2005/406/EC: Commission Decision of 15 October 2003 on ad hoc measures implemented by Portugal for RTP (notified under document number C(2003) 3526)   (Text with EEA relevance)
Date: 2003-10-15
Institutions: European Commission
Subjects: Portugal, State aid, application of EU law, broadcasting, control of State aid, public service, television

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(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 15 October 2003

on ad hoc measures implemented by Portugal for RTP

(notified under document number C(2003)3526)

(Only the Portuguese version is authentic)

(Text with EEA relevance)

(2005/406/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

Having regard to the Treaty establishing the European Commu-
nity, and in particular the first subparagraph of Article 88(2)
thereof,

The Commission’s decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (2). The Commission invited interested parties to sub-
mit their comments.

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

(4)

Having called on interested parties to submit their comments pur-
suant to the provisions cited above (1) and having regard to their
comments,

The Commission received observations from the Portu-
guese authorities by letters of 28 and 31 January 2002. It
subsequently received comments from several interested
parties.

Whereas:

I. PROCEDURE

(1)

(2)

By three complaints submitted in 1993, 1996 and 1997
by the commercial broadcaster SIC, the Commission was
informed that Portugal had implemented a number of
ad hoc measures and annual compensation measures in
favour of the Portuguese public broadcaster RTP.

By letter dated 15 November 2001, the Commission
informed Portugal that it had decided to initiate the proce-
dure laid down in Article 88(2) of the EC Treaty in respect
of a number of ad hoc measures granted to RTP.

(5)

(6)

Comments were received by letters of 8 February and
9 May 2002 from the complainant SIC, by letter of
8 May 2002 from the Portuguese commercial broadcaster
TV1, by letter of 9 May 2002 from the Association of
Commercial Broadcasters (ACT) and by letter of 12 June
2002 from the Italian commercial broadcaster Mediaset.
The Commission received further letters on the case from
SIC on 16 May and 4 August 2003.

authorities, which reacted by

The Commission forwarded the comments to the Portu-
guese
letter dated
25 March 2003. By letter of 29 July 2003, the Portuguese
authorities replied to the additional questions put by the
Commission.

(1) OJ C 85, 9.4.2002, p. 9.

(2) Ibidem.

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(7)

(8)

(9)

The present decision will deal only with the ad hoc mea-
sures covered by the decision to initiate the procedure.
Accordingly,
focuses on the financial relationship
between RTP and Portugal in the period 1992 to 1998.

it

(11)

Table 1 gives a breakdown of the annual compensation
payments granted to RTP in the period covered by the
present decision.

Like the decision to initiate the procedure, the present deci-
sion does not deal with questions relating to the legal clas-
sification and compatibility with the Treaty of the annual
compensation payments granted to RTP. Since, on a pre-
liminary basis, those measures are regarded as existing aid,
they are being dealt with in a separate procedure under
Article 17 of Council Regulation (EC) No 659/1999 (3).

However, in order to have a complete picture of the finan-
cial relationship between the Portuguese State and RTP
over the period covered by the present investigation, the
Commission has to take into consideration not only the
ad hoc measures but also the financial support granted to
RTP by means of annual compensation payments. Accord-
ingly, in the present decision, the Commission will refer to
the annual compensation payments only to the extent nec-
essary to clarify its reasoning on the ad hoc measures.

II. DETAILED DESCRIPTION OF THE ISSUES AT STAKE

Measures for RTP

Annual compensation payments

Table 1

Amount of annual compensation payments from
1992 to 1998

(PTE million

1992

1993

1994

1995

1996

1997

1998

6 200

7 100

7 145

7 200

14 500

10 350

14 000

Source: Council of Ministers Resolutions No 18/92, No 21/93, No 19/94,

No 25-A/95, No 97/96, No 83/97 and No 1/99.

Exemption from registration charges

(12)

RTP was exempted from the payment of registration
charges amounting to PTE 33 million on registration of the
legal transformation of RTP into a limited company. Under
Portuguese law any legal subject has normally to pay taxes
for the constitution of a company, the amendment of stat-
utes or modifications to the company.

(13)

The legal basis for the exemption is Article 11(1) of Law
No 21/92, which provides that:

‘The statutes of RTP SA […} are hereby approved; they do
not need to be converted to a deed, but shall be automati-
cally registered, free of duties and expenses, on the basis of
the Official Journal of the Republic (Diário de República) in
which they are published.’

(10)

The annual compensation payments constitute the main
mechanism for compensating RTP. In the period 1992 to
1998 RTP received annual compensation payments total-
ling PTE 66 495 million to cover the costs of its public ser-
vice obligations. The legal basis for the compensation
payments is Article 5 of Law No 21/92 (4).

(14) Article 11(1) is derived from Law No 84/88, Article 1 of
which provides that public undertakings, even if nationa-
lised, can be converted by decree-law into public limited
companies. Such a decree-law constituted the act approv-
ing the statutes of the limited company and was sufficient
to comply with all registration requirements (5).

(3) Council Regulation (EC), No 659/99 of 22 March 1999 laying down
detailed rules for the application of Article 93 (now Article 88) of the
EC Treaty (OJ L 83, 27.3.1999, p. 1). Regulation as last amended by
the 2003 Act of Accession.

(4) According to Article 5, ‘Performance of the public service obligations
entrusted to RTP SA […] shall confer on that company the right to a
compensation payment the exact amount of which will correspond to
the actual cost of providing the public service, which shall be deter-
mined on the basis of objectively quantifiable criteria and in accor-
dance with the principle of sound management.’

(15)

Furthermore, under Article 11(2) of Law No 21/92, RTP
was exempted from paying other registration fees directly
linked to the modification of the legal nature of the
company.

(5) Article 3(2) and (3) of Law No 84/88 of 20 July 1988.

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(16) Article 11(2) is derived from Decree-Law No 404/90 (6),
on the basis of Article 1 of which undertakings that, up to
31 December 1993, performed acts of cooperation or con-
centration could be granted exemption from transfer tax
on the fixed assets necessary for such concentration or
cooperation as well from the emoluments and other legal
charges payable for the performance of those acts.

(20)

Between 1991 and 1994 the television broadcasting net-
work was owned by the public company TDP SA. After
1994 the network was owned by Portugal Telecom, a
company created from the combination of Telecom Por-
tugal SA, Telefones de Lisboa e Porto SA and TDP SA.
After the creation of Portugal Telecom, the State periodi-
cally decreased its holding in the company. In 1995 26,3 %
was sold in a public offering. A second tranche was auc-
tioned in June 1996, bringing state ownership down to
51 %. State ownership was further reduced to 25 % in mid-
1997 and to 10,5 % in mid-1999. The company is now
privatised (10).

Payment by the State for the hiving-off of the television signals
network

(17) With the opening-up of the Portuguese television market
it was decided to hive off the television signals network
from the broadcasting activities of RTP and to create a
separate legal entity ‘Teledifusora de Portugal’ (TDP) with a
capital of PTE 5 400 million (7). The value of the new
entity was established by two independent institutions,
Banco Nacional Ultramarino (BNU) and Banco Português
de Investimento (BPI) (8).

(18)

In 1993 the State acquired from RTP the TDP broadcast-
ing network for PTE 5 400 million (this figure was the
result of an independent valuation), which corresponded to
the value of the assets that had been hived off (9).

Facilities granted for payment of the annual fee for using the
television broadcasting network

(19) An overview is given below of the context in which the
agreements were concluded. The developments in the own-
ership of Portugal Telecom will be described, as well as the
rates charged and the agreements reached with RTP.

(21)

Law No 58/90 explicitly determines that private operators
can lose their broadcasting licence if they do not pay the
network fee on time (11).

(22)

There has been no difference in the rates charged by the
network operator to RTP and to private television opera-
tors. In fact, it is forbidden by law to charge different rates
to the public broadcaster RTP and to private broadcasters
that use the network (12). Until 1997 the level of the rates
charged by the network operator was based on legally
determined parameters (13). Since 1997 an agreement
between the Media Institute, the Director-General for Trade
and Competition and Portugal Telecom laid down the
maximum prices chargeable by Portugal Telecom for dis-
tributing the television signal.

(23)

RTP had to pay an annual fee for the use of the broadcast-
ing network to the owner (14). It has always challenged the
level of the fee as the annual fee was equal to more than
half of the value of the network when it was hived off.
Although RTP entered as liabilities all the costs of the
broadcasting network, including interest for late payment,
it did not pay the fees on time.

(24)

The network is indispensable for RTP to broadcast its pro-
grammes. Furthermore, RTP is one of the main users of the
network (alongside the commercial operator SIC).

(6) Decree-Law No 404/90 of 21 December 1990.
(7) Decree-Law No 138/91 of 8 April 1991.
(8) For an analysis of the value of the network, see the Commission Deci-
sion of November 1996 in which the Commission decided that the
value of the network was in line with the market value.

(9) In 1991 RTP hived off its assets to TDP and participated in TDP to the
value of the assets. Afterwards the State became the sole direct owner
of TDP. However, it appears that the State did not pay RTP in cash but
became a debtor of RTP for the amount of PTE 5 400 million. Even-
tually, RTP adjusted its claims against retained losses. Additionally, in
view of the fact that RTP had effectively lost certain assets, the State
decided in 1993 to provide resources to RTP by injecting capital
equivalent to the assets given up by RTP.

(10) The main shareholders are the Banco Espírito Santo group (9,3 %),
Brandes Investments Partners (5,5 %), Telefonica (4,8 %), the Caixa
Geral de Depositos group (4,7 %) and the BPI group (2,9 %).

(11) Article 13(1)(f) of Law No 58/90 of 7 September 1990, which gov-

erns the activity of television broadcasting.

(12) Article 5 of Decree-Law No 401/90 of 20 December 1990, replaced
by Article 13 of Decree-Law No 40/95 of 15 February 1995.
(13) Article 4(2) of Decree-Law No 401/90 of 20 December 1990.
(14) PTE 3 650 million in 1992, PTE 3 680 million in 1993, PTE
3 101 million in 1994, PTE 2 866 million in 1995 and PTE
5 400 million in 1996.

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(25)

In the period 1992 to 1998 the network operator accepted
late payment of the fee by RTP and several agreements
were concluded between RTP and Portugal Telecom on
debt rescheduling (15). After 1998 debt rescheduling agree-
ments have also been concluded between the two compa-
nies. In an agreement of 31 May 2001 RTP’s accumulated
debt to Portugal Telecom was consolidated, including the
amount represented by interest on late payment. At the
time, the two companies reached agreement that the total
debt would be paid in ten half-yearly instalments with
30 June and 30 December as the due dates each year.

(26) On 3 July 2003 ANACOM, the body currently responsible
for the pricing rules for the television broadcasting net-
work, ruled that Portugal Telecom had to reduce its 2002
prices onwards by 14 % plus an additional 1,2 % from
January 2003.

(30) On 6 May 1993 a joint decree of the Ministry of Finance
and the Ministry of Social Security formally authorised the
rescheduling of the debt into 120 monthly instalments and
waived the fines and interest due for the amount of PTE
1 206 million.

(31)

The conditions for authorising exceptional arrangements
for settling debts owed to the social security scheme are
laid down in Decree-Law No 411/91, according to
Article 2(1) of which the authorisation must be indispens-
able in order to guarantee the viability of the debtor and
the arrangements may be applied inter alia on the ground
that, as provided for in (d), the indebted undertaking ‘has
been the subject of occupation, worker self-management
or state intervention’.

Bond issue

(27)

Portugal Telecom is obliged under its telecommunication
concession to provide the broadcasting and distribution
service for telecommunication signals. Its universal service
obligation, whose negative profit margin can be compen-
sated for by the State, does not include the provision of a
television signal distribution service to RTP (16).

(32)

In 1994 RTP issued bonds totalling PTE 5 000 million.
According to the issue prospectus, however, RTP itself
guaranteed payment of the debt with its own revenue.

(28)

(29)

Rescheduling of debt due to the social security scheme and waiver
of interest for late payment

In the period 1983 to 1989 RTP built up a debt to the
social security scheme of PTE 2 189 million arising from
failure to pay social security contributions. The back-
ground of the debt was a dispute between RTP and social
security on the interpretation on the social security deduc-
tions for overtime and artists fees.

The social security’s interpretation was laid down in
Article 2(e) of Implementing Decree No 12/83 of 12 Feb-
ruary 1983. In order to avoid legal proceedings, the two
parties reached an agreement under which social security
would waive its interest claim for late payment and accept
a rescheduled payment of the debt. Following the settle-
ment of the legal dispute, the Implementing Decree was
never revoked.

Protocol on cinema promotion of September 1996

(33) On 18 September 1996 a protocol on cinema promotion
was concluded between RTP and the Ministry of Culture
that specified RTP’s obligations in terms of support for cin-
ema production but did not provide for any specific ad hoc
financing for RTP in respect of its obligation to support the
cinema.

Restructuring plan for 1996 to 2000

(34)

RTP carried out a study on the possibilities for restructur-
ing the company in the period 1996 to 2000. The study
did not lead to any financial commitment on the part of
the State.

Annual capital injections in the period 1994 to 1997

(15) In March 1996 and December 1997.
(16) Decree-Law No 40/95 of 15 February 1995, as amended by Decree-

Law No 458/99 of 5 December 1999.

(35)

In the period 1994 to 1997 the State increased the capital
of RTP each year. The table below gives an overview of the
to PTE
different
46 800 million.

increases, which amount

capital

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Table 2

(41)

Increases in RTP’s share capital 1994 to 1997

Year

1994

1995

1996

1997

(PTE million)

The contract between the Public Debt Stabilisation Fund
and RTP was drawn up in accordance with the guidelines
set out in a joint resolution of the State Secretaries for the
Media, for the Treasury and for Finance on 17 December
1998.

Increase in share
capital

Share capital as at
31 December

10 000

12 800

10 000

14 000

The recipient

22 708

35 508

45 508

59 508

Source: Balance sheets of RTP.

(36)

The public service contracts that the Portuguese State con-
cluded with RTP provide for state participation in invest-
ments made by RTP, preferably in the form of capital
increases (17).

Loan in 1998

(37)

(38)

In December 1998 a contract was concluded for a subor-
dinated loan between the Public Debt Stabilisation Fund
(Fundo de Regularização da Dívida Pública) and RTP laying
down the conditions of a loan of PTE 20 000 million to
increase RTP’s capital.

The Public Debt Stabilisation Fund is managed by the Pub-
lic Debt Management Institute (Instituto de Gestão de Crédito
Público), which is responsible for managing the debt of the
Portuguese State and for implementing the central borrow-
ing programme,
in accordance with the Public Debt
Law (18) and the guidelines laid down by the Government.
The Institute is subject to the authority and supervision of
the Ministry of Finance (19).

(39)

From the date on which the sums were available to RTP the
loan was subject to annual
interest payments at the
12-month Lisbor rate, calculated on the first date of each
period, plus 20 basis points (20).

(40) According to the contract, the loan was to be reimbursed
on 31 December 2003 but could be extended for one or
two years by mutual agreement. RTP did not pay interest
on the loan, as the loan contract stipulates that the interest
payable on the first four annual payments should be
capitalised (21).

(17) Clause 14 of the Old Public Service Contract and Clause 21 of the

New Public Service Contract.

(18) Law No 7/98.
(19) Article 1 of Decree-Law No 160/96.
(20) A rate of 3,54 % was applied in 1999, 4,14 % in 2000, 5,05 % in

2001, 3,62 % in 2002 and 2,95 % in 2003.

(21) Article 5 of the amended loan contract.

(42)

(43)

The Portuguese public broadcaster RTP was set up on the
Government’s initiative by an act of 15 December 1955
following its decision to establish a public company that
would be awarded a concession for the provision of public
service television broadcasting (22).

RTP had a monopoly position on the broadcasting market
until the 1980s. In the 1990s it began to face competition
from commercial broadcasters after the State had granted
licences in February 1992 to SIC and TVI to broadcast on
a third and fourth channel respectively (23).

(44)

The 1992 statutes of RTP, which were set out in Law 21/92
converted the entity into a public limited company (24).

(45)

(46)

RTP performs both public service broadcasting activities
and commercial broadcasting. It is legally allowed to pur-
sue commercial or industrial activities related to the activ-
ity of television (25).

RTP’s commercial activities have been conducted through
financial participation in companies that are legally distinct
from RTP and have their own structure and accounting
system.

Financial position of RTP

(47) As the table below shows, RTP made losses during the
period under investigation. In 1996 its financial situation
deteriorated to the extent that its net equity became
negative.

(22) Decree-Law No 40 341 of 18 October 1955, in which the Portuguese
Government undertook to promote ‘the establishment of a public
limited company […] with which it will conclude a concession con-
tract for public service television broadcasting on Portuguese terri-
tory’.

(23) Points 11.4 and 11.5 of Council of Ministers Resolution No 49/90 of
31 December 1990 and point 3 of Council of Ministers Resolution
No 6/92 of 22 February 1992.
(24) Law No 21/92 of 14 August 1992.
(25) The Annex to Law No 21/92 on the Statutes of RTP states in
Article 3(2) and (3) that RTP may perform the following activities: (i)
television advertising;
(ii) marketing of products (notably pro-
grammes and publications related to its activities; (iii) provision of
technical consultancy and vocational training, and cooperation with
other national and foreign entities; (iv) marketing and rental of tele-
vision equipment, films, magnetic tapes, videocassettes and similar
products; (v) participation in additional company groups and Euro-
pean economic interest groups as well as in the capital of other com-
panies, in whatever form provided for under commercial legislation.

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Table 3

RTP economic and financial data 1993 to 1998

1993

1994

1995

1996

1997

1998

(PTE million)

Net profits (losses)

(7 883)

(19 558)

(26 581)

(18 512)

(32 223)

(25 039)

Net equity

Assets

1 557

8 071

4 269

(4 274)

(20 586)

(50 827)

39 418

42 262

56 078

67 654

62 340

83 843

Financial debts (1)

22 402

26 855

30 258

44 922

44 885

92 775

(1) Short-, medium- and long-term debts to credit institutions and bonds.
Source: RTP’s financial accounts.

RTP’s public service obligations in 1992 to 1998

performing its activity as concessionaire (28), while
Article 4(3) outlines the obligations of the public television
broadcasting service (29).

(48)

RTP has to provide public service television. Different laws
prescribe the definition, assignment and financing of that
service.

(49)

Law No 58/90, which governs the activity of television
broadcasting, laid down the conditions for private broad-
casters and the obligation on the State to guarantee public
service television broadcasting (26). As regards the statutes
of RTP, Law 21/92 defines the main public service obliga-
tions and the financing of that service.

(50)

Two public service contracts signed between RTP and the
Portuguese State described the public service and its financ-
ing in greater detail (27).

D e f i n i t i o n

(51) Article 4 of Law No 21/92 states that a concession con-
tract is to be concluded between the State and RTP and
specifies the main public service obligations that have to be
performed under the contract. Article 4(2) establishes the
to observe when
that RTP has
general principles

(26) Law No 58/90 of 7 September 1990 on the activity of television

broadcasting.

(27) On 17 March 1993 a public service contract (Old Public Service Con-
tract) was signed between the Portuguese State and RTP. On
31 December 1996 it was replaced by the New Public Service Con-
tract.

(52)

The public service contracts confirm RTP’s public service
obligations. Firstly, general obligations and obligations
relating to programme content are imposed on RTP (30).
RTP has to provide a public television service as part of
which it has to broadcast two channels and provide the
population of mainland Portugal with general coverage.
The first channel is of a more general nature and has to
offer more general programming. The second channel has
to aim more at specific audiences and to provide educa-
tional, cultural and scientific programmes. One of the
channels has to cover the Autonomous Regions of the
Azores and Madeira.

(28) RTP has: (a) to respect the principles of freedom, independence, non-
discrimination and non-concentration; (b) to safeguard its indepen-
dence from the public authorities; and (c) to adapt programmes to
quality and variety requirements in the interests of the public.
(29) RTP has: (a) and (c) to contribute to enlightening, informing and edu-
cating the population; (b) to guarantee news coverage: (d) to (h) to
make broadcasting time available for official messages, religious
events, political parties, trade unions, the government and the public
administration; (i) to broadcast two general coverage programmes,
one of which should cover the Autonomous Regions of Madeira and
the Azores; (j) and (m) to broadcast programmes on education, train-
ing, sport and culture; (l) to support and promote the cinema; (n) to
keep audiovisual files; (o) to exchange programmes and information
with Madeira and the Azores; (p) to produce and broadcast pro-
grammes for Portuguese communities abroad; (q) to cooperate with
Portuguese-speaking countries; (r) to ensure direct coverage of main
events abroad; (s) to maintain contacts with other European public
service television broadcasters; and (t) to ensure that television broad-
casting is in conformity with the guidelines laid down by the com-
petent international bodies.

(30) Clause 4 of the Old Public Service Contract and Clauses 4 and 5 of

the New Public Service Contract.

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(53)

Secondly, the contracts impose specific programming obli-
gations on RTP (31). Standards are set for programme qual-
ity (pluralism, impartial information, etc.) and programme
content (new fiction, sport, children, Portuguese culture,
domestic news, entertainment). RTP has to allow viewing
time for specified entities, to support the cinema and other
forms of audiovisual production, to promote the produc-
tion of educational or training programmes, to exchange
programmes with the Autonomous Regions and to pro-
mote cooperation with other public service television bod-
ies in the European Union. Furthermore, it has to fulfil
specific programming obligations relating to international
cooperation. For example, it has to produce programmes
for, and broadcast them to, Portuguese communities liv-
ing abroad and Portuguese-speaking countries in Africa
and Macau. It has to ensure the functioning of RTP Madeira
and RTP Açores and to maintain its production centres and
delegations abroad.

(57)

(58)

(54)

Thirdly, the contracts impose specific obligations on RTP.
For example, RTP has to maintain audiovisual archives, to
introduce technological innovations in its equipment and
activities, to support the S. Carlos National Theatre Foun-
dation and to provide other services to be specified on an
ad hoc basis.

intervene in order to assess whether the general and spe-
cific public service television broadcasting obligations are
being complied with.

RTP has to provide the Minister for Finance with an activ-
ity plan and budget for the public service for the following
year, accompanied by opinions issued by the company’s
board of auditors and the Public Opinion Council. Further-
more, it has to provide a report on the public service obli-
gations during the previous year, accompanied by an
opinion of the board of auditors (34).

The Minister for Finance and the member of the govern-
ment responsible for the media have to verify compliance
with the public service contracts. The Inspector-General of
Finances has to audit the financial plan. Furthermore, an
annual audit has to be conducted by a specialised auditing
firm (35).

A s s i g n m e n t

(59)

The New Public Service Contract also provides for sanc-
tions to be imposed by the State for breach of contract in
the form of fines, seizure, redemption or termination of
the contract.

(55) Article 5 of Law No 58/90 assigned to RTP the concession
for public service broadcasting for a period of 15 years,
renewable for a further 15 years and covering the frequen-
cies corresponding to the first and second channels.
Article 4 of Law No 21/92 stresses that RTP is the conces-
sionaire
television broadcasting.
Clause 1(a) of the public service contracts confirms that
RTP is the provider of the public service television (32).

for public

service

C o n t r o l

F i n a n c i n g

(60) Article 5 of Law No 21/92 confers on RTP the right to
receive state compensation for its public service obliga-
tions. This right
is confirmed in the public service
contracts.

(61)

In addition to the system of annual compensation pay-
ments, the public service contracts provide for funding for:

(56)

The public service contracts (33) provide for the setting up
of a Public Opinion Council consisting of representatives
from the different sections of public opinion that can

(31) Clauses 5 to 8 and 10 of the Old Public Service Contract and Clauses

6 to 13 of the New Public Service Contract.

(32) Clause 1 of the Old Public Service Contract stated that the aim of the
contract was to lay down the terms under which RTP would provide
the public television service. Clause 1 of the New Public Service Con-
tract states that RTP is the sole provider of public service broadcast-
ing within the meaning of Article 5 of Law No 58/90 and Article 4
of Law No 21/92.

— the payment of specific services under agreements to
provide services signed or to be signed by the public
administration and RTP (36);

(34) Clauses 15, 16, 18 and 19 of the Old Public Service Contract and

Clauses 18 and 25 of the New Public Service Contract.

(35) Clause 19 of the Old Public Service Contract, Clause 25 of the New

Public Service Contract and Article 47(2) of Law 31-A/98.

(33) Clause 9 of the Old Public Service Contract and Clause 23 of the New

(36) Clause 13 of the Old Public Service Contract and Clause 20 of the

Public Service Contract.

New Public Service Contract.

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— state participation in all investments made by RTP,
particularly those for the infrastructures required for
the operation of the production and broadcasting cen-
tres in the Azores and Madeira,
the audiovisual
archives and RTP’s international broadcasts and other
investments that RTP is required to
technological
make (37).

(65)

cost-allocation

The
characteristics:

system has

the

following

(62)

In order to determine the costs and revenues of the public
service obligations that qualify for compensation pay-
ments, RTP applies an analytical accounting system. The
contracts specify the criteria for calculating the eligible
service
costs
obligation (38).

compensation of

public

each

for

(63) On the basis of analytical accounting system, RTP allocates
costs and revenues (e.g. personnel and equipment) to a
defined number of activities (management of program-
ming, direct and indirect programme costs, diffusion costs,
emission costs, marketing costs and overheads).

— under the public service contracts, only net operating
costs can be compensated for in accordance with the
method described in the contracts. The financial cost,
the extraordinary expenditure and provisions not
directly related to an activity are excluded from
compensation (40),

— in order to calculate the net reimbursable operating
costs, RTP has to deduct from the operating cost the
operating revenues deriving from each public service
obligation,

— under the Old Public Service Contract, no compensa-
tion was possible for the general public service obli-
gation to operate RTP 1 and RTP 2 and to cover the
Autonomous Regions with one of the channels (41),

(64)

The direct costs of the different activities are divided
between the different cost items (e.g. RTP 1, RTP 2, RTPi
and RTP África). The indirect costs are allocated to the cost
items on the basis of consistent analytical criteria (e.g.
number of broadcasting hours) (39).

— under the New Public Service Contract the operating
costs of RTP 1 and RTP 2 can be compensated for, but
no extra compensation is possible in the event of the
real net operating costs of RTP 1 and RTP 2 exceeding
the planned cost (42).

(37) Clause 14 of the Old Public Service Contract and Clause 21 of the

New Public Service Contract.

library,

(38) Clause 12 of the Old Public Service Contract lays down in detail
which costs can be compensated for and how they are to be calcu-
lated: the coverage differential (the difference in costs borne by RTP
Channel 1 and the costs borne by the largest private television opera-
tor), the operating deficit in the Autonomous Regions, the deficit in
the operational cost of RTP-
running the audiovisual
International, the cost of operating the structure for cooperation with
the Portuguese-speaking African countries (PALOPs), the cost of
allowing viewing time for certain entities, the cost of delegations and
correspondents, and the costs of the S. Carlos National Theatre Foun-
dation. Clause 15 of the New Public Service Contract lays down in
detail which costs can be compensated for and how they are to be cal-
culated. The items to be covered are: the operating costs of RTP 1 and
RTP 2; specific services referred to in Clause 7(a) to (l); and the
coverage differential.

(39) Information provided by the Portuguese authorities by letter of

31 March 1999.

(66)

RTP has reported the net cost of providing the public ser-
vice in the annual public service reports in line with the
cost calculation method described above. The table below
gives an overview of the costs of each public service activ-
ity entitled to receive compensation payments.

(40) Clause 14(2) of the New Public Service Contract.
(41) Excluding the cost associated with the coverage differential.
(42) Clause 19(1) and (3) of the New Public Service Contract. The New
Public Service Contract provided that the operating costs of RTP 2
could be compensated for retroactively from 1 January 1996.

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Net reported and reimbursable costs of the public service

Table 4

1992

1993

1994

1995

1996

1997

1998

(PTE million)

Teletext

112,9

86,8

Operation of RTP International

882,3

1 517,4

1 826,9

1 890,8

2 059,6

3 999,1

3 712,9

RTP África

Direct broadcasting by RTP 1 to Azores and
Madeira

Audiovisual archives

Cooperation with Portuguese-speaking
countries in Africa

—

—

509,1

186,9

—

—

241,6

128,4

—

—

402,7

172,2

—

—

492,7

148,6

654,7

76,8

909,4

202,4

—

184,9

144,9

Coverage differential

406,7

1 312,8

1 314,2

1 050,3

1 050,0

622,6

Delegations/correspondents

797,8

658, 2

681,1

642,7

583,2

457, 2

S. Carlos National Theatre Foundation

Cinema promotion

50,0

215,0

55,0

95, 0

60,0

27,5

60,0

60,0

156, 5

391,1

1 332,0

295,4

672,1

200,3

208,6

211,0

60,0

352,8

Operation of autonomous regional centres

3 453,4

3 486,0

3 685,9

3 696,1

3 846,6

3 459,2

2 855,2

Broadcasting for specific entities

482,0

350,6

151,1

94,6

80,8

Sport TV (1)

Net operating costs of RTP 1

Net operating costs of RTP 2

– 440,0

16 946,1

11 916,6

9 050,6

10 080,6

8 637,6

Total net operating costs

6 718,2

7 960,0

8 384,1

8 103,3

17 217,1

37 972,1

30 101,3

(1) Although Sport TV is not a public service activity eligible for compensation, RTP deducted the profits of Sport TV from the public service cost. The basis for this is Article 47(3)
of Law No 31-A/98 of 14 July 1998, which provides that profits made by RTP from participation in other channels are to be used for the financing of public service initia-
tives.

Source: Portuguese authorities and public service reports.

(67)

The table below gives an overview of RTP investments in
equipment for public service activities. It presents both the
real investments in public service activities, as shown in the
annual financial accounts, and the investments reported in

the public service reports. It will be noted that the real
investments in public service activities were higher than
the investments reported in the public service reports.

Table 5

Investments in public service activities

1992

1993

1994

1995

1996

1997

1998

Total

Financial accounts

2 632,6

2 102,0

2 763,9

992,7

1 480,4

4 037,4

6 054,2

20 063,2

Public service reports

2 327,3

98,0

1 975,1

154,4

28,1

4 037,4

6 127,8

14 748,1

Difference

305,3

2 004,0

788,8

838,3

1 452,3

0

– 73,6

5 315,1

Source: RTP financial accounts and public service reports.

(PTE million)

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Objective of the measures

III. COMMENTS FROM INTERESTED PARTIES

(68)

The objective of the measures was to compensate RTP for
the public service obligations imposed on it and to finance
its investments.

(74)

Following the initiation of the investigation procedure, sev-
eral interested parties commented on the measures. Below
is an overview of the relevant comments from these par-
ties on each measure.

Possible effects of the measures

(69)

(70)

In Portugal the public service operator was not selected as
a result of a procedure in which all interested undertakings
had the opportunity to state the amount of compensation
they would need to operate a public service television
broadcasting concession. RTP was appointed by the Gov-
ernment to provide public service television.

Since 1992, both commercial and public service broadcast-
ers have been active in the Portuguese television market.
Apart from RTP, the commercial broadcasters SIC and TVI
are licensed to broadcast television channels. SIC was the
first private operator to start broadcasting on 6 Octo-
ber 1992. The measures in favour of RTP could have the
effect of distorting competition in the television broadcast-
ing market.

Grounds for initiating the procedure

(75)

SIC and TVI argued that the exemptions from registration
charges are an exception to the rules normally applicable
to any change in a company’s statutes. SIC commented
that the measure is not limited to the creation of RTP. On
the basis of Article 11(2) of its statutes, RTP enjoys a gen-
eral exemption from the payment of taxes and charges for
any kind of registration.

(76)

TVI commented that RTP was also exempt from any costs
linked to the publication of the deed.

(77) As regards the facilities for paying the fee for use of the
television broadcasting network, the interested parties
commented that it should be made clear whether interest
was actually charged and at what rate and whether any
payments were made to Portugal Telecom. Furthermore,
clarification should be provided on RTP’s current level of
indebtedness towards Portugal Telecom.

(71)

The Commission initiated the procedure following a judg-
ment by the Court of First Instance in 2000 (43) which
annulled the Commission’s 1996 decision (44).

(78)

(72)

Furthermore, considering the duration of its preliminary
assessment and its doubts as to the proportionality of the
financing of RTP’s reimbursable public service costs, the
Commission initiated the procedure following complaints
made by SIC in 1996 and 1997. The measures objected to
were a payment by the State for the hiving-off of the tele-
vision broadcasting network, a bond issue, cinema promo-
tion,
the 1996 to 2000 restructuring plan, capital
injections in the period 1994 to 1997 and a loan.

(73) When initiating the formal investigation procedure, the
Commission, taking into account the total reimbursable
public service costs of RTP in the period 1992 to 1998,
expressed doubts as to whether the Portuguese State did
not overcompensate for the net public service costs of RTP.

(43) Judgment of the Court of First Instance of 10 May 2000 in Case

T-46/97 SIC v Commission [2000] ECR II-2125.

(44) NN 141/95 Financing of the Portuguese public television service

(OJ C 67, 4.3.1997, p. 10).

SIC and TVI commented on the rescheduling of debt due
to the social security scheme. They argued that RTP was
allowed to amortise that debt on different terms from those
applicable to other undertakings under Decree-Law
No 411/91. ACT underlined the central role of the State in
the agreement.

(79) As regards the sale of the television network, ACT and TVI
commented that an accountancy and economic analysis of
the value of the assets of the newly created company TDP
should be carried out to determine whether there had been
any overcompensation. On this issue Mediaset and ACT
stated that the television network has been created thanks
to state financing and not by the operator itself. They
therefore questioned whether the compensation to RTP for
this state asset was justified.

(80) As regards the bond issue, SIC stressed that, in view of
RTP’s financial situation, it was only because the State is
100 % owner of the shares that the bond was accepted on
the market. Furthermore, Mediaset observed that the Com-
mission should look at the substance of any guarantee
rather than the form.

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(81) As to the protocol on cinema promotion, SIC commented
that the State had undertaken to provide compensation
each year for the costs of the public service obligation,
including cinema promotion. This thus represented double
financing for RTP for the same aim. TVI commented that
similar protocols have been signed with private broadcast-
ers but that only RTP receives state support. Furthermore,
TVI argued that the 1996 protocol on cinema promotion
was replaced in 2000, with RTP having to cofinance as a
co-producer all film projects receiving financing from
ICAM (Cinema, Audiovisual and Multimedia Institute). On
this issue Mediaset observed that, in so far as the terms of
funding require the public broadcaster to participate in
co-productions with independent producers, it is necessary
to ensure that such participation does not confer an indi-
rect benefit on the public operator in its relationship with
such film producers.

(86) As regards the comments of SIC on Article 11(2) of Law
No 21/92, they responded that the Portuguese legislator
did not grant public undertakings specific tax benefits in
the event of business conversion or restructuring. The
exemption was based on Decree-Law No 404/90.

(87) As regards late payment of amounts payable for use of the
network, the Portuguese authorities claim that the resched-
uling of debt by Portugal Telecom was a common strategy
in commercial relations between creditor and debtor and
did not result from intervention by the State.

(82) As regards the capital injections in 1994 to 1997, SIC,
ACT, Mediaset and TVI commented that no rational share-
holder would have increased the capital of a company with
the characteristics of RTP. The capital injections benefited
a company with a huge deficit but without a coherent
restructuring plan for restoring viability.

(83)

SIC also argued that, given the situation of technical bank-
ruptcy in which RTP found itself in 1996, no financial
institution would have approved a loan for it.

(84) Mediaset and ACT requested that greater emphasis be
placed during the investigation procedure on the indepen-
dent supervision of the delivery of the public service remit.
The commercial broadcasters SIC and TVI commented that
the Commission should conclude that the measures con-
stituted incompatible state aid as the public funds granted
to RTP were disproportionate.

(88)

(89)

The Portuguese authorities claim that the background to
the initial agreement between the social security scheme
and RTP on the rescheduling of debt and the waiver of
interest and fines was a legal dispute surrounding the con-
stitutionality of Implementing Decree No 12/83, which
governs social security contributions in connection with
remuneration for overtime. The agreement acknowledged
RTP’s interpretation — confirmed by a tax specialist —
that the remuneration was not subject to social security
contributions.

Secondly, the authorities claim that the formal authorisa-
tion of this agreement by the Government did not confer a
specific financial advantage on RTP compared with other
undertakings in similar circumstances under Decree-Law
No 411/91. They maintain that
the derogation of
Article 2(1)(d) applies to RTP as it was the subject of state
intervention and experienced various vicissitudes under the
management of an administrative commission appointed
by the Government in 1977 (45). According to the Portu-
guese authorities, the general nature is underlined by the
fact that an arrangement has been made with one of the
interested parties on the basis of the same law.

IV. COMMENTS FROM PORTUGAL

(85) As regards the exemption from registration charges, the
Portuguese authorities commented that, since it was not
necessary to issue a public deed formalising the act of con-
version of the public undertaking into a public limited
company, no basis existed for the collection of the respec-
tive taxes and emoluments.

(90) As regards the payment for the hiving-off of the television
network, the Portuguese authorities commented in 1993
that the funding was directly linked to the process of split-
ting off and selling the network for carrying and transmit-
ting television signals. The State purchased TDP from RTP.
Since it paid for the purchase by increasing RTP’s capital by
an amount exactly equal to the value of the assets that had
been hived off, the measure does not constitute state aid.

(45) Decree-Law No 91/A/77 annulled the 1976 Statutes of RTP and
stipulated that RTP would be governed by an Administrative Council.

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(91) As regards the bond issue accompanied by a state guaran-
tee the Portuguese authorities argued that this shareholder
loan did not involve any guarantee by the Portuguese State,
as demonstrated by the technical documents relating to the
matter.

(97)

(92) As regards the 1996 protocol on cinema promotion, the
Portuguese authorities commented that it clarifies and lays
down the terms of RTP’s public service obligation to sup-
port and promote cinema production. Under the protocol,
RTP was required to co-finance ‘projects receiving finan-
cial support’ that had been pre-selected by the responsible
government body. According to the Portuguese authori-
ties, the terms of the protocol concluded with RTP were
not comparable to those concluded with SIC and TVI, as
RTP was obliged to co-finance cinematographic works
whose television viewing interest might be low or even
non-existent. In any case, the value of the subsidy granted
by RTP was, as a general rule, far greater than the average
value of the rights for showing works suitable for televi-
sion broadcasting.

(93) As regards the restructuring plan for the period 1996 to
2000, the Portuguese authorities stated that the plan never
got beyond the preparatory study and therefore did not
form the basis for any financial support from the State to
RTP.

(94) As regards the loan, the Portuguese authorities commented
that the technical conditions attached to it provided that
the financial operation should carry interest calculated
according to market criteria.

The Portuguese authorities claim that (i) the tax exemp-
tions, (ii) the facilities for the payment of the tax on the use
of the broadcasting network, (iii) the rescheduling of the
debt to the social security scheme (iv) payment for the
hiving-off of the television network, (v) the protocol on
cinema promotion and (vi) the loan taken out by RTP in
1998 do not fall within the concept of state aid. As regards
the compatibility of the other measures, the Portuguese
authorities argued that they should be regarded as com-
pensation for public service costs and therefore not as state
aid (46) or, alternatively, their compatibility with Commu-
nity legislation should be assessed in the light of
Article 86(2) of the EC Treaty.

(98) As regards calculation of the overcompensation, the Por-

tuguese authorities argued that:

— the inclusion in 1996 of the operating costs of RTP 2
as reimbursable public service costs is based on the
1996 Public Service Contract, according to which
compensation for RTP 2’s operating costs under the
Contract
from 1 January 1996
onwards (47);

effect

took

— the loan of PTE 20 000 million should not be regarded
as compensation since it was granted on market terms,

— the capital increases were also designed to finance
investments and not simply to provide financial com-
pensation for reimbursable public service costs. The
State’s obligation as shareholder to participate in the
financing of investments deemed to be necessary is
laid down in the 1993 and 1996 Public Service
Contracts (48),

(95)

Furthermore, the Portuguese authorities argued that the
capital injections in the period 1994 to 1998 constituted
an instrument for financing the costs of providing a public
television service, together with payment of the compen-
satory allowances.

— the compensation payments were subject to VAT,
with the result that the net value received by RTP was
lower,

(96) According to the Portuguese authorities, the financing
model chosen to compensate RTP for its public service
costs proved inadequate and led to trading deficits. Firstly,
the compensatory allowances were always calculated at
below the real needs of public service television financing.
Secondly, the Portuguese State systematic paid the allow-
ances late. RTP then had to resort to bank financing in
order to meet its operating expenditure but could not
include the interest and amortisation charges in the calcu-
lation of the public service cost. Thirdly, RTP had to pay
value added tax (VAT) to the State on the allowances,
thereby reducing the net amount of the compensatory
allowances.

— under the 1996 Public Service Contract, the public
service costs were reimbursable only up to the allot-
ted budget.

(46) See judgment of the Court of Justice of 22 November 2001 in Case
C-53/00 Ferring SA v Agence centrale des organismes de sécurité
sociale (ACOSS), [2001] ECR I-9067.

(47) Clauses 3 and 4 of the New Public Service Contract.
(48) According to Clause 14 of the Old Public Service Contract and Clause
21(3) of the New Public Service Contract, ‘Participation in the above-
mentioned investments shall be covered preferably by the first con-
tracting party and as shareholder in the form of an increase in capital’.

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(99)

In view of the foregoing, the Portuguese authorities con-
cluded that the financial compensation for the public ser-
vice obligation of RTP should not be regarded as excessive
or inappropriate.

V. ASSESSMENT OF THE MEASURES

State aid nature of the measures

(100)

In order to ascertain whether the measures constitute aid
within the meaning of Article 87(1) of the Treaty, the
Commission has to assess whether the measures for RTP:

— are granted by the State or through state resources,

— are capable of distorting competition,

— favour certain undertakings or the production of cer-

tain goods,

— affect trade between Member States.

Presence of public resources

(101) Public resources are present in the exemption from regis-
tration charges, as a loss of tax revenue is equivalent to the
consumption of state resources in the form of fiscal
expenditure (49).

(104) For the period after mid-1997, the Commission considers
that any loss of income by Portugal Telecom cannot be
regarded as public resources since state involvement in
Portugal Telecom was limited to 25 % and was progres-
sively reduced in subsequent years, with other major share-
holders acquiring shares in the company (50). Furthermore,
as can be seen in paragraph 27, Portugal Telecom could
not receive state compensation for possible losses result-
ing from the acceptance of late payments by RTP. Accord-
ingly, the Commission concludes that after mid-1997 no
state resources were involved.

(105) For the period before mid-1997, the State controlled Por-
tugal Telecom as it had a majority holding in the company.
Therefore, any loss of income resulting from the accep-
tance of late payments from the period before mid-1997
should be regarded as public resources (51).

(106) Firstly, the Commission should assess whether the behav-
iour of the network operator before mid-1997 led to a loss
of state resources. In fact, by granting payment facilities,
the network operator acted as a public creditor towards
RTP. Its behaviour should therefore be compared with that
of a public or private creditor that seeks to recover sums
due to it and, to that end, concludes agreements with the
debtor under which the accumulated debts are to be
rescheduled or paid by instalments in order to facilitate
their repayment (52). The interest normally applicable to
that type of debt is intended to make good the loss suffered
by the creditor because of the debtor’s delay in performing
its obligation to pay off its debt, namely default interest.
The rate of default interest applied by the public creditor
should be equal to the rate a private creditor would apply
in similar circumstances (53).

(102) The Commission notes the following regarding the pres-
ence of public resources in the acceptance by the broad-
casting network operator of RTP’s late payments for using
the broadcasting network. By accepting non-payment of
the network fee and interest, thereby giving rise to accu-
mulated debt during the whole period under investigation,
the network operator decided to forgo revenue and may
have had to borrow money from the market in order to
finance its operations.

(107) Following the opening of the procedure and the comments
put forward by third parties, the Portuguese authorities did
not provide sufficient information on the interest rate
applied by the public network operator or on the market
reference rate. Therefore, the Commission cannot rule out
the possibility that the interest rates charged by Portugal
Telecom before mid-1997 constituted a loss of state
resources.

(103) Since Portugal Telecom was gradually privatised during the
period under investigation, the Commission has to distin-
guish between the period during which the State had a
majority holding in the company and the period during
which it had a minority holding.

(49) Point 10 of the Commission notice on the application of the state aid
rules to measures relating to direct business taxation (OJ C 384,
10.12.1998, p. 3).

(50) See in this respect the definition of a public undertaking given in
Article 2(1)(b) of Commission Directive 2000/52/EC of 26 July 2000
amending Directive 80/72 on the transparency of financial relations
between Member States and public undertakings (OJ L 193,
29.7.2000, p. 75).

(51) See judgment of the Court of First Instance of 12 December 1996 in

Case T-358/94 Compagnie Nationale Air France v Commission.

(52) See judgment of the Court of Justice of 29 April 1999 in Case
C-342/96 Kingdom of Spain v Commission [1999] ECR I-0000, para-
graph 46.

(53) Ibidem, paragraph 48.

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(108) Secondly, the Commission needs to ascertain not only
whether the measure involves state resources but also
whether the public authorities were actually involved in
the adoption of the measure (54).

(109)

It was not disputed that before mid-1997 the State was in
a position to control Portugal Telecom and to have a domi-
nant influence over its operations since it held more than
50 % of the company’s shares.

(115) Lastly, as can be seen from paragraph 25, the behaviour of
the network operator before and after mid-1997 did not
change. After mid-1997 the network operator continued
to conclude agreements with RTP on payment of the fees.
A dispute over the level of the annual fee in connection
with the interdependence of the two companies seems to
have been the main reason for the agreements. This seems
to be underlined by the decision of ANACOM in 2003 that
Portugal Telecom had to reduce its prices significantly.

(110) During its investigation the Commission did not find any
indications that the Portuguese authorities were actually
involved in the adoption of the agreements on the accep-
tance of the delayed debt repayment by the operator of the
broadcasting network (55).

(116)

(111) As can be seen from paragraph 22, the State regulated the
tariffs and the television signals distribution service that the
network operator had to deliver as part of its concession
contract with the State. However, the legal provisions did
not make a distinction between the services and tariffs that
the network operator was required to deliver to the public
broadcaster RTP and those to private television operators.
Nor did the network operator have to provide RTP with an
obligatory universal service in terms of a broadcasting net-
work service.

(112) The Commission does not, therefore, agree with the third
parties who argued that they were discriminated against
since the Television Law stipulated only that private opera-
tors could lose their broadcasting licence if they did not
pay the network fee on time. Although the Law provided
only for the consequences of possible non-payment by pri-
vate operators, Portugal Telecom was under no obligation
to deliver its services to RTP, regardless of whether RTP
paid its fees or not.

(113) Furthermore, the network operator was not integrated into
the structures of the public administrations as it was set up
under company law as a public limited company.
(‘sociedade anónima’).

(114) The Portuguese authorities explicitly stated that the public
authorities did not intervene, directly or indirectly, in the
acceptance of delayed payments by Portugal Telecom.
Similarly, third parties did not come forward with any indi-
cations suggesting state involvement in the measure.

In view of the arguments put forward above, the Commis-
sion concludes that it has no indications that the network
operator was required by the public authorities to accept
late payment. Nor are there any other indications to sug-
gest that the public authorities were involved in the adop-
tion
similar
arrangements were agreed upon once the company was
clearly privatised. Therefore, the measure cannot be con-
sidered to be attributable to the State and so did not lead
to a loss of state resources.

the measure (56).

Furthermore,

of

(117) As regards the rescheduling of debt due to the social secu-
rity scheme and the waiver of interest for late payment, the
Commission considers that the social security scheme can-
not be regarded as an undertaking. It does not carry out an
economic activity but is a public body with the task of
administering social security (57). Furthermore, authorisa-
tion for the debt rescheduling was given not by the social
security scheme itself but by a joint decree of the State Sec-
retaries for Finance and Social Security and the Deputy
State Secretary to the Deputy Minister. With the authori-
sation, the State did forgo income since normally it would
have received PTE 1 206 million in interest on the out-
standing debt. Therefore, it is clear that state resources are
involved and that the measure is attributable to the State.

(118) The capital increases granted to RTP and the payments for
the television network were provided by the State direct
from the public budget. It is therefore clear that these funds
constitute
resources within the meaning of
Article 87(1).

state

(54) Judgment of the Court of Justice of 16 May 2002 in Case C-482/99

Republic of France v Commission.

(55) By letter of 16 June 2003, the Commission specifically requested
information on the indicators given by the Court of Justice in Case
C-482/99.

(56) See judgment of the Court of Justice of 2 February 1988 in joined
cases 67, 68, and 70/85 Kwekerij Gebroeders van Der Kooy v Commis-
sion [1988] ECR 219, paragraph 37.

(57) Judgment by the Court of Justice of 17 February 1993 in Joined Cases
C-159/91 and C-160/91 Christian Poucet v Assurances Générales de
France and Caisse Mutuelle Régionale du Languedoc-Roussillon
[[1993] ECR I-637.

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(119) The Commission cannot agree with the Portuguese
authorities that no state resources are involved in the loan.
It should be recalled that the concept of state resources also
includes advantages granted by bodies designated or estab-
lished by the State for that purpose (58). The loan contract
was concluded between RTP and the Public Debt Stabilisa-
tion Fund, a fund managed by the Public Debt Manage-
ment Institute. A legal act determines that the Institute is
subject to the authority and supervision of the Minister for
Finance (59). It can therefore be concluded that the funds
granted by the Public Debt Stabilisation Fund should be
regarded as state resources.

(120) Moreover, the measure can be considered as being directly
attributable to the Portuguese authorities since a resolution
agreed on 17 December 1998 between the State Secretar-
ies for the Media, the Treasury and Finance laid down the
conditions of the contract.

(121) No information was received to show that the bond issue
by RTP was accompanied by a state guarantee. According
to the prospectus for the bond issue, RTP guaranteed ser-
vicing of the debt. It had no legal status at the time the
bond was issued, and this resulted in an implicit state guar-
antee. In 1992 the company was transformed from a pub-
lic entity into a public limited company by Law No 21/92.
The Commission therefore considers that the bond issue
was carried out under market conditions and the State did
not forgo income. As a result, no state resources are
involved. Contrary to the opinion of third parties, the
Commission considers that the fact that RTP is publicly
owned does not alter this conclusion as the EC Treaty is
neutral as regards public or private ownership (60).

(122) As regards the protocol on cinema promotion of Septem-
ber 1996, the Commission cannot agree with the com-
ments from third parties that RTP received additional
funding on the basis of the protocol. The protocol speci-
fied in detail how RTP was to fulfil its public service obli-
gation to support the cinema (61) but did not provide for
additional financial compensation for RTP. Financial com-
pensation for RTP’s obligations in respect of cinemato-
graphic production was already possible under the general
system of compensation payments in accordance with Law

(58) Judgment of the Court of Justice of 17 June 1999 in Case C-295/97
Industrie Aeronautiche e Meccaniche Rinaldo Piaggio SpA v Interna-
tional Factors Italia SpA (Ifitalia), Dornier Luftfahrt GmbH and Min-
istero della Difesa [1999] ECR I-3735, paragraph 35.

(59) Article 1 of Decree-Law No 160/96.
(60) See point 1.2 of the Commission notice on the application of
Articles 87 and 88 of the EC Treaty to state aid in the form of guar-
antees (OJ C 71, 11.3.2000, p. 14).

(61) As laid down in Article 4(3)(l) of Law No 21/92, in Clause 5(1)(j) of
the Old Public Service Contract and in Clause 7(1)(m) of the New
Public Service Contract.

No 21/92 (62). Accordingly, the protocol cannot be seen
as a separate ad hoc financing measure and, as such, does
not lead to a loss of state resources, as no new financial
measures are granted by the State to RTP on the basis of
the protocol.

(123) The restructuring plan for the period 1996 to 2000 seems
to have been simply a preliminary study carried out by RTP
without any financial commitment by the Portuguese State.
Therefore,
that no state
resources are involved. No new elements were presented
by any third parties on this aspect.

the Commission considers

(124) Accordingly, it can therefore be concluded that the proto-
col on cinema promotion, the restructuring plan for the
period 1996 to 2000, the late payments for the use of the
broadcasting network and the bond issue do not constitute
state aid as no state resources are involved.

Favouring of certain undertakings

(125) As regards the exemption from registration charges, the
Commission has to assess whether the measure conferred
a general tax exemption on RTP and whether it applied
specifically to RTP (and, alternatively, to only public com-
panies) and not to private companies. Furthermore, it has
to determine whether RTP received an additional advan-
tage by not paying any cost linked to the publication of the
deed and whether RTP was also exempted from the regis-
tration charges in respect of all other assets under
Article 11(2) of Law No 21/92.

(126) Firstly, the Commission considers that the purpose of
Article 11 was to exempt RTP from registration and simi-
lar charges directly linked to the change of its legal status.
Whereas paragraph 1 relates to the basic requirement to
register the legal document at the National Commercial
Registry, paragraph 2 refers to other mandatory registra-
tion directly linked to the change in the legal nature of the
company (e.g. registry of movable or immovable assets).
Indeed, information from the Portuguese authorities shows
that RTP does not enjoy a general exemption for registra-
tion charges as it has on several occasions paid notary and
registration charges related to changes in the company
after its conversion into a public limited company (63). The
Commission cannot, therefore, agree with comments from
interested parties that RTP enjoyed a general exemption
from registration charges.

(62) Article 5 of Law No 21/92.
(63) Letter from the Portuguese authorities of 14 December 1995.

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(127) Secondly, the Commission agrees with the Portuguese
authorities that Article 11(1) of Law No 21/92, on the
basis of which RTP is exempt from payment of registration
charges, does not confer a specific advantage. It merely
reaffirms the applicability of Law No 84/88 in the specific
case of RTP, under which public undertakings could be
converted by decree-law into public limited companies,
with the decree-law having to approve the statutes of the
limited company and to constitute a sufficient document
for all registration requirements.

(128) The different treatment for public undertakings transform-
ing their legal status into a public limited company arises
from the internal logic of the system and does not confer
on them a specific advantage since relevant chargeable
events do not exist. The issuing of a notarial deed is nec-
essary to certify the documents that create or alter a com-
pany in order to give them legal force. However, such a
deed seems superfluous for public undertakings whose
legal status has been changed into that of a public limited
company through a legislative act since such an act already
has the necessary legal force.

(129) The same reasoning is valid for registration charges as well
as for publication costs. In its responsibility as a public
authority, the State has to publish legislative amendments
in the Diário de República. As Law No 21/92 approving the
new statutes of RTP had already been published by the
State, it would have been superfluous to impose on RTP
any other publication requirements to which private com-
panies may be subject. The Diário de República contains the
full text of RTP’s statutes, thereby producing the same
effects as registration, including the required effects regard-
ing information for third parties.

(130) Thirdly,

the Commission agrees with the Portuguese
authorities that Article 11(2) of Law No 21/92, under
which RTP was exempted from the payment of other reg-
istration charges linked directly to the modification of the
legal status of the company, does not confer a specific
advantage to RTP. Article 11(2) merely confirms the appli-
cability of Article 1 of Decree-Law No 404/90, under
which undertakings could be exempted from transfer tax
and other legal charges payable on assets necessary for the
concentration or cooperation in question. Decree-Law
No 404/90 applied to all undertakings that carried out acts
of concentration or cooperation before 31 Decem-
ber 1993. The exemption from payment of other registra-
tion fees granted to RTP does not confer a specific
advantage on RTP since it was applicable to all undertak-
ings in the same situation.

(131) After considering the comments from third parties and the
Portuguese authorities, the Commission concludes that the
initial agreement between the social security scheme and
RTP cannot be regarded as representing typical behaviour
of a private operator. The dispute was whether or not the
interpretation of certain social security rules as laid down
in Implementing Decree No 12/83 was legally correct. The
agreement confirmed RTP’s interpretation, which was sup-
ported by the analysis of a tax expert who concluded that
the Implementing Decree was unconstitutional. However,
following the agreement, the Implementing Decree was
not revoked. Therefore, it has to be concluded that the
measure was selectively applied to RTP without affecting
the applicability of the social security scheme’s interpreta-
tion to other companies.

(132) Furthermore, the Commission cannot agree with the Por-
tuguese authorities that the authorisation for the debt
rescheduling and for the waiver of fines and interest was
given within the framework of a general system applicable
to all undertakings in a similar situation on the basis of
Decree-Law No 411/91 and therefore did not confer a spe-
cific advantage on RTP.

(133) Without prejudging the selective or general nature of such
a scheme, the purpose of the present decision is to deter-
mine whether the application of the scheme to RTP was
selective.

(134)

the viability of

In order to prove that the rescheduling is indispensable to
ensure
company, Decree-Law
the
No 411/91 requires a financial/economic study to be car-
ried out. RTP never carried out such a study of its viability
pursuant to Article 2(3) of Decree-Law No 411/91.

(135) Furthermore, the condition laid down in Article 2(1)(d) was
not applicable to RTP as the debt regularisation did not fol-
low state intervention. The Commission does not agree
with the Portuguese authorities, which claim that the his-
tory of state intervention affected the operation of the
debtor enterprise and that RTP was governed by statutory
rules at the time of the state intervention. Although RTP
was subject to a special management regime in 1977 (64),
this regime came to an end with the adoption of the 1980
statutes, whereas the debt to the social security scheme was
built up in the period 1983 to 1989. The Commission
considers that the debt regularisation for RTP cannot be
considered part of a general regime under Law No 411/91
as RTP did not meet the criteria laid down in this Law for
such authorisation. Therefore, the measure was applied in
a selective manner to RTP.

(64) Law 91/A/77 stipulated that an Administrative Council should

govern RTP on account of its structural crisis.

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(136) Furthermore, by granting the debt rescheduling, the State
should have acted like a public or private creditor that
seeks to recover sums due to it and, to that end, concludes
debt rescheduling agreements to facilitate payment (65).
The rate of default interest applied by the State should be
equal to the rate a private creditor would apply in similar
circumstances. The Commission considers that a private
creditor that pursued the recovery of the debt by legal
means would obtain at least the statutory interest rate.
Therefore, by not requiring any interest payments at all,
despite available enforcement mechanisms, the Portuguese
authorities did not act like a private creditor would have
done in order to maximise the rate of interest. Further-
more, the debt with the social security scheme built up in
the period 1983 to 1989 and a rescheduling arrangement
was agreed only in 1993. Under the same conditions a pri-
vate creditor would not have allowed a similar accumula-
tion of outstanding debt over such a long period without
initiating collection procedures. Therefore, it seems that
the measure conferred a specific advantage on RTP.

(137) As regards the payments for the hiving-off of the television
signals network, the Commission cannot take into account
the comments of third parties that question the calculation
of the value of the broadcasting network. The Commission
already concluded in its decision of 2 October 1996 on the
financing of RTP that the price paid by the State to RTP for
the network represented the market value and did not con-
stitute state aid (66). This conclusion was not contested by
SIC before the Court of First Instance (67).

(138) Furthermore, the Commission does not agree with the
comments to the effect that the compensation is not justi-
fied because the television network has been built with the
help of state financing. It considers that the function of the
State as an investor should not be confused with its func-
tion as a public authority. Although the State is the sole
owner of RTP and became the sole owner of TDP, the two
companies should, for transparency reasons, be legally and
financially independent. The network was part of the assets
of RTP. Therefore, the compensation granted by the State
to the public company RTP in respect of the market value
of the network, which it had decided to split off from the
assets of RTP, does not confer any financial advantage on
RTP as the compensation matched the real value of those
assets. And so, the measure does not confer an advantage
on RTP and does not, therefore, constitute state aid within
the meaning of Article 87(1) of the EC Treaty.

(139) After considering the comments from third parties and the
Portuguese authorities, the Commission concludes that the
capital increases in the period 1994 to 1997 provided a
financial advantage for RTP. As can be seen from Table 3,
considering the weak financial position of RTP in the
period when the capital increases were made, no private
investor would have injected capital into the company as
no normal return could be expected from the company
within a reasonable time. In fact, despite the capital injec-
tions, the financial position of RTP deteriorated. Neither
the Portuguese authorities nor third parties alleged that the
Portuguese State acted as a private investor when injecting
capital into the company.

(140) The Commission does not agree with the Portuguese
authorities that the loan granted in 1998 was in confor-
mity with market conditions. For the loan not to consti-
tute state aid, the conditions attached to it (the security
sought and the interest rate) should reflect the inherent risk
of lending to an undertaking (68). The risk and subse-
quently the interest rate are higher when a company is in
an economic and financial situation the soundness of
which is below the level at which a financial institution
would lend to it.

(141) As can be seen from Table 3, at the time the loan was
agreed, RTP was in severe financial difficulties to the extent
that its debts exceeded the value of its assets and net equity
was negative. Technically, the company was bankrupt.

(142) Firstly, it should be borne in mind that the loan was a sub-
ordinated loan, i.e. it had no asset-based security and, in
the case of bankruptcy, it ranked for repayment purposes
after all creditors but before shareholders. The absence of
appropriate asset-based security was a clear indication that
the loan was not granted at market conditions and that aid
was involved. In view of the technical bankruptcy of RTP
at the time the loan was granted, no financial institution
would have granted a subordinated loan to the company
as there was little likelihood of RTP being able to repay it.
Indeed, the loan was not granted by a private financial
institution but by the Public Debt Stabilisation Fund.

(65) Case C-342/96.
(66) NN 141/95, Financing of the Portuguese public television service

(OJ C 67, 4.3.1997, p. 10).

(67) Case T-46/97, paragraph 50.

(68) Commission communication 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 in the manufacturing sector
(OJ C 307, 13.11.1993, p. 3).

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(143) Secondly, it can be argued that the interest rate applied to
the loan clearly does not reflect its intrinsic risk. Not only
is it below the reference rate that the Commission nor-
mally uses to calculate the aid element in interest subsidy
schemes for loans (69), but also a normal market operator
would require, on the top of sound guarantees, an interest
rate
such a high risk of
that
non-repayment.

compensated for

(144) Given that its financial position was such that RTP would
not have been able to obtain a subordinated loan under
normal circumstances, the loan effectively equates to the
payment of a grant and constitutes an advantage for RTP.

(145) Accordingly, the Commission considers that the debt
rescheduling with the social security scheme, the capital
injections in the period 1994 to 1997 and the loan granted
in 1998 provided a financial and economic advantage as
compared with competitors that did not receive the same
funds.

Distortion of competition

Effect on trade between Member States

(149) State measures fall within the scope of Article 87(1) in so
far as they affect trade between Member States. This is the
case whenever the activities in question are subject to intra-
Community trade. In the present case, the beneficiary RTP
is itself active on the international market. Indeed, through
the European Broadcasting Union it exchanges television
programmes and participates in the Eurovision system (70).
Furthermore, RTP is in direct competition with commer-
cial broadcasters that are active on the international broad-
casting market and have an international ownership
structure (71).

(150) Accordingly, it can be concluded that the measures granted
to RTP affect trade between Member States within the
meaning of Article 87(1).

Conclusion on the aid nature of the ad hoc measures

(151)

It transpires from the above that, leaving aside possible
public service obligations imposed on RTP, the following
involve state aid within the meaning of
measures
Article 87(1) of the EC Treaty: the debt rescheduling with
the social security scheme, the capital injections during the
period 1994 to 1997 and the loan granted in 1998.

(146) Since the Portuguese television market was open to com-
petition by 1992 at the latest, there were competitors on
the market during the period that RTP benefited from the
different measures. In February 1992 broadcasting licences
were granted to the commercial broadcasters SIC and TVI
and in October 1992 SIC started broadcasting in Portugal.

(152) However, as mentioned above, RTP is entrusted with a
public service broadcasting obligation. The European
Court of Justice ruled in Altmark that state measures com-
pensating for public service costs do not qualify as state aid
under Article 87(1) of the EC Treaty when the following
four conditions are all satisfied (72):

(147) The Commission does not agree with the Portuguese
authorities that the agreement on the debt with the social
security scheme would fall outside the concept of state aid,
as the debt itself had been created before the Portuguese
broadcasting market was opened up to competition. The
financial advantage was granted to RTP in May 1993 after
the opening-up of the broadcasting market and was there-
fore able to confer an economic advantage on RTP.

(148) Accordingly, the Commission concludes that the measures
granted by the State were able to confer an economic and
financial advantage on RTP compared with competitors
not receiving the same funds and thereby to distort com-
petition within the meaning of Article 87(1).

(69) The reference rate is based on the five-year interbank swap rate plus
a premium (OJ C 273, 9.9.1997, p. 3). The reference rates for
Portugal since 1 January 1997 can be found at http://europa.eu.int/
comm/competition/state_aid/others/reference_rates.html.

— the recipient undertaking must actually have public
service obligations to discharge, and the obligations
must be clearly defined,

(70) See judgment of the Court of First Instance of 8 October 2002 in
joined Cases T-185/00, T-216/00, T-299/00 and T-300/00 Métro-
pole Télévision SA (M6) (T-185/00), Antena 3 de Televisión, SA
(T-216/00), Gestevisión Telecinco, SA (T-299/00) and SIC - Sociedade
Independente de Comunicação, SA (T-300/00) v Commission of the
European Communities [2002] p. II-3805.

(71) According to the case law of the Court of Justice, when aid strength-
ens the position of an undertaking compared with other undertak-
ings competing in intra-Community trade, the latter must be regarded
as affected by that aid. Judgment of the Court of Justice of 17 Sep-
tember 1980 in Cases 730/79 Philip Morris Holland v Commission of
the European Communities [1980] ECR 671, paragraph 11; judgment
of the Court of Justice of 21 March 1991 in Case C-303/88 Republic
of Italy v Commission of the European Communities [1991] ECR I-1433,
paragraph 17; judgment of the Court of Justice of 19 September
2000 in Case C-156/98 Federal Republic of Germany v Commission of the
European Communities [2000] p. I-6857, paragraph 33.

(72) Judgment of the Court of Justice of 24 July 2003 in Case C-280/00
Altmark Trans GmbH et Regierungspräsidium Magdeburg v Nahverkehrs-
gesellschaft Altmark GmbH [2003] p. I-7747.

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— the parameters on the basis of which the compensa-
tion is calculated must be established in advance in an
objective and transparent manner,

Assessment of the compatibility of the measures

— the compensation cannot exceed what is necessary to
cover all or some of the costs incurred in the discharge
of public service obligations, taking into account the
relevant receipts and a reasonable profit for discharg-
ing those obligations,

— when the company is not chosen pursuant to a public
procurement procedure, the level of compensation
needed must be determined on the basis of an analy-
sis of the costs which a typical undertaking, well run
and adequately equipped, would have incurred in dis-
charging those obligations.

(153) Leaving aside the first and third conditions, the ad hoc
measures mentioned in paragraph 151 do not seem to ful-
fil the second and fourth conditions of Altmark for the rea-
sons given below:

(154)

It is clear that the financing granted by means of the agree-
ment with the social security scheme and the loan were not
part of a compensation system the parameters of which
had been established beforehand in an objective and trans-
parent manner (second condition). On the contrary, they
were based on ad hoc decisions attributable to the State.

(155) Furthermore, as stated in paragraph 61, the public service
contracts provided for a specific financing possibility for
investments in public service equipment by means of capi-
tal injections. They do not restrict the investments to pub-
lic services or define clearly the conditions and limits of
state participation; they merely refer to the possibility for
the State to participate in RTP’s investments as a share-
holder. Therefore, the Commission considers that the capi-
tal injections too cannot be considered to be part of a
compensation system the parameters of which have been
established beforehand in an objective and transparent
manner.

(156) Furthermore, it is clear that RTP was not chosen pursuant
to a public procurement procedure guaranteeing the low-
est possible cost. There are no indications that the amount
of the ad hoc payments was determined on the basis of an
analysis of the costs that a typical undertaking would incur
(fourth condition).

(157) Accordingly, it is clear that in the present case not all the
Altmark conditions are satisfied. Therefore, the measures
mentioned in paragraph 151 must be regarded as state aid
under Article 87(1) of the EC Treaty.

(158) The Court of

Justice has

consistently held that
Article 86 may provide for an exemption from the ban on
state aid for undertakings entrusted with a service of gen-
eral economic interest (SGEI). It has been implicitly con-
firmed in Altmark that state aid which compensates for the
costs incurred by an undertaking in providing an SGEI can
be regarded as compatible with the common market if it
meets the conditions of Article 86(2) of the EC Treaty (73).

(159) The Court of Justice has made it clear that, for a measure
to benefit from such exemption, the principles of defini-
tion, entrustment and proportionality must all be fulfilled.
The Commission considers that, where these principles are
fulfilled, the development of trade is not affected to an
extent contrary to the interests of the Community.

(160) The way these principles apply in the broadcasting sector
is explained in the Commission communication on the
application of state aid rules to public service broadcast-
ing (74). According to the communication, the Commis-
sion has to assess whether or not (75):

— the activities of RTP are public service obligations
such by the Member State

clearly defined as
(definition),

— RTP is officially entrusted by the Portuguese authori-
ties with the provision of that service (entrustment),

— the funding is proportionate to the net cost of provid-

ing the public service.

(73) Ibidem, paragraphs 101 to 109. In those paragraphs the Court exam-
ined the question of whether some state payments to transport
undertakings classified as state aid could be found to be compatible
with the common market under Article 77 of the Treaty as reim-
bursement for the discharge of public service obligations. It did not
rule out this possibility, provided that the binding conditions laid
down by the secondary legislation for the transport sector were met.
This reasoning must apply mutatis mutandis to undertaking entrusted
with an SGEI outside the transport sector and in relation to
Article 86(2).

(74) OJ C 320, 15.11.2001, p. 5.
(75) See paragraph 29 of the communication on broadcasting.

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Definition

general definition of RTP’s public service remit to provide
two television channels of national coverage, one more
general and the other more focused on specific audiences,
to be legitimate. Such a definition can be regarded as ful-
filling the democratic, social and cultural needs of Portu-
guese society.

(161) As stated in the Amsterdam Protocol (76) and the commu-
nication on broadcasting (77), it is for the Member States to
define the public service remit of the public service broad-
caster. In the broadcasting sector the role of the Commis-
sion is limited to checking whether the public service
definition contains any manifest error. Such error would
constitute an abuse of the definition of the public service.

(165) Furthermore, the Commission regards as legitimate the
obligations which determine in detail how RTP should per-
form the general public service broadcasting remit. Indeed,
in line with wording of the Amsterdam Protocol, these
obligations can also be considered to fulfil the democratic,
social and cultural needs of Portuguese society.

(162) Given the specific nature of the broadcasting sector, the
Commission considers, in view of the interpretative provi-
sions of the Protocol, a definition entrusting a given broad-
caster with the task of providing balanced and varied
programming to be legitimate (78). Such a definition would
be consistent with the objective of fulfilling the democratic,
social and cultural needs of a particular society.

(166) Although the Commission regards the public service mis-
it must, however, ascertain
sion of RTP as legitimate,
whether or not this definition contains any manifest errors.

(163) As described in paragraphs 51 and 52, RTP is, by virtue of
Law No 21/92 and the public service contracts, obliged to
ensure as a general public television service the broadcast-
ing of two channels with general coverage. Whereas the
first channel has to offer more general programming, the
second channel has to aim more at specific audiences. Fur-
thermore, as described in paragraphs 53 and 54, Law
No 21/92 and the public service contracts impose more
detailed obligations on RTP regarding programme content
and international cooperation, as well as some other spe-
cific obligations.

(164) Although the definition of RTP’s public service broadcast-
ing is of a qualitative and rather broad nature, the Com-
mission, in view of the interpretative provisions of the
Amsterdam Protocol, considers such a ‘broad’ definition to
be as legitimate (78). Therefore,
it also considers the

(76) The Protocol considers that the system of public broadcasting is
directly related to the democratic, social and cultural needs of each
society and to the need to preserve media pluralism. More specifically,
Member States have ‘the competence […] to provide for the funding
of public service broadcasting insofar as such funding is granted to
broadcasting organisations for the fulfilment of the public service
remit as conferred, defined and organised by each Member State, and
in so far as such funding does not affect trading conditions and com-
petition in the Community to an extent which would be contrary to
the common interest, while the realisation of the remit of that public
service shall be taken into account’.
(77) See paragraph 33 of the communication.
(78) Ibidem.

(167) Taking into account recital 45 to the Television without
Frontiers Directive, the Commission could accept, in so far
the resulting film rights are shown on public service tele-
vision, that the public service definition of public service
broadcasters includes the obligation to contribute substan-
tially
audiovisual
in
production (79).

investment

European

to

(168) The Commission considers that the obligation imposed on
RTP to promote the cinema falls within the scope of pub-
lic service broadcasting, as RTP subsequently broadcasts on
public service television the films for which it acquired the
distribution rights.

(79) Council Directive 89/552/EEC of 3 October 1989 on the coordina-
tion of certain provisions laid down by law, regulation or adminis-
trative action in Member States concerning the pursuit of television
broadcasting activities (OJ L 298, 17.10.1989, p. 23). According to
Article 5, ‘Member States shall ensure […] that broadcasters reserve
at least 10 % of their transmission time […], or alternately, […], at
least 10 % of their programming budget, for European works created
by producers who are independent of broadcasters.’
Furthermore, according to recital 45 to Directive 97/36/EC of the
European Parliament and of the Council of 30 June 1997 amending
Council Directive 89/552/EEC on the coordination of certain provi-
sions laid down by law, regulation or administrative action in Mem-
ber States concerning the pursuit of television broadcasting activities,
‘the objective of supporting audiovisual production in Europe can be
pursued within the Member State through the definition of a public
interest mission for certain broadcasting organisations, […] includ-
ing the obligation to contribute substantially to investment in Euro-
pean production’ (OJ L 202, 30.7.1997, p. 60).

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(169) The Commission cannot, therefore, agree with the com-
ments by interested parties that RTP’s obligation regarding
cinema promotion and its financing is discriminatory. The
parties argued that private broadcasters also concluded
protocols on cinema promotion with the Portuguese
authorities that do not provide for compensation. The
Commission is of the opinion that a distinction has to be
made between the voluntary agreements on cinema pro-
motion concluded between the State and the private broad-
casters, on the one hand, and the public service
broadcasting obligations imposed on RTP to broadcast cin-
ema productions and to finance them, on the other. It is
clear that RTP is explicitly entrusted with a public service
task to support certain film productions that are subse-
quently broadcast as public service television programmes,
whereas no such public service task is entrusted to private
broadcasters. In fact, RTP becomes an instrument used by
the State to support the cinema. Any resulting advantages
granted by RTP to the cinema could constitute state aid
and should be assessed as such. This decision is without
prejudice to any assessment of possible advantages granted
to film producers.

(170) Accordingly,

that

the Commission concludes

the
co-financing by RTP of Portuguese cinematographic works
that are shown on the public service channels can be con-
sidered as a legitimate specific obligation that is instrumen-
tal in fulfilling RTP’s general public service broadcasting
obligation. This obligation does not, therefore, constitute a
manifest error.

(171) However, the Commission considers that the legal obliga-
tion imposed on RTP to provide ‘other services to be speci-
fied on an ad hoc basis’ (80) is not sufficiently precise to
enable the Commission to assess beforehand with suffi-
cient legal certainty whether such services can be consid-
ered as a public service. Although it takes the view that the
‘other services to be specified’ are not clearly defined, it
notes that no payments were made under this provision
during the period under investigation (81).

(172)

In view of the foregoing, the Commission concludes that
the activities of RTP as described in Law No 21/92 and
redefined in the public service contracts are clearly defined
public service obligations. Although the obligation to

provide ‘other services to be provided on an ad hoc basis’
is not sufficiently precise for it to be concluded beforehand
that all the services provided under this heading could be
considered public services, no payments were made under
this provision in the period 1992 to 1998.

Entrustment

(173) Secondly, the Commission has to assess whether the pub-
lic service obligations were entrusted to the recipient of the
funding.

(174)

In line with the Communication on broadcasting, the
Commission has to verify whether the public service remit
has been entrusted to RTP by means of an official act (82).

(175) As can be seen from paragraph 55, the public service obli-
gations are clearly entrusted to RTP under various laws and
contracts: Article 5 of Law No 58/90, Articles 4(1) and 5
of Law No 21/92 and Clause 1 of the public service
contracts.

(176) The Commission did not receive any comments from inter-
ested parties or the Portuguese Government to the effect
that the public service was not sufficiently entrusted to RTP
by means of an official act. In line with the communica-
tion and in view of the above laws and contracts, it con-
cludes that there is no doubt that RTP has to perform the
public service television obligations and the public service
remit has, therefore, been officially entrusted to RTP.

(177) Not only should the public service be entrusted to RTP by
means of an official act; steps should also be taken to
ensure that the public service is provided as provided for.
As stated in paragraphs 56 to 59, different control mecha-
nisms were in place to ensure that RTP carried out the pub-
lic service obligation in the manner provided for.

(178) Firstly, RTP had to present reports on the public service
performance as well as plans accompanied by an opinion
of the internal board of auditors. In the period 1992 to
1998 it did indeed present such reports describing how
each public service obligation had been fulfilled and iden-
tifying the costs of each public service obligation by using
an analytical accounting system.

(80) Clause 13 of the Old Public Service Contract and Clause 7(1)(a) of the

New Public Service Contract.

(81) Letter of the Portuguese authorities of 30 June 1999.

(82) Communication on broadcasting, paragraph 40.

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(179) Secondly, the Minister for Finance and the member of the
Government responsible for the media verified compliance
with the public service contracts and the Inspector-General
of Finances audited the financial plan.

(180) Thirdly, an external audit had to be carried out each year.
The Commission cannot agree with SIC that the public ser-
vice costs as presented by the Portuguese authorities and
the RTP figures included in its public service contracts and
annual accounts are not reliable and therefore could not be
properly verified. It points out that a statutory auditor car-
ried out an annual audit of RTP’s financial accounts in the
period 1992 to 1998. Furthermore, although an audit
statement did not systematically accompany the public ser-
vice reports, the strict rules of the cost accounting system
ensured that the costs of each public service obligation eli-
gible for compensation payments could be identified and
properly verified.

(181) From the above it is clear that verification took place at
three different levels: internally by the board of auditors, by
the responsible government bodies and by an external
auditing firm. Although no systematic external auditing of
the public service reports seems to have taken place, the
system described ensured that the public service obligation
was carried out in the manner provided for. Therefore, the
Commission concludes that an effective mechanism was in
place in the period 1992-98 to ensure effective monitor-
ing of the fulfilment of RTP’s public service obligations.

Proportionality

(182) The third criterion the Commission has to assess is whether
the financing is proportionate to the net cost of the public
service.

(183)

In the communication on broadcasting, the Commission
described the criteria on the basis of which it intends to
assess the proportionality of state funding. It requires that
the state aid should not exceed the net costs of the public
service mission and that no market distortions should
occur that were not necessary for the fulfilment of the pub-
lic service mission (83).

(184) Firstly, in order to determine the cost of the public service
activities correctly, the communication requires a proper
allocation of costs and revenue between the public service
and commercial activities.

(185) As described in paragraphs 62 to 64, the public service
contracts define the method of cost and revenue allocation
that RTP has to apply. In the present case, the Commis-
sion’s task is, in principle, made easier by the fact that RTP
has implemented an analytical accounting system which
permits quantification of the eligible costs incurred by the
undertaking to fulfil each of the reimbursable public ser-
vice obligations.

(186) By means of this system, each item of eligible expenditure
is allocated to an activity and subsequently divided between
the different reimbursable public service tasks of RTP on
the basis of objective accounting principles.

(187) As the revenues derived from each reimbursable public ser-
vice task are deducted from the operating costs, the system
guarantees that the annual compensation payments are
limited to the net cost of each public service obligation (see
paragraph 65).

(188) The Commission has, therefore, come to the conclusion
that the parameters for determining the cost are, in prin-
ciple, established in an objective and transparent manner.

(189) However, it notes that the rules of cost compensation
might underestimate the real net cost of RTP’s public ser-
vice and could lead to structural underfinancing of the real
funding needs.

(190) As can be seen from paragraph 65, under the cost calcu-
lation method laid down in the contracts, certain public
service costs were excluded from payment by means of
annual compensation (84). Moreover,
the Portuguese
authorities informed the Commission that, although RTP
had to pay VAT on the annual compensation payments
received, the resulting costs could not be taken into
account under the accounting rules (paragraph 96). Finally,
in its public service reports RTP did not include all the
investments made in public service equipment, although
these were accounted for in its financial accounts (see para-
graph 67).

(191) However, under the Amsterdam Protocol, it is for the
Member State to provide for the funding of the public ser-
vice broadcasters. In the present case, the Portuguese
authorities decided not to reimburse some of the costs
incurred by the service provider in fulfilling its tasks.

(83) Communication on broadcasting, paragraphs 57 and 58.

(84) The operating costs of the first and second channel under the Old
Public Service Contract correspond to the financing costs and the
costs of correspondence where other operators were also set up.

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(192)

In the case at hand, the State granted not only annual com-
pensation payments to RTP but also additional financing in
the form of share capital increases, loans and an agreement
with the social security scheme.

(193) Although the public service contracts provided for state
compensation in the form of annual compensation pay-
ments for operating costs and the possibility of capital
increases for investments made by RTP, the legal provi-
sions relating to RTP’s public service did not provide for
any financing by means of loans and social security deduc-
tions. However, in line with paragraph 57 of the commu-
nication on broadcasting, the Commission has to analyse
whether all measures are proportionate to the net public
service costs. Only then can the financing of RTP be con-
sidered to be compatible with Article 86(2) of
the
EC Treaty.

Portuguese State may finance all the net public service
costs of RTP.

(195) For the purposes of the present decision, it is not neces-
sary to recalculate exactly all the real net costs incurred by
RTP in performing its public service obligations. It is suf-
ficient to demonstrate that the total state financing received
by RTP in the period 1992 to 1998 did not exceed the net
extra costs incurred by the undertaking in fulfilling over
the same period the public service tasks referred to.

(196) Table 6 gives an overview of RTP’s public service costs
(both investment costs and net operating costs), as calcu-
lated under the cost accounting rules applicable, and of the
compensation received for investment and operating costs.

(194) The Commission also considers that the public service
obligations imposed on RTP which were not eligible for
compensation under the public service contracts can, in
fact, be considered as legitimate and clearly defined public
service obligations formally imposed by the State on the
service provider. Therefore, under Community law, the

(197) Firstly,

the investments in public service equipment
(Table 5) and compensation provided for to finance invest-
ments (Table 2) are presented. Secondly, the net operating
costs of RTP (Table 4) and the compensation payments for
these costs (Table 1) are presented. Lastly, the table shows
the advantage gained from ad hoc aid resulting from the
agreement with the social security scheme and the loan.

Summary of funding needs and compensation for the public service net operating cost under the accounting rules

Table 6

Investment costs

2 632,6

2 102,0

2 763,9

992,7

1 480,4

4 037,4

6 054,2

20 063,2

1992

1993

1994

1995

1996

1997

1998

Sum

(PTE million)

Capital injections

– 0

– 0

– 10 000,0

– 12 800,0

– 10 000,0

– 14 000,0

– 0

– 46 800,0

Difference between investment costs
and compensation

2 632,6

2 102,0

– 7 236,1

– 11 807,3

– 8 519,6

– 9 962,6

6 054,2

– 26 736,8

Public service operating costs

6 718,2

7 960,0

8 384,1

8 103,3

17 217,1

37 972,1

30 101,3

116 456,1

Compensation payments

– 6 200,0

– 7 100,0

– 7 145,0

– 7 200,0

– 14 500,0

– 10 350,0

– 14 000,0

– 66 495,0

Social security

— – 1 206,0

—

—

—

—

—

– 1 206,0

Loan

Difference between operating costs
and compensation

Source: Financial report and public service reports.

518,2

– 346

1 239,1

903,3

2 717,1

27 622,1

– 3 898,7

28 755,1

– 20 000,0

– 20 000,0

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(198) As emphasised above, the system of annual compensation
payments chosen by the Portuguese authorities had the
effect of underestimating the actual costs of the public ser-
vice tasks performed by RTP. The system led to an accu-
mulation of debt. At a second stage, in order to maintain
the financial equilibrium of RTP, the authorities used
ad hoc instruments to finance RTP’s public service costs.

commercial revenues and would unnecessarily increase the
need for state funding. According to the communication,
such conduct, if demonstrated, cannot be considered as
intrinsic to the public service mission attributed to the
broadcaster (86).

(199) As Table 6 shows, the capital injection overcompensated
for public service investments by PTE 26 736,8 million,
whereas the operating costs were underfinanced by the
compensation payments and the other ad hoc aid to the
tune of PTE 28 755,1 million. Indeed, although the capital
injections were basically meant to finance investments in
equipment, they were also used to repay accumulated debt.

(200) As Table 6 also shows, the total compensation was
PTE 2 018,3 million less than the net public service costs
(PTE 28 755,1 minus PTE 26 736,8 million). The Com-
mission concludes, therefore, that under the Community
rules total state funding is proportionate to the net oper-
ating public service costs of RTP for the period under
investigation.

(201) The Commission considers that the funds received were
probably even lower than the total net costs incurred in
fulfilling the obligations imposed on it by the State owing
to the fact the table above does not take into account all
the public service costs of RTP in the period 1992 to 1998.

(202) According to the communication on broadcasting, the
Commission should ensure that the state funding is pro-
portionate to the net costs of providing the public service
but also that no market distortions occur with respect to
the commercial activities which derive from the public ser-
vice activities and for which no correct cost allocation is
possible on the revenue side that are not necessary for the
fulfilment of the public service mission. There would be
such a distortion if RTP depressed the prices of advertising
on the market so as to reduce the revenue of competi-
tors (85). In such a case, RTP would not maximise its

(203)

In the decision initiating the investigation procedure the
Commission stated that, if such conduct were found to
have taken place, it would take these distortions and the
resulting need for higher state funding into account when
assessing possible overcompensation. At that stage in the
procedure, the Commission noted that ‘on the basis of the
information the Commission has in its possession at this
moment, it cannot be established whether RTP engaged in
such behaviour’ (87).

(204) Following the invitation to submit comments on the ini-
tiation of procedure, the Commission did not receive any
observations from RTP’s competitors indicating or demon-
strating that RTP was engaged in anti-competitive behav-
iour in commercial markets that could lead to increased
state funding incompatible with the Treaty (88).

(205) Under the circumstances, the Commission considers that
there are no indications suggesting such behaviour. Con-
sequently, it concludes that RTP does not seem to have
engaged in anti-competitive behaviour in commercial mar-
kets leading to an increased need for state funding and that
no overcompensation took place as a result of such
behaviour.

(206) Accordingly, the Commission concludes that the agree-
ment with the social security scheme, the capital injections
and the subordinated loan have to be regarded as state aid
under Article 87(1). However, the funding of RTP by
means of ad hoc aid is compatible with the common mar-
ket under Article 86(2) of the EC Treaty. The total funding
is proportionate to the net costs of clearly defined,
entrusted public service obligations. Therefore, the state
funding did not affect trading conditions and competition
in the Community to an extent which would be contrary
to the common interest under Article 86(2) of
the
EC Treaty (89).

(86) Ibidem.
(87) Paragraph 91 of the decision initiating the procedure.
(88) It should be pointed out that in 1993 the complainant SIC also alleged
a violation of Article 86(1) of the EC Treaty (formerly Article 90) as
regards the legal structure put in place by the Portuguese State on the
advertising market and RTP’s programme acquisition policy (see also
Commission Decision 89/536CEE of 17 September 1989). Subse-
quently,
allegations under
Article 86(1).

the Commission assessed these

(85) Communication on broadcasting, paragraph 58.

(89) Communication on broadcasting, paragraph 58.

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VI. CONCLUSION

HAS ADOPTED THIS DECISION:

(207) The Commission finds that Portugal has unlawfully imple-
mented the ad hoc aid in question in breach of Article 88(3)
of the Treaty. On the basis of the above analysis, it con-
cludes that the agreement with the social security scheme
in 1993, the capital injections in the period 1994 to 1997
and the loan in 1998 constitute state aid under
Article 87(1) of the EC Treaty. The measures are granted
through state resources, threaten to distort competition by
favouring RTP and have an effect on trade. As analysed
above, the measures do not fulfil the conditions set out in
Altmark as they cannot be regarded as forming part of a
compensation system whose parameters have been estab-
lished beforehand in an objective and transparent manner.
Furthermore, it is clear that RTP was not chosen by means
of a public procurement procedure guaranteeing the low-
est possible cost and there are no indications that the
amount of the ad hoc payments was determined on the
basis of an analysis of the costs that a typical undertaking
would have incurred.

(208) The exemption provided for in Article 86(2) is applicable
to the ad hoc measures. As analysed above, the measures
compensated for clearly defined public service obligations
duly entrusted to RTP. As stated earlier, the ad hoc mea-
sures are proportionate to the net public service costs of
RTP. The measures do not distort competition to an extent
contrary to the Community interest since they are propor-
tionate to the net public service cost of RTP and since RTP
did not behave in an anti-competitive manner in its com-
mercial activities,

Article 1

The state aid of PTE 68 006 million granted by Portugal to RTP
in the form of an agreement with the social security scheme in
1993, capital injections in the period 1994 to 1997 and a loan in
1998 is compatible with the common market within the mean-
ing of Article 86(2) of the Treaty since it did not lead to any over-
compensation of the net costs of the public service tasks entrusted
to RTP.

Article 2

The following measures do not constitute state aid: the exemp-
tion from registration charges, the payment for the hiving-off of
the television broadcasting network, the facilities granted for pay-
ment of the annual fee for use of the television broadcasting net-
work, the protocol on cinema promotion, the bond issue and the
restructuring plan for the period 1996 to 2000.

Article 3

This Decision is addressed to the Portuguese Republic.

Done at Brussels, 15 October 2003.

For the Commission
Mario MONTI
Member of the Commission