Report from the Commission on the state of play in the work on the guidelines for state aid and services of general economic interest (SGEIs)
Date: 2002-11-27
Institutions: European Commission
Subjects: State aid, competition law, drafting of EU law, financial equalisation, services of general interest

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 27.11.2002
COM(2002) 636 final

REPORT FROM THE COMMISSION

on the state of play in the work on the guidelines for state aid and services of general
economic interest (SGEIs)

   
REPORT FROM THE COMMISSION

on the state of play in the work on the guidelines for state aid and services of general
economic interest (SGEIs)

1. 

PURPOSE

In  its  conclusions,  the  Seville  European  Council  "invites  the  Commission  to  report  to  the
Copenhagen European Council on the state of work on the guidelines for state aids and, where
appropriate, to adopt a block exemption regulation in this area". This report is in response to
the request made by the Seville European Council and has been drawn up in the light of the
case law developed by the European Court of Justice.

2. 

CONTRIBUTION OF COMPETITION POLICY TO THE DEVELOPMENT OF SGEIS

Article 16  of the  Treaty  reads  as follows: "Without prejudice to Articles 73, 86  and 87, and
given the place occupied by services of general economic interest in the shared values of the
Union as well as their role in promoting social and territorial cohesion, the Community and
the Member States, each within their respective powers and within the scope of application  of
this Treaty, shall take care that such services operate on the basis of principles and conditions
which enable them  to fulfil their missions." Under  Article 86 of  the  Treaty,  the  competition
rules apply to SGEIs in so far as they do not obstruct the performance of the particular tasks
assigned  to  them.  In  discharging  its  duties,  the  Commission,  where  necessary,  addresses
appropriate directives or decisions to Member States.

SGEIs  perform  a  fundamental  function  in  all  Member  States,  which,  in  the  absence  of
Community rules in the matter, have wide discretionary powers when it comes to defining the
nature and extent of the services they wish to introduce in the light of their political choices. It
is for each Member State to decide what is the most appropriate level at which to define the
services that the general public needs: the central, regional or local level.

The Commission has a duty to provide positive support for the introduction and development
of  SGEIs,  notably  in  the  interests  of  consumers,  in  order  to  contribute  to  attainment  of  the
objectives referred to in Article 153 of the Treaty. It is in everyone's interests that they should
dovetail  harmoniously  with  the  economic  and  social  fabric  in  each  Member  State  and
contribute in particular to the objectives of strengthening economic and social cohesion, with
steps being taken to ensure that their beneficial effects are not outweighed by indirect adverse
effects on markets open to competition.

With  regard  to  application  of  the  competition  rules,  the  Commission  has  three  main
objectives, namely to ensure:

– 

– 

that SGEIs function efficiently;

that services provided in the competitive sphere outside the scope of SGEIs and
not pursuing a general-interest objective should not be classified as SGEIs;

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– 

that  any  exclusive  rights  or  financial  compensation  granted  to  undertakings
entrusted with the operation of SGEIs are limited to what is necessary for the
operators  to  perform  that  role  on  the  markets  concerned  under  conditions  of
financial  equilibrium.  In  cases  where  these  undertakings  are  also  active  on
markets outside the scope of SGEIs, steps should also be taken to ensure that
the rights or compensation granted for ensuring the operation of the SGEIs do
not have adverse repercussions on markets outside the scope of SGEIs.

The success of liberalisation  means  that the  rules  of  the  game  need  to  be  clearly  laid  down
and observed by all operators. The compensation that certain undertakings rightly receive for
providing SGEIs must not constitute advantages that enable them to compete unfairly in the
most profitable liberalised sectors. Such practices, which are not necessary for the operation
of  SGEIs,  are  harmful  to  the  effective  functioning  of  the  economy  and  run  counter  to  the
general  interest.  To  be  sure,  the  undertakings  providing  SGEIs  may  operate  on  markets  or
market segments outside the scope of SGEIs but "on equal terms" with all undertakings.

The Commission considers that many of the difficulties could be avoided if there were greater
transparency in assigning SGEIs and in the relationship between the undertakings providing
SGEIs and the public authorities.

3. 

LEGAL SITUATION WITH REGARD TO PUBLIC SERVICE COMPENSATION

In  its  report  to  the  Seville  European  Council,  the  Commission  underscored  the  evolving
nature  of  the  case  law  developed  by  the  Court  of  Justice  in  the  matter  of  public  service
compensation.  In  its  judgment  of  22 November 2001  in  Ferring,1  the  Court  inclines  to  the
view that compensation which does not exceed what is necessary to perform SGEIs does not
confer  any advantages on the recipient undertakings and does not, therefore, constitute state
aid within the meaning of the EC Treaty.

Three cases dealing in whole or in part with this matter are pending before the Court. In one
of them,2 Mr Advocate-General Léger suggests that the Court reverse its judgment in Ferring
and rule that public service compensation constitutes state aid even where such compensation
simply offsets the costs of the public service. In the other case,3 Mr Advocate-General Jacobs
proposes that a distinction be made between two categories of case based on the nature of the
link  between  the  financing  granted  and  the  obligations  imposed  by  the  State  and  on  how
clearly  those  obligations  are  defined.  The  analysis  made  by  him  was  taken  up  by
Mrs Advocate-General Stix-Hackl in Enirisorse SpA.4

In  Altmark  Trans  GmbH  the  Court  decided  to  re-open  the  oral  procedure  and  held  a  new
hearing on 15 October 2002.

Pending the Court's judgments in the  aforementioned cases, the Commission takes the view
that it is not possible to finalise a text on public service compensation that would provide the
legal certainty expected by the Member States and undertakings performing SGEIs. However,
work  can  continue  on  the  matters  not  directly  linked  to  the  legal  classification  of
compensation.

1 
2 
3 
4 

Case C-53/00.
Case C-280/00 Altmark Trans GmbH.
Case C-126/01 GEMO SA.
Joined Cases C-34/01 and C-38/01.

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4. 

STATE  OF  PLAY  IN  THE  WORK  ON  THE  RELATIONSHIP  BETWEEN  SGEIS  AND  THE
COMMUNITY COMPETITION RULES

A meeting is scheduled on 18 December 2002 for discussions with Member States' experts on
the basis of a working paper drawn up by the Competition Directorate-General. The objective
is  to  have  an  exchange  of  views  on  matters  that  will  subsequently  have  to  be  addressed  in
detail in the text  that the Commission will  prepare once  the  case  law  of  the Court has been
consolidated.

Discussions should focus in particular on the following five matters:

4.1. 

Definition of SGEIs and freedom of choice for Member States

It  follows  from  the  case  law  developed  by  the  Court  that,  in  the  absence  of
Community rules in this area, Member States have wide discretionary powers when
it comes to defining their SGEIs in the light of their political choices and in line with
the  general  principles  of  the  Treaty.  Such  discretion  does  not,  however,  mean  that
any economic activity can be classified as an SGEI. In particular, the general-interest
objectives should be spelt out. It is important to scrutinise the Court's relevant case
law in order to enhance predictability and legal certainty.

4.2. 

Scope of the Community rules on state aid

Irrespective  of  how  the  Court's  case  law  on  the  classification  of  public  service
compensation develops, it is  important  to  spell  out  the  conditions  under  which  any
excess  compensation  can  constitute  state  aid.  A  Commission  document  should,
therefore,  describe  the  most  recent  developments  in  case  law  and  in  the
Commission's  decision-making  practice,  particularly  as  regards  the  criteria  of
economic activity and effects on trade between Member States, which determine the
applicability of the Treaty rules on state aid.

4.3. 

Relationship  between  Member  States  and  undertakings  entrusted  with  the
provision of SGEIs

Legal  certainty  requires  a  maximum  degree  of  transparency  in  the  relationship
between the public  authorities and the undertakings entrusted with the  provision  of
SGEIs.  The  reciprocal  obligations  of  the  undertakings  and  the  Member  State
assigning the public service in question need to be clarified in an official document
e.g. a contract.

4.4. 

Procedures for selecting undertakings entrusted with the provision of SGEIs

Member  States  may  decide  to  provide  SGEIs  themselves  or  to  entrust  them  to
undertakings.  They  must  comply  either  with  the  Community  public  procurement
directives in cases where the contract awarding the SGEI falls within their scope or
with  the  general  principles  of  the  Treaty,  notably  as  regards  transparency,
non-discrimination and competition, in cases where the procedures for awarding the
SGEI are not covered by those directives. The scope of these principles would have
to be spelt out.

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4.5. 

Financing of public service

Regardless  of developments in  the  case  law  on  public  service  compensation,  it  has
been  established  that  any  excess  compensation  is  liable  to  constitute  state  aid.  It  is
important,  therefore,  to  define  clearly  the  methods  for  calculating  compensation  in
order to avoid any excess compensation.

The  meeting  on  18  December  2002  will  be  the  first  working  meeting  with  Member  States'
experts. A second meeting will be organised once the Court's case law has been consolidated
with a view to examining a new document that will also have to address the matter of public
service compensation.

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