors: (i)
EPI regularly posted losses, even in the reserved area,
while the largest part of its activity was concentrated in
the universal service area; (ii) the heavy burden imposed
by the preferential rate for newspapers and non-profit
publications (which alone account for between one third
and half of total net extra costs); (iii) the small number
of postal items per capita sent in Italy in relation to the
extent of the network (one of the worst items/network
ratios in Europe); (iv) the low efficiency of the Italian
postal operator.

the exclusive area which would have been even higher
had the State sought compensation for having granted
that exclusive right. The losses are part of the net extra
costs of the general economic interest services. Thus,
although PI enjoys the undeniable advantage of being
the only firm allowed to operate the reserved services,
the advantage is not sufficient to cover the net extra
costs owing to the particular features of the present case
(e.g. inefficiencies and overstaffing at PI, one of the worst

(132) This method of calculating the net extra cost includes
the advantage enjoyed by EPI through the exclusive right
granted to it. As stated above, in order to enable EPI to
perform its task the State granted an exclusive right to
EPI, which, however, has consistently incurred losses in

(46) It includes the net cost of providing all the services for which the
State imposed a general service obligation. In practice it includes
the losses generated by universal postal and telecommunication
services, given that the universal financial services have been
profitable. Due to the lack of accounting data for 1994 and 1995
the Commission has rounded up the net cost of the public
services in those years on the basis of the average ratio of net
cost of the public services to operating result in the period
1996 to 1998.

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19.10.2002

ratios in Europe of network size to number of items sent
per capita). Accordingly, since the revenue generated in
the reserved area is not sufficient to cover even the net
extra cost of the reserved area itself, the Commission
has, in deducting the revenue from the net extra cost of
the general economic interest services, already taken
account of the entire advantage enjoyed by PI through
the exclusive right.

the general economic interest services entrusted to APT
over a period of 34 years. Due account is to be taken of
the fact that the net extra cost borne by PI in fulfilling
its general economic interest task since 1994 amounts
to some ITL 3 000 billion a year (see above). The
Commission therefore confirms its opening decision on
this point. In particular, it concludes that the sum of ITL
35 835 billion over a period of 34 years (1959 to 1993)
does not exceed the net extra cost incurred by APT in
providing the general economic interest services over
that period.

(133) As indicated in Table 1 the funds granted to EPI over the
same period amount to ITL 17 960 billion. Given that
over the relevant period the net extra cost of the public
service task exceeds the financial support granted to EPI,
the Commission concludes that the measures under
examination plus the advantage given to EPI by the
exclusive right has not led to overcompensation of the
net extra cost of the general service task entrusted to
EPI. Accordingly the measures referred to in Table 1 do
not constitute State aid.

(134) Having reached this conclusion the Commission does
not consider it necessary to check whether there has
been any cross-subsidisation of the competitive activities
engaged in by PI (47).

(135) As regards the period 1959 to 1993 and the covering of
APT losses, the Commission notes that, prior to the
adoption of Law No 71/94, the State did not reimburse
any costs arising out of general interest obligations, it
simply used cash advances to finance APT losses. The
cancellation of the cash advances can be regarded as ex
post reimbursement of
the extra costs incurred by
the APT in accomplishing its general service task.
Furthermore, APT had a limited own-accounting system
and inflows and outflows were included in the budget
of the Ministry. Any imbalance between inflows and
outflows was part of the State budget rather than the
economic result of a separate legal entity. Finally, APT
did not engage in any significant competitive activity.
Thus APT losses can be due only to the provision of
general economic interest services.

(136) The Commission concludes that the coverage of such
losses is not out of proportion to the net extra cost of

VII. CONCLUSIONS

(137) The Commission concludes

that

the payments for
the collection and delivery of mail for various public
administrations and the third tranche of the 1999 debt
write-off (ITL 23 billion) does not constitute State aid
within the meaning of Article 87(1) of the Treaty.

(138) It also concludes that the coverage of losses incurred by
APT prior to 1993 as provided for by Laws Nos 71/94
and 3/99 is not disproportionate to the net extra cost of
the public service task entrusted to APT over the period
1959 to 1993 and accordingly does not constitute State
aid under Article 87(1) of the Treaty.

(139) The Commission further finds that

the supporting
measures examined above, granted in the period 1994 to
1999, as well as the advantage enjoyed by EPI from
the exclusive right granted to it did not result in
overcompensation of the additional net costs of the
general
interest task entrusted to Ente Poste Italiane
(now Poste Italiane SpA) over the same period and
aid under
accordingly do not
Article 87(1) of the Treaty,

constitute

State

HAS ADOPTED THIS DECISION:

Article 1

( 47) Case T-106/95 FFSA [1997] ECR I-911, paragraph 188.

The payments for the collection and delivery of mail for the
different public administrations granted by the Italian

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L 282/47

authorities in the period in question and the debt write-off of
ITL 23 billion provided for by Law No 3/99 do not constitute
State aid within the meaning of Article 87(1) of the Treaty.

general service task entrusted to it and accordingly do not
constitute State aid under Article 87(1) of the Treaty.

Article 2

This Decision is addressed to the Italian Republic.

Article 3

The support granted by the Italian authorities to Poste Italiane
SpA (formerly known as Ente Poste Italiane and before that as
Amministrazione Poste e Telecomunicazioni) from 1959 to
1999 in the form of the measures examined in this Decision
and the granting of exclusive postal rights have not resulted in
any overcompensation of the net extra costs arising out of the

Done at Brussels, 12 March 2002.

For the Commission

Mario MONTI

Member of the Commission