2005/145/EC: Commission Decision of 16 December 2003 on the State aid granted by France to EDF and the electricity and gas industries (notified under document number C(2003) 4637) (Text with EEA relevance)
Date: 2003-12-16
Institutions: European Commission
Subjects: France, State aid, control of State aid, electrical industry

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 16 December 2003

on the State aid granted by France to EDF and the electricity and gas industries

(notified under document number C(2003) 4637)

(Only the French text is authentic)

(Text with EEA relevance)

(2005/145/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

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

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

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

Whereas:

that

the Treaty,

French authorities,

to Article 88(1) of

By letter dated 16 October 2002,
the Commission
informed the French authorities that it had taken three
related decisions concerning EDF (3). First, it proposed to
an appropriate measure
the
as
pursuant
they
should withdraw the unlimited State guarantee enjoyed
by EDF on all its commitments by virtue of its public
enterprise status, which precluded application of
the
legislation on the administration and compulsory liqui-
dation of firms in difficulty. Second, the Commission
initiated a formal
investigation under Article 88(2) of
the Treaty into the advantage resulting from the non-
payment by EDF of the corporation tax due, when it
restructured its balance sheet in 1997, on some of the
accounting provisions created free of tax for the renewal
of the high-voltage transmission network (RAG). Third, it
issued an injunction requiring the French authorities to
supply information it needed in order to examine that
tax concession in the context of the formal investigation
procedure.

(1)

(2)

I. PROCEDURE

By letter dated 10 July 2001, the Commission invited the
French authorities to provide information on certain
measures in favour of Electricité de France (EDF) which
possibly involved State aid.

(4)

Between July 2001 and June 2002, many letters
were exchanged between the Commission and the
French authorities (2). A technical meeting was held
on 3 September 2002.

In the comments they submitted to the Commission by
letter dated 11 December 2002, the French authorities
maintained that no State aid was involved in the public
enterprise status and refused to implement the proposed
appropriate measure. They also denied that EDF had
received a tax concession in 1997. A technical meeting
was held on 12 February 2003 between the Commission
and the French authorities to discuss the issue of the tax
concession.

(1) OJ C 280, 16.11.2002, p. 8 and OJ C 164, 15.7.2003, p. 7.
(2) See OJ C 280, 16.11.2002, p. 8.

(3) OJ C 280, 16.11.2002, p. 8.

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(5)

(6)

(7)

(8)

following the French authorities'
On 2 April 2003,
refusal to implement the proposed appropriate measure
and pursuant to Article 19(2) of Council Regulation (EC)
No 659/1999 of 22 March 1999 laying down detailed
rules for the application of Article 93 of the EC Treaty (4),
the Commission decided to initiate the formal
investi-
gation procedure provided for by Article 88(2) of the
Treaty in respect of
the unlimited State guarantee
which EDF enjoyed on account of the fact that it could
not be declared bankrupt (5). By letter dated 12 June
2003, the French authorities sent the Commission their
comments in the context of
investigation
procedure.

the formal

By letter dated 11 November 2003, supplemented by
letters dated 21 November and 11 December 2003,
the French authorities notified the Commission of a
reform of the pension scheme for the electricity and
gas industries and transmitted the text of a legislative
provision converting EDF into a commercial enterprise
governed by ordinary law. They stated that both reforms
would be included in the same bill. By letter dated 16
December 2003, the French Government confirmed that
it was to lay before Parliament the legislation converting
into an entity
EDF,
governed by ordinary law so that the change of legal
status could enter into force by 1 January 2005.

currently a public

enterprise,

On 17 November 2003, a further technical meeting was
held between the Commission, the French authorities and
representatives of EDF to discuss the issue of the tax
concession received by EDF. The French authorities also
provided additional
information on this question by
letter dated 20 November 2003.

II. DESCRIPTION OF THE MEASURES AT ISSUE

(A) Unlimited State guarantee

transmits

and distributes

EDF produces,
electricity
throughout France. It is one of the largest groups on
the European energy market and related markets. The
group is also present in China, Egypt, Argentina, Brazil,
Mexico and the United States.

in France and 8,9 million in the rest of Europe. Its largest
European subsidiaries
in the energy sector are EDF
Energy (United Kingdom) and EnBW (Germany), but
EDF also has stakes in many other European companies.

EDF was set up by Act No 46-628 of 8 April 1946 in
the form of a public enterprise. In France, legal persons
governed by public law — the category into which
fall — are not
public
to the
ordinary law on the administration and compulsory liqui-
dation of firms in difficulty.

enterprises

subject

of

insolvency

inapplicability

bankruptcy
The
proceedings to legal persons governed by public law
derives from the general principle of the unseizability
of the assets of public entities, which has been recognised
by French case-law since the end of the 19th Century (6).

and

(10)

(11)

(B) Reform of the pension scheme for the electricity
and gas industries

(12)

The French authorities notified the Commission of a
reform of the pension scheme for the electricity and
gas industries.

(13)

(14)

The existing pension scheme for the electricity and gas
industries is a special arrangement that is separate from
the general social security scheme. It is a pay-as-you-go
system funded by employees'
and a
balancing contribution paid by enterprises in the sector,
calculated in proportion to their wage bill and intended
to balance each year the scheme's pension liabilities.
Although the scheme covers the entire sector, it is admi-
nistered by a joint department attached to EDF and Gaz
de France (GDF).

contributions

The reform notified by the French authorities involves
the creation of a nationwide joint social security body,
the National Fund for the Electricity and Gas Industries
(CNIEG), which will be independent of EDF and GDF,
will have legal personality as a body governed by
private law and will be covered by the Social Security
Code. All employees and employers in the electricity and
gas industries will be required to join the Fund.

(9)

In 2002, EDF generated turnover of EUR 48,4 billion;
the group currently has 32,5 million customer premises

(4) OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003 Act

of Accession.

(5) OJ C 164, 15.7.2003, p. 7.

(6) Tribunal des conflits, Association syndicale du canal de Gignac,
9 décembre 1899, Rec. p. 731; Cour de cassation, Civ 1ère,
Bureau de recherches géologiques et minières ‘BRGM Société Lloyd
Continental’, 21 décembre 1987, Bull. civ. I, no 348; Cour d'appel de
Paris, Sté PDG et B., 15 février 1991, no 9021744, DA 1991,
no 184.

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(15)

From an economic standpoint, the reform distinguishes
between two types of entitlement:

affiliation may be effected among other things using the
dependency indicators method or the dependency ratios
method, both of which have already been used by the
French
previous
affiliations (9).

security

during

bodies

social

— ‘basic’ rights, corresponding to pension benefits that
would be paid by the ordinary pension schemes
security scheme and compulsory
social
(general
supplementary schemes)
in return for an ordinary
contribution paid in discharge of obligations,

(18)

In their letter dated 11 December 2003,
authorities stated:

the French

— specific rights under the scheme for the electricity
and gas
industries over and above the benefits
normally paid by the general scheme and compulsory
supplementary
rights
therefore correspond to the difference between the
benefits paid by the special scheme for the electricity
and gas industries and the basic rights.

schemes.

specific

These

(a) Basic rights

(16) As far as basic rights (7) are concerned,

the reform
involves affiliation of the special scheme for the elec-
tricity and gas industries to the general scheme (the
National Pension Fund for Employees — CNAV) and
the compulsory supplementary schemes (General Asso-
ciation of Pension Institutions for Managerial Staff —
AGIRC and Association of Supplementary Pension
Schemes — ARRCO). These schemes will pay workers
in the sector pension benefits corresponding to the basic
rights in return for payment by the enterprises in the
sector of an ordinary contribution in discharge of their
obligations.

(17)

The social security bodies are to determine the technical
arrangements for such affiliation with a view to ensuring
financial neutrality for the transferee schemes (8). The

(7) The basic rights to be financed in the electricity and gas industries
to a total of […] (Business secret). The total
currently amount
pension liabilities to be financed correspond to the sum, discounted
at the real rate of 3 %, of the rights acquired at the date of the
reform. The amounts indicated correspond to the situation at
1 January 2003 and will therefore be adjusted in line with rights
acquired and benefits paid up to the date when the reform is imple-
mented.

(8) On 1 April 2003 the National Accountancy Council adopted
Recommendation No 2003-R.01 on the rules for posting and eva-
luating liabilities in respect of pension and comparable benefits,
which spells out the evaluation methods to be used in that area.
The discount rate to be applied must be determined by reference to
a market
the closure date based on investment-grade
corporate bonds with long maturities matching the duration of
the liabilities or, failing that, by reference to long-term government
bond rates. The use in the case in point of a real discount rate of 3 %
is thus in the lower range of possible values.

rate at

‘The French authorities undertake to ensure that
the
agreements concluded between the electricity and gas
industries and the general schemes (transferee schemes)
and any other measure taken in this context are finan-
cially neutral for all parties and for the State.’

(b) Specific rights

(19) As far as specific rights (10) are concerned, the reform
treats past and future specific rights differently.

(20)

Future specific rights, acquired by employees in the sector
after the reform, will remain entirely the responsibility of
the enterprises under the same conditions as before,
however much they increase in line with the evolution
of the wage bill.

the evaluation date,

(9) The methodology currently used by the CNAV scheme involves
comparing, at
the ratio between the likely
present value of the rights already acquired and the contributive
capacity over a year, modulated by the average age of the contri-
butors, for the transferor scheme and the transferee scheme. If the
dependency ratio in the electricity and gas industries is higher than
that of the basic scheme, an entry fee is calculated which is equal to
the amount that, when deducted from the present value of the
liabilities of
the scheme for the electricity and gas industries,
enables the dependency indicator for the CNAV scheme before
the operation to be equalised with the dependency indicator for
the combination of the CNAV scheme and the scheme for the
electricity and gas industries after the operation.
The methodology currently used by the AGIRC and ARRCO
schemes involves comparing the benefits/contributions dependency
ratios projected over a 25-year period for
the supplementary
schemes with those for the electricity and gas industries. Rights
may be taken over on a minimum or a maximum basis. Where
rights are taken over on a minimum basis, if the dependency ratio
of the transferor scheme is more unfavourable than that of the
transferee scheme, a deduction is made from the benefits attached
to the past basic rights transferred. Such a deduction automatically
increases the past rights that are kept by the enterprise. The enter-
prises will therefore remain responsible for financing the share of
benefits attached to past basic rights that are not transferred to the
general schemes. Where rights are taken over on a maximum basis,
even if the dependency ratio of the transferor scheme is more
unfavourable than that of
the basic
rights are taken over but the transferor scheme must then make
a balancing cash payment in order to ensure that the affiliation is
financially neutral.
In the case in point, if rights are taken over on a maximum basis,
the amount of the balancing cash payment to be made to the
general schemes is estimated at […].

the transferee scheme, all

(10) The specific rights to be financed in the electricity and gas

industries currently amount to a total of […].

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(21)

(22)

Past specific rights already acquired at the date of the
reform by employees assigned to electricity and gas
transport and distribution activities will no longer be
financed by the enterprises in the sector but by a tariff-
based contribution. The contribution will be based, for
each final consumer, on the component of the standing
charge for use of the electricity or gas networks which
can be directly imputed to him and which is independent
of the energy actually consumed. It will be collected by
the entity invoicing the electricity or gas distribution
service to the final consumer and will be directly and
fully allocated to the new pension fund for the electricity
and gas industries.

and gas

the date of

Past specific rights already acquired at the date of the
reform by employees assigned to activities other than
and distribution will
transport
electricity
continue to be financed by the enterprises
in the
sector. At
the financing of
these specific pension rights will be definitively appor-
tioned among all the enterprises in the sector on the
basis of two criteria: the wage bill of the enterprises
concerned and the length of service with them of the
employees covered by the arrangements for the electricity
and gas industries.

the reform,

(23) As part of

the notified reform,

the State is also to
guarantee the payment of pension benefits corresponding
to all past specific rights. This guarantee of last resort will
be granted to the National Fund for the Electricity and
Gas Industries, not to the enterprises themselves. It could
be called upon only after failure of an enterprise had
been duly established and prior activation of an inter-
company solidarity mechanism up to a given ceiling.

(24)

(C) Advantage resulting from the non-payment by
EDF in 1997 of corporation tax on some of the
accounting provisions created free of tax for the
renewal of the high-voltage transmission network

the high-voltage trans-
In 1987, on the ground that
in
mission network (RAG) had been entrusted to it
1956 by a
concession contract, EDF changed its
accounting practice and classified the assets allocated to
item ‘Assets under
the RAG under the balance sheet
concession’. EDF therefore applied to those assets the
special accounting rules established in France for assets
under concession that have to be returned to the State at
the end of the concession period, and created tax-free
provisions for the renewal of the RAG.

(26)

In 1997, EDF had in its accounts two types of provisions
created free of tax for the renewal of the RAG: provisions
not yet used, amounting to FRF 38,5 billion, and grantor
rights, corresponding to renewal operations already
carried out, amounting to FRF 18,345 billion.

(27)

Since these provisions had become superfluous,
the
French authorities reorganised EDF's balance sheet by
means of an act and a ministerial decision.

(28)

(29)

First, Act No 97-1026 of 10 November 1997 provided
that ‘as at 1 January 1997, the value of the assets in kind
allocated under concession to the RAG appearing as
liabilities on EDF's balance sheet shall be entered, net
of the corresponding revaluation differences, under the
injections”’. The share of the provisions
item “Capital
corresponding to grantor rights was therefore to be
reclassified as capital injections without being subject to
corporation tax.

Second, Annex 1 to a letter addressed to EDF on 22
December 1997 by the Minister for Economic Affairs,
Finance and Industry,
the Secretary of State for the
Budget and the Secretary of State for Industry (hereinafter
the letter
for Economic Affairs)
explained the restructuring of the upper part of EDF's
balance sheet pursuant to Article 4 of Act No 97-1026
of 10 November 1997:

from the Minister

‘— Reclassification

of

“Grantor

rights”

(FRF

18 345 563 605):

— Consolidation as capital injections of the value of
assets in kind allocated under concession to the
RAG, amounting to FRF 14 119 065 335.

— Amalgamation of the revaluation differences for
the RAG in 1959 (FRF 2 425 million) and 1976
(non-depreciable fixed assets: FRF 97 million)
with the item “Revaluation differences RAG”,
which is thus increased from FRF 1 720 million
to FRF 4 145 million.

— Amalgamation of the statutory provisions for the
revaluation of depreciable fixed assets in 1976
(FRF 1 704 million),
the item thus increasing
from FRF 877 million to FRF 2 581 million.

(25) Act No 97-1026 of 10 November 1997 nevertheless
established that EDF was deemed to have owned the
RAG since 1956. The accounting provisions created
between 1987 and 1996 under the arrangements for
assets under concession therefore became superfluous.

— Reclassification of the replacement provisions which
have become unwarranted (FRF 38 520 943 408) as
surplus carried forward, in accordance with National
Accountancy Council Opinion No 97-06 of 18 June
1997 on accountancy changes.’

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(30) Annex 3 to the letter from the Minister for Economic
Affairs also sets out the tax implications of the reorga-
nisation of EDF's balance sheet. A net asset variation is
observed as a result of the reclassification of the unused
replacement provisions amounting to FRF 38,5 billion as
surplus carried forward and subjected to corporation tax
at the rate of 41,66 % applicable in 1997.

(31)

(32)

(33)

(34)

(35)

The unused provisions amounting to FRF 38,5 billion
were thus correctly taxed by the French authorities,
while the share of
the provisions corresponding to
grantor rights were not taxed.

In accordance with Act No 97-1026 of 10 November
1997 and the letter from the Minister for Economic
Affairs, the revaluation differences were transferred to
the item ‘Own assets’ without incurring any tax since
they corresponded to revaluation surpluses realised free
of tax or under a tax neutrality arrangement pursuant to
the 1959 and 1976 revaluation acts.

In reorganising EDF's balance sheet, the French autho-
rities followed National Accountancy Council Opinion
No 97-06 of 18 June 1997 on changes to accounting
methods, changes to estimates, changes to tax options
and corrections
the National
that
Accountancy Council Opinion), which States
corrections to accounting errors, which by their very
nature relate to the posting of past transactions, ‘should
be posted in the accounts for the financial year in which
they are discovered’.

(hereinafter

to errors

and

data

documents,

information

In its injunction of 15 October 2002, the Commission
requested the French authorities to let it have all the
necessary
for
assessing the compatibility of that aid measure, and in
particular full copies of the confidential reports issued by
the French Court of Auditors on EDF. The French autho-
rities confined themselves to communicating extracts
from those reports on the ground that only those
extracts had to do with the Commission's investigation
and that ‘the Court of Auditors’ special reports on EDF
contain names of individuals and/or business secrets'.

The Commission notes that the documents forwarded
were heavily censored. It would stress that it is not for
the Member State but for the Commission to assess the
relevance of such documents in the context of its inves-
tigation. Neither does the existence of business secrets
constitute a valid ground for refusing to transmit a
document to the Commission, since the Commission is
required to treat in confidence any information classed as
a business secret.
In accordance with Article 13(1) of
Regulation (EC) No 659/1999, the refusal by a Member
the
State

requested by

to provide

document

a

Commission entitles the latter to take a decision exclu-
sively on the basis of the information available to it.

(36)

III. COMMENTS FROM AN INTERESTED PARTY

By letter dated 6 January 2003, the National Association
of
Independent Thermal Electricity Producers (SNPIET)
submitted comments to the Commission in the context
of the formal investigation procedure initiated in respect
of the non-payment by EDF, in 1997, of corporation tax
on some of the accounting provisions created free of tax
for the renewal of the RAG. The SNPIET alleged that EDF
had not complied in its operations with normal practice
in industrial and commercial enterprises, contrary to the
provisions of Act No 46-628 of 8 April 1946.

IV. COMMENTS FROM THE FRENCH AUTHORITIES IN
THE CONTEXT OF THE FORMAL INVESTIGATION
PROCEDURES

(37)

The French authorities
submitted comments
Commission in the context of the two formal
gation procedures.

to the
investi-

(A) Unlimited State guarantee

(38)

The French authorities submitted their comments to the
Commission by letter dated 12 June 2003, in which they
reiterated and supplemented the arguments set out in
their letter of 11 December 2002.

(39)

In their letter of 11 December 2002, the French autho-
rities disputed the classification of the State guarantee as
aid, developing their case at length on the basis of the
following arguments:

in

payments

(a) Under Act No 80-539 of 16 July 1980 on periodic
penalty
administrative
imposed
proceedings and compliance with judgments by
legal persons governed by public law, a public
enterprise was responsible for settling its debts out
of its own assets. If it had insufficient funds, it had to
create the necessary resources either by reducing the
funds allocated to other expenditures or by increasing
its revenues. Where the public enterprise failed to act,
the supervisory authority served formal notice for it
to do so. If the public enterprise did not comply, the
supervisory authority itself
issued a mandatory
payment order
the expenditure in question,
where necessary having first released the necessary
resources. According to the French authorities, the
State did not therefore take the place of the public
enterprise in order to pay its debts; it merely ordered
the expenditure should the public enterprise fail to
act.

for

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(b) According to the Commission, it was not the public
enterprise status that constituted aid, but the more
favourable credit terms it enabled such enterprises to
obtain. However, the Commission had not demon-
strated in what way the special status enjoyed by
public
enterprises had actually enabled EDF to
obtain real advantages linked to a particular loan or
another financial obligation it had entered into.

(c) The Commission should have carried out an overall
assessment of
the prerogatives and constraints of
public enterprises rather than confining itself to high-
lighting certain privileges. Public enterprises were
subject to certain statutory constraints, such as the
principle of specialisation and the ban on arbitration
clauses, which disadvantaged them in relation to
commercial enterprises. Neither did the Commission
take
service obligations
the public
incumbent on EDF.

account of

(42) With regard to the grant of a selective advantage, the
French authorities claimed that the selective nature of
the aid measure under examination had not been
proven. They argued that the arrangements established
by Act No 80-539 of 16 July 1980 formed part of the
the system that derived from the
general scheme of
general principle of
the assets of
the unseizability of
public entities under French law. They also took the
view that the Commission had not demonstrated that
to assess the
they enjoyed any discretionary power
appropriateness of issuing a mandatory payment order,
for a sum of money that had become due for payment
following a court decision, on behalf of a public entity.

(43)

The French authorities thus again disputed the Commis-
sion's claim that, by virtue of
its status as a public
enterprise, EDF enjoyed an unlimited State guarantee
constituting aid within the meaning of Article 87(1) of
the Treaty.

(d) If

it were found that

there was an implicit State
it would in any event be necessary in

guarantee,
order to ensure continuity of the public service.

(44)

(45)

(e) The Commission decision deprived Article 295 of the
Treaty of
its effectiveness and ran counter to the
principle of equal treatment in that it treated public
enterprises and commercial enterprises in the same
way although they did not operate in comparable
conditions.

(40)

In their letter dated 12 June 2003, the French authorities
added further points as set out below.

(41) As regards the use of State resources, they considered
that the Commission's interpretation of Act No 80-539
of 16 July 1980 was incorrect. They stressed that no
legal instrument or court decision provided for or sanc-
tioned the existence of an automatic guarantee for the
benefit either of EDF or of public enterprises in general.
They reiterated that Act No 80-539 of 16 July 1980 had
neither the object nor the effect of
transferring the
to the State and emphasised that,
burden of a debt
faced
entities
even when public
extremely
financial
financial
serious
solutions had been found without State intervention.
that a
They furthermore took the view that
public supervisory authority was empowered to increase
the resources of a public entity in financial difficulty did
not suffice to demonstrate either the existence of a State
guarantee of last resort or the use of State resources
within the meaning of Article 87(1) of the Treaty.

in France had
difficulties,

the fact

(B) Non-payment by EDF of corporation tax on
some of the accounting provisions created free of
tax for the renewal of the high-voltage transmission
network

The French authorities submitted their comments to the
Commission by letter dated 11 December 2002. They
disputed the classification as State aid of
the non-
payment in 1987 of corporation tax on some of the
accounting provisions
the
renewal of the high-voltage transmission network (RAG).

created free of

tax for

The French authorities first disputed the amount of the
provisions for renewal of
the RAG advanced by the
Commission. They then argued that, even if EDF had
not set aside provisions for the renewal of the RAG, it
would still not have been liable
for payment of
corporation tax between 1987 and 1996 because of
the carryover of large tax losses. Furthermore, since the
State was both the owner of EDF and the grantor of the
concession on the RAG, they considered that the grantor
rights did not provide it with a genuinely enforceable
sheet was
claim. Consequently, when the balance
restructured in 1997,
to
EDF's capital and reserves in order to correct its under-
capitalisation,
them to
corporation tax. The French authorities took the view
that the restructuring of EDF's accounts in 1997 could
be interpreted as a capital
injection of an amount
equivalent to the partial tax exemption.

they assigned those rights

but without

subjecting

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(46)

(47)

(48)

(49)

They also denied that the remuneration of the State was
unduly reduced between 1987 and 1996 as a result of
the creation of the provisions in question. They argued
that, even if the net result had been higher, the remu-
neration of the State would not have been increased
since, during that period, the level of that remuneration
did not correspond to a predetermined percentage of
EDF's net result:
it was determined freely by the State
in absolute terms and did not necessarily depend on
EDF's financial situation; neither did the remuneration
have to be deducted from the net profits for each year.
In view of the foregoing and given the losses carried over
by EDF,
the French authorities stressed that between
1987 and 1996 the State in fact took a dividend consi-
derably in excess of the levels allowed by the ordinary
law on commercial enterprises.

The French authorities also considered that even if the
creation of provisions for the renewal of the RAG had
resulted in an advantage, such an advantage had to be
regarded as cancelled out by the increase in corporation
tax paid in 1997. They claimed that, over the period
1987 to 1996, EDF paid more to the State overall
than the corporation tax that would have been paid by
a commercial enterprise which did not create provisions
for the renewal of the RAG and which paid its share-
holder a dividend equal to 37,5 % of its net result after
tax.

if EDF were
The French authorities also argued that
found to have benefited from an undue advantage,
it
would constitute existing aid and not new aid on
account of the expiry of the ten-year limitation period
laid down in Article 15 of Regulation (EC) No 659/1999,
which began to run from the date the initial aid was
granted. Since the Commission's first request for infor-
mation was made on 10 July 2001, any aid granted
before 1991 would be
legislative
measures adopted in 1997 did not suspend the limitation
period since only action by the Commission could have
that effect. The French authorities argued finally that the
measure would constitute existing aid in any event since
it was granted prior to the liberalisation of the electricity
market.

time-barred. The

the French
In their letter dated 20 November 2003,
reiterated their arguments concerning the
authorities
revaluation differences included in the amount of the
grantor rights appearing in the accounts and concerning
application of the limitation rule. They also claimed that
the rate of corporation tax that should have been applied
when EDF's balance sheet was restructured was the 1996
rate (36,67 %) not the 1997 rate (41,66 %), since the
restructuring was carried out on the basis of a tax
return lodged on 23 December 1997, after closure of
the accounts for 1996 but before the 1997 accounts
were finalised.

(50)

The French authorities thus disputed the Commission's
claim that EDF benefited from an advantage in 1997 on

(51)

account of the non-payment of corporation tax on some
of the provisions created free of tax for the renewal of
the high-voltage transmission network.

(C) Observations by the French authorities on the
comments from an interested party

The SNPIET's comments were forwarded to the French
authorities by letter dated 21 January 2003. By letter
dated 21 February 2003, the French authorities reacted
to those comments by stating, first, that most of the
points made by the SNPIET should be declared inad-
missible because they did not concern the formal inves-
tigation procedure that had been initiated and, second,
any new fact
that
concerning
the Commission's
to
attention:
they consequently did not have any obser-
vations to make in response to the SNPIET's comments.

the SNPIET had not brought

procedure

the

V. ASSESSMENT OF THE EXISTENCE OF STATE AID

(52) Article 87(1) of

the Treaty (11) provides that

‘any aid
granted by a Member State or through State resources
in any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods shall, insofar as it affects
trade between Member States, be incompatible with the
common market’.
In determining whether a measure
constitutes State aid within the meaning of Article
87(1) of the Treaty, the Commission has to apply the
following criteria: the measure must be imputed to the
State and use State
confer an
resources,
advantage on certain undertakings or certain sectors
which distorts competition and it must affect
trade
between Member States.

it must

(53)

The Commission reiterates here the points already made
in the decisions to propose appropriate measures and
open formal investigations (12).

(54)

This Decision is without prejudice to the application of
and compliance with the rules of the Treaty establishing
the European Atomic Energy Community.

1. Unlimited State guarantee

(a) State resources

(55)

EDF has had public enterprise status since it was set up
by Act No 46-628 of 8 April 1946 on the nationali-
sation of electricity and gas. Like all public entities, EDF
is not
to the ordinary law on collective
proceedings.

subject

(11) The reference to Article 87(1) of the Treaty should be understood
as also referring to Article 61 of the Agreement on the European
Economic Area.
(12) See footnote 1.

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(56)

(57)

(58)

(59)

Point 2.1.3 of the Commission notice on the application
of Articles 87 and 88 of the EC Treaty to State aid in the
form of guarantees (13) (hereinafter the notice on State aid
in the form of guarantees) States that ‘the Commission
(…) regards as aid in the form of a guarantee, the more
favourable funding terms obtained by enterprises whose
legal
form rules out bankruptcy or other insolvency
proceedings or provides an explicit State guarantee or
coverage of losses by the State’. The existence of State
the above
aid is
instances.

therefore established in either of

The Commission takes the view that the fact that EDF
cannot be subject to administration or compulsory liqui-
dation proceedings, and therefore cannot be declared
bankrupt, is equivalent to a general guarantee covering
all its liabilities. Such a guarantee cannot be the subject
of any remuneration according to the rules of
the
market. Such a guarantee, which is unlimited in scope,
time and amount, constitutes State aid.

(61)

In accordance with the notice on State aid in the form of
guarantees, State aid exists within the meaning of Article
87(1) of the Treaty even if no payments are made by the
the
State under the guarantee. The aid is granted at
moment when the guarantee is given, and this took
place in the case in point when EDF was set up as a
public enterprise,
from
insolvency and bankruptcy proceedings. The unlimited
State guarantee granted to EDF was thus conferred by
an act.

thereby rendering it exempt

In its decision to propose appropriate measures and its
decision to open a formal investigation, the Commission
already classed the unlimited guarantee enjoyed by EDF
as existing aid. Under Article 1 of Regulation (EC) No
659/1999, all aid which existed prior to the entry into
the Treaty in the respective Member State
force of
the
constitutes existing aid. The general principle of
unseizability of the assets of public entities was estab-
lished by French case-law in the late 19th Century, and
EDF's status dates back to 1946.

(62)

(60)

Contrary to what the French authorities have claimed, the
special procedure for the recovery of claims established
by Act No 80-539 of 16 July 1980 (14)
is not

comparable to Act No 85-98 of 25 January 1985 on the
administration and compulsory liquidation of enterprises.
Under Act No 85-98, where a commercial enterprise is
no longer able to honour its debts and cannot be the
subject of an administration measure, it must be put into
compulsory liquidation.
Its assets are then seized and
sold and the proceeds of their sale normally serve to
pay off all the creditors. However, since in practice the
assets are often worth much less than the liabilities, the
proceeds of the sale are seldom sufficient to repay all the
claims. The creditors of a commercial enterprise under
the ordinary rules are therefore exposed to two risks: not
only can the enterprise be put into compulsory liqui-
dation should it
also the
the creditors will
procedure does not guarantee that
recover their claims.

suspend payments, but

therefore be

sold in order

Public enterprises, on the other hand, cannot be put into
compulsory liquidation and their assets are unseizable:
they cannot
to repay
creditors. The debts of public entities are paid in
accordance with a special procedure established by Act
No 80-539 of 16 July 1980, whereby they must, if they
have insufficient funds, create the necessary resources.
Should the public enterprise fail to act, the supervisory
authority serves formal notice for it to do so.
If the
public enterprise does not comply,
the supervisory
authority itself issues a mandatory payment order for
the expenditure in question. Act No 80-539 and its
Implementing Decree do not rule out a State guarantee
of last resort, since the latter provides that the super-
visory authority ‘shall, where appropriate, release the
funds
either by
necessary
allocated to other expenditures and so far unused or
by increasing resources’ (15). This instrument does not
in
rule out
resources,
coming
from outside the enterprise, at least if there is no other
possible
own
resources.

the possibility of
following the State

such an increase

intervention,

enterprise's

involving

resources

reducing

solution

the

the

The creditors of a public enterprise are therefore not
exposed to any risk of their claims failing to be paid:
not only can the enterprise not be declared bankrupt, but
also the law guarantees the payment of
their claims
through special administrative procedures. The special
cannot
to public
procedure
therefore be compared with the compulsory liquidation
procedure applicable to commercial enterprises under the
ordinary rules. On the contrary, Act No 80-539 of 16
July 1980 strengthens the effect of the unlimited State
guarantee enjoyed by EDF on account of the fact that it
cannot be declared bankrupt.

enterprises

applicable

(13) OJ C 71, 11.3.2000, p. 14.
(14) Article 1.II.

(15) Fourth subparagraph of Article 3-1 of Implementing Decree No

81-501 of 12 May 1981.

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(68)

(63)

French legal theorists consider that public entities under
French law do enjoy a State guarantee of last resort.
Where such public entities carry on a strategic activity
that is essential to the national economy or national
the State could not disregard their fate if
solidarity,
they were faced with a difficult financial situation. The
involvement of the State would be all the more certain
where it had exercised decisive control over the activity
of the enterprise, for example by setting the prices for its
products (16).

(64)

Likewise, in an unpublished opinion, the French Council
of State held ‘that the State guarantee [enjoyed by a
public enterprise] will derive,
in the absence of an
explicit legislative provision, from its very nature as a
public enterprise’ (17).

its status EDF cannot be declared
Since by virtue of
its liabilities do not give rise to any risk of
bankrupt,
insolvency. EDF can therefore borrow at
lower rates
than those normally offered to commercial enterprises
that are governed by the ordinary rules and can be the
subject of administration and compulsory liquidation
proceedings. The credit terms obtained by an enterprise
vary according to its risk of insolvency: the higher that
risk, the more costly the credit terms it is offered. Enter-
like EDF, raise funds by issuing bonds
prises which,
request independent rating agencies regularly to assess
their creditworthiness. The ratings assigned in this way
to an enterprise determine the amount of
the remu-
neration required by an investor to subscribe to its
bond issues. Where an enterprise's rating falls as a
result of an increased risk of insolvency,
investors will
demand greater remuneration and the bond issue will
cost it more. On the other hand, an enterprise that is
to the ordinary law on bankruptcy and
not subject
therefore enjoys an unlimited State guarantee does not
present any risk of
to
borrow on more favourable terms.

insolvency, which enables it

(65)

In other words,
if the inapplicability of bankruptcy or
insolvency proceedings to public entities is a corollary
of the principle of the unseizability of their assets, then
the obligation on the State to answer for their debts in
the event of default derives from the same principle.

(69)

(66)

Contrary to what the French authorities have claimed,
Act No 80-539 of 16 July 1980 is selective in that it
applies only to commercial enterprises with the status of
a public entity. It does not therefore constitute a general
measure.

(b) Selective advantage and distortion of competition

(67) A measure constitutes State aid if it confers an advantage
on certain specific beneficiaries. All measures that are
liable directly or indirectly to favour certain sectors,
enterprises or products
fall within the concept of
economic advantage. State interventions in favour of
public enterprises may also involve State aid where
they are carried out under abnormal circumstances and
confer an advantage on the enterprise in question.

(16) See, for example J. Rivero, Encyclopédie Juridique Dalloz, Droit admi-
nistratif, Régime des entreprises nationalisées, 1959: ‘§ 78. (…) One last
peculiarity, which is not enshrined in the texts but derives from
practice: where necessary, the enterprise can rely, as an ultimate
resource, on advances from the State, which cannot disregard key
parts of the national economy and public assets; such advances are
normally repayable. (…) § 81. The texts have not envisaged the
eventuality of a deficit. But it is certain, a priori, that a deficit could
not lead to the enterprise being declared bankrupt: it is inevitable
that an exception would be made to the ordinary rules; in practice,
the State, which is often responsible for the deficit insofar as it
retains control of prices and wages,
is prompted, as we have
seen, to cover it by means of advances’.

(17) See the Council of State's annual report for 1995, p. 219.

In a press release,

in the absence of

The main rating agencies all regard the unlimited State
guarantee as a decisive factor in assessing EDF's credit-
worthiness. Since June 2001, Fitch Ratings has thus
assigned EDF a long-term debt rating of AAA and a
short-term debt rating of F1+.
it
those ratings reflected the implicit State
stressed that
legal
guarantee covering EDF's debt and its current
such a
status and added that,
guarantee, EDF's
rating would be
long-term debt
AA+ (18). In May 2002, Fitch Ratings confirmed those
long-term and short-term debt ratings, but gave the
group an intrinsic creditworthiness rating of AA (19).
The unlimited State guarantee thus enables EDF to
obtain a better assessment of
insolvency
than would result from a simple analysis of its intrinsic
creditworthiness. For its part, in January 2002 Moody's
downgraded the outlook for EDF's long-term debt rating
of Aaa from ‘stable’ to ‘negative’. In a press release, the
the rating by the
agency explained its
revision of
increasing
and control
status
structure having to change in the medium term and
stated that if EDF were to lose its current status, which
exempted it from the ordinary law on bankruptcy,
its
long-term debt rating could be lowered by one or two
notches (20). The unlimited State guarantee does therefore
enable EDF to obtain more favourable credit terms than
those available to a commercial enterprise without a
State guarantee.

likelihood of EDF's

its risk of

(70)

Insofar as EDF is the only enterprise active on the elec-
tricity market that enjoys an unlimited State guarantee by
virtue of its status, the advantage is selective.

(18) Source: Reuters News Service, Reuters French Language News,

22.6.2001.

(19) Source: Reuters News Service, Reuters French Language News,

27.5.2002.

(20) Sources: Moody's

Investors Service Press Release, 30.1.2002;
Reuters News Service, Reuters French Language News, 30.1.2002.

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(71)

EDF is in competition with other Community operators
in the markets for the production and distribution of
electricity and energy services and with other operators
active on energy markets that compete with electricity.
The Court of Justice of the European Communities has
consistently held (21) that any State aid which strengthens
the position of an enterprise in relation to other enter-
prises competing in intra-Community trade distorts
competition.

(72)

The unlimited State guarantee thus confers on EDF an
advantage that necessarily strengthens its position in
relation to its competitors. It therefore distorts compe-
tition within the meaning of Article 87(1) of the Treaty.

(73)

(74)

(75)

2. Reform of the pension scheme for the electricity
and gas industries

(a) Selective advantage and distortion of competition

The affiliation of the pension scheme for the electricity
and gas industries to the general schemes does not
constitute an advantage insofar as such affiliation is an
option open to any special pension scheme that wishes
to do so and the financial arrangements, valuation
methods and timetable for the affiliation are financially
neutral for the transferee schemes and the State.

In the case in point, the technical arrangements for the
affiliation are still to be determined as part of ongoing
negotiations between the electricity and gas industries
and the transferee schemes. The French authorities have
formally undertaken by letter dated 11
nevertheless
December 2003 ‘to ensure
agreements
that
concluded between the electricity and gas industries
and the general schemes (transferee schemes) and any
other measure taken in this context are financially
neutral for all parties and for the State’.

the

The Commission takes the view that, provided the above
undertaking is fulfilled in practice, the affiliation of the
pension scheme for the electricity and gas industries to
the general schemes will not constitute an advantage.
Otherwise, the operation would of course have to be
re-examined. The Commission stresses that the French
authorities would have to notify it
the
operation if the definitive arrangements for the affiliation
were not in line with the principle of financial neutrality.

formally of

State aid provided that such affiliation is financially
neutral for the enterprises, the transferee schemes and
the State.

industries of

in the electricity and gas

(77) On the other hand, the notified reform relieves enter-
prises
the
payment of some of the pension liabilities corresponding
to rights already acquired at the date of the reform by
employees assigned to electricity and gas transport and
distribution. Those rights will be financed by the above-
mentioned tariff-based contribution. Enterprises in the
electricity and gas industries are thus relieved of
the
payment of some of the pension benefits acquired in
the past, something which constitutes an advantage for
those industries.

(78) An advantage is thus conferred on the electricity and gas
industries which has not been granted to any other area
of
to the
industries in direct competition (such as the oil and
coal
is consequently a selective sectoral
advantage.

the French economy, and in particular

industries).

It

(79)

(80)

The French electricity and gas industries are in compe-
tition with the same industries in other Member States.
Any State aid that strengthens the position of one
industry in relation to other industries competing with
it in intra-Community trade distorts competition. The
non-payment by enterprises in the electricity and gas
their past pension liabilities
industries of
constitutes an advantage for the French electricity and
gas industries that necessarily strengthens their position
in relation to enterprises in competing industries in the
other Member States. The advantage therefore distorts
competition within the meaning of Article 87(1) of the
Treaty.

some of

The State guarantee granted to the National Fund for the
Electricity and Gas Industries, covering the payment of
pensions corresponding to all specific rights acquired in
the past, constitutes a guarantee of last resort afforded to
the pension scheme for the electricity and gas industries,
not to the enterprises themselves. The State guarantee
consequently benefits a social security institution that
operates on a pay-as-you-go basis and is financed by
compulsory contributions. The Court of
Justice has
consistently held (22) that institutions of that nature are
not engaged in an economic activity within the meaning
of the Treaty. Any guarantees granted to such institutions
do not
therefore constitute an advantage caught by
Article 87(1) of the Treaty.

(76)

In the light of
the undertaking given by the French
authorities, the Commission considers that the affiliation
of
the electricity and gas
industries to the general schemes will not involve any

the pension scheme for

(b) State resources

(81)

The reform of the pension scheme for the electricity and
gas industries notified by the French authorities involves
State resources.

(21) Cases 730/79 Philip Morris [1980] ECR 2671 and 259/85 France v

(22) Joined Cases C-159/91 and C-160/91 Poucet and Pistre [1993] ECR

Commission [1987] ECR 4393.

I-637.

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(82)

(83)

The cost of the liabilities corresponding to the specific
pension rights already acquired at the date of the reform
by employees assigned to electricity or gas transport and
distribution will be transferred to the National Fund for
the Electricity and Gas Industries and will be financed by
the tariff-based contribution introduced by the French
authorities. The chargeable event
for the contribution
will be the existence of a connection to an electricity
or gas transport or distribution network.

Payment of the contribution will be compulsory. It will
be introduced by an act which will determine the
the arrangements for collection and
chargeable event,
the allocation of
the proceeds. The different rates of
the contribution will be set by joint order issued by
the ministers responsible for the budget and for energy,
after consulting the Energy Regulatory Board. In the case
in point, although the State is not directly involved in
managing the contribution, since it is collected by the
entities invoicing the electricity or gas distribution service
the
and paid direct
nevertheless
industries,
the
the
conditions in which it
is collected and the way in
which the proceeds are used. Accordingly, the resources
collected by way of
the tariff-based contribution do
constitute State resources.

to the new pension fund for
determines
State

3. Non-payment by EDF in 1997 of corporation tax
on some of the accounting provisions created free of
tax for the renewal of the high-voltage transmission
network

(a) Selective advantage and distortion of competition

(84)

Since Act No 97-1026 of 10 November 1997 estab-
lished that EDF was deemed to have been the owner of
the high-voltage transmission network (RAG) since 1956,
it has to be ascertained whether the Act did not involve a
transfer of ownership of the RAG.

(85) According to the information provided by the French
authorities, EDF can reasonably be regarded as
the
owner of the RAG since the initial contractual conditions
dating from 1956. That conclusion is based on the
following evidence: the features of the different types of
concession contract under French law;
special
features of
the original concession granted to EDF,
which did not include an explicit retrocession clause;
the procedure
assets
concerned, for which EDF had to pay a fee similar to
compensation under a compulsory purchase procedure;
and the conditions for the financing, maintenance and
extension of the RAG at EDF's expense. The Commission
the ‘clarification’ of
consequently takes the view that
the RAG brought about by Act No
ownership of
97-1026 of 10 November 1997 does not
in itself
involve any State aid.

acquisition of

the

the

the

for

(86)

It now has to be examined whether Act No 97-1026
addressed all the tax implications of such ‘clarification’
and, if not, whether a tax concession was thus granted to
EDF.

(87) During the period between 1987 and 1996, EDF created
tax-free provisions for the renewal of the RAG. Following
the 1997 Act declaring that EDF was deemed to have
been the owner of the RAG since 1956, those provisions
became superfluous and therefore had to be reallocated
to other items in the balance sheet.

(88)

The letter from the Minister for Economic Affairs setting
out the tax implications of the restructuring of EDF's
balance sheet shows that
the unused provisions for
renewal of the RAG were subjected by the French autho-
rities to corporation tax at 41,66 %, the rate applicable in
1997.

some of

(89) On the other hand, pursuant to Article 4 of Act No
those
97-1026 of 10 November 1997,
provisions, namely the grantor rights, corresponding to
renewal operations already carried out, were reclassified
as capital
injections amounting to FRF 14.119 billion
without being subjected to corporation tax. The French
authorities themselves acknowledge that the transaction
In a memorandum dated 9 April 2002
was illegal.
addressed by the Directorate-General
for Taxation to
the Commission, the French authorities Stated that ‘the
the RAG represent an
grantor
unowed debt which was unjustifiably exempted from
tax by being incorporated into the capital’ and that
‘before this reserve was incorporated into the capital, it
should have been transferred from the enterprise's
to a net
liabilities, where it was incorrectly posted,
assets account, thereby resulting in a positive variation
in net worth that was taxable under Article 38(2)’ of the
General Tax Code. They noted that ‘the tax concession
thus obtained [by EDF in 1997] can be estimated at FRF
5,88 billion (14,119 × 41,66 %)’, equivalent
to EUR
888,89 million (23).

in respect of

rights

(90)

The Commission points out, on the one hand, that, in
line with the National Accountancy Council Opinion,
corrections to accounting errors should be posted in
the accounts for the financial year in which they are
the unused
discovered. On the other hand,
provisions amounting to FRF 38,5 billion that had
been created free of tax were subjected to corporation
tax at the rate of 41,66 % in 1997, the Commission can
see no objective reason why the rest of the provisions
created free of tax should not have been taxed at the
same rate.

since

(23) Conversion made on the basis of the exchange rate between the

French franc and the euro on 22 December 1997.

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(91)

(92)

(93)

(94)

(95)

The Commission takes the view that the grantor rights
should have been taxed at the same time and the same
rate as the other accounting provisions created free of
tax. This means that the FRF 14,119 billion in grantor
rights should have been added to the FRF 38,5 billion in
unused provisions and taxed at
the rate of 41,66 %
applied by the French authorities to the restructuring of
EDF's balance sheet. By not paying all the corporation tax
due when it restructured its balance sheet, EDF saved
EUR 888,89 million.

(96)

The Commission has to dismiss these arguments, since
the private investor principle can be applied only in the
context of the pursuit of an economic activity, not in the
context of the exercise of regulatory powers. A public
authority cannot use as an argument any economic
benefits it could derive as the owner of an enterprise
in order
to justify aid granted in a discretionary
manner by virtue of the prerogatives it enjoys as the
tax authority in relation to the same enterprise.

The Commission considers that the aid was indeed paid
in 1997, since the FRF 14,119 billion was at that time a
debt to the State, entered under the balance sheet item of
grantor rights, which the State waived by means of Act
No 97-1026 of 10 November 1997.

tax

losses. The Commission dismisses

The French authorities claim that, even if EDF had not set
aside provisions for the renewal of the RAG,
it would
still not have been liable for payment of corporation tax
between 1987 and 1996 because of the carryover of
large
this
argument as irrelevant, since the tax concession dated
from 1997 and not previous years. It also notes that, if
the provisions had not been set aside, the tax losses
carried over would have been gradually absorbed
between 1987 and 1996 and the amount of
tax
payable by EDF in 1997 would have been significantly
higher.

The French authorities also take the view that, even if the
the renewal of
creation of provisions for
the RAG
resulted in an advantage,
that advantage should be
regarded as cancelled out by the increase in corporation
tax paid in 1997. The Commission cannot but dismiss
this argument. As it has demonstrated above and as the
French authorities
in their
memorandum dated 9 April 2002,
although the
unused replacement provisions were correctly taxed, the
grantor
injections
rights were reclassified as capital
without being subjected to corporation tax. The tax
paid by EDF in 1997 is therefore lower than the tax
normally due.

acknowledge

themselves

that

accounts

furthermore,

tax exemption:

The French authorities claim,
the
in 1997 can be
restructuring of EDF's
regarded as a capital injection of an amount equivalent
to the partial
therefore an
investment by them and not an aid measure. They also
argue that, over the period from 1987 to 1996, EDF paid
more to the State overall than the corporation tax that
would have been paid by a commercial enterprise which
did not create provisions for the renewal of the RAG and
which paid its shareholder a dividend equal to 37,5 % of
its net result after tax.

it was

(97) While a Member State may act as a shareholder in
addition to exercising its powers as a public authority,
it must not combine its role as a State wielding public
power with that of a shareholder. Allowing Member
States to use their prerogatives as public authorities for
the benefit of their investments in enterprises operating
in markets that are open to competition would render
the Community rules on State aid completely ineffective.
Furthermore, while in accordance with Article 295 the
regards
Treaty is neutral as
the system of capital
that public enterprises
remains
the fact
ownership,
must be subject to the same rules as private enterprises.
Public and private enterprises would no longer be
granted equal
the State were to use the
prerogatives of public power for the benefit of the enter-
prises in which it is a shareholder.

treatment

if

(98)

(99)

that

The French authorities claim that the rate of corporation
tax that should have been applied when EDF's balance
sheet was restructured was the 1996 rate and not the
1997 rate. As Stated earlier, the Commission would first
point out
the National Accountancy Council
considers that corrections to accounting errors should
be posted in the accounts for the financial year in
which they are discovered. Since the provisions for
renewal of the RAG became superfluous following Act
No 97-1026 of 10 November 1997, they should have
been reclassified in the accounts for the 1997 financial
year and therefore taxed at the rate of corporation tax
applicable to that year. The Commission also notes that
the French authorities themselves applied the 1997 rate
of corporation tax to the share of the provisions that was
taxed.

The non-payment by EDF,
in 1997, of EUR 888,89
million in tax therefore constitutes an advantage for
the
the group. EDF was able to use the amount of
unpaid tax to increase its capital and reserves without
having to raise outside finance. The advantage is neces-
sarily selective, since the non-payment of corporation tax
the accounting provisions constitutes an
on some of
exception to the tax treatment normally applicable to
such a transaction. The fact
the advantage was
granted to EDF by a specific legislative instrument, Act
No 97-1026 of 10 November 1997, is proof that it is
unique and overrides the rules of ordinary law.

that

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(100) Like EDF's unlimited State guarantee, this advantage it
enjoys necessarily strengthens its position in relation to
its competitors. It therefore distorts competition within
the meaning of Article 87(1) of the Treaty.

(b) State resources

(101) The concept of aid embraces not only positive benefits,
such as subsidies, but also interventions by the public
authorities which mitigate the charges that are normally
included in the budget of an undertaking and which have
the same effect as subsidies (24). The Court has consis-
tently held (25) that the non-collection by the State of a
tax which should normally have been collected is
equivalent to the consumption of State resources.

(102) The non-collection of the full amount of corporation tax
due in respect of the 1997 financial year derived directly
from a measure adopted by the State, namely Act No
97-1026 of 10 November 1997.

(103) Consequently, in 1997 EDF received State aid amounting
to EUR 888,89 million in the form of a tax concession.

4. Effect on trade between Member States

for

the internal market

(104) From its creation in 1946 until the entry into force of
Directive 96/92/EC of the European Parliament and of
the Council of 19 December 1996 concerning common
in electricity (26), EDF
rules
enjoyed a monopoly on the French market, with
exclusive rights in respect of the transport, distribution,
import and export of electricity. It was, however, already
in other
in competition with electricity producers
Member States even before Directive 96/92/EC entered
into force, and free competition also existed on related
markets where EDF had already diversified its activities
beyond its exclusive rights (in both geographic and
sectoral terms). Effects on trade did therefore exist well
before
liberalisation provided for by Directive
96/92/EC.

the

(105) Electricity was the subject of significant, growing trade
between Member States
in which EDF was actively
engaged. This trade, which was given a further boost
by the adoption of Council Directive 90/547/EEC of
29 October 1990 on the transit of electricity through

(24) Judgments of the Court in Cases 30/59 Gezamenlijke Steenkolenmijnen
v High Authority [1961] ECR 3, C-387/92 Banco de Crédito Industrial
[1994] ECR I-877, C-39/94 SFEI [1996] ECR I-3547, C-241/94
France v Commission [1996] ECR I-4551 and T-106/95 FFSA v
Commission [1997] ECR I-911.

(25) See in particular Case T-67/94 Ladbroke v Commission [1998] ECR

II-1, paragraph 109.

(26) OJ L 27, 30.1.1997, p. 20.

transmission grids (27),
took place on the basis of
commercial agreements between the different operators
of the high-voltage transmission networks in the Member
States. In the European OECD member countries, elec-
tricity imports grew at an average annual rate of over 7 %
between 1980 and 1990. Between 1981 and 1989, EDF
multiplied the surplus on its balance of trade in electricity
by nine, achieving net exports of 42 TWh, representing
10 % of
In 1985, EDF already
its total production.
exported 19 TWh to other Member States.

(106)

In its annual report for 1997, EDF stated that it ranked
‘among the world's leading operators in the electricity
industry, with, outside France, more than FRF 13
billion invested, a total
installed production capacity
equal to nearly 11 % of the figure for France and over
8 million customers’. The report also stressed that in
1997 EDF had ‘increased the number and size of its
investments in Europe by extending its presence to
Austria and Poland’ and had ‘exported over 70 TWh in
Europe’.

(107) The 1997-2000 management

contract,

the capital of

signed on
8
April 1997 between the French State and EDF,
stipulates that EDF is to allocate some FRF 14 billion
investments, assigning priority to
to its international
in Europe. Between 2000 and 2002, EDF
regions
acquired one third of
the German
increased the production and distri-
company EnBW,
bution capacities of
its United Kingdom subsidiary
the Italian
London Electricity,
enterprise Fenice and set up a partnership with Fiat for
the purchase of Montedison (now Edison). EDF thus
plays a major role in electricity trading between the
Member States. In 2001, EDF's electricity exports grew
to a record level of 83,9 TWh, contributing EUR 2 300
million to its annual turnover.

took direct control of

competitors on that market

(108) The French electricity market is currently 34,5 % open,
with the threshold for eligible customers set at 7 GWh.
The market open to competition consists of some 3 100
premises
representing demand of over 150 TWh.
According to the latest estimates, the market share of
EDF's
is 18,5 %. 31
European suppliers are present on the French market,
and electricity imports into France totalled some 26
TWh in 2001. As
regards electricity production in
France, EDF is furthermore now in competition with
Compagnie Nationale du Rhône, a subsidiary of Elec-
de
and
trabel,
is held by the
Thermique,
Spanish company Endesa. EDF is
therefore now in
competition with other operators on the French market.

Société Nationale
some of whose capital

d'Electricité

et

(27) OJ L 313, 13.11.1990, p. 30.

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(109) Even before Directive 96/92/EC entered into force in
February 1999, certain Member States acted unilaterally
to open up their electricity market.
In particular, the
United Kingdom opened up its market completely for
large industrial customers in 1990. Sweden opened up
its market completely in 1996, Finland began the process
in 1995 and reached 100 % market opening in 1997,
Germany completely opened up its market in 1998 and
the Netherlands opened up its market completely for
In those circumstances,
industrial customers in 1998.
even before the deadline set by the Directive for
to competition, State
opening up the market
aid
enjoying a monopoly in a
granted to enterprises
Member State
in intra-
Community trade, as in the case of EDF, distorted
competition on the
electricity market within the
meaning of Article 87(1) of the Treaty.

took an active part

that

(110) EDF competed and continues to compete both in France
and in other Member States in areas outside its core
business of electricity production and distribution, since
it has diversified its activities on the markets in services
related to energy, which have been entirely liberalised. In
1997, SDS, a wholly owned subsidiary of EDF, brought
together its activities associated with the provision of
services to individual customers, businesses and local
authorities. SDS was active in waste treatment, street
lighting and other energy-related services and generated
turnover equivalent of EUR 685 million in 1998 as
against EUR 650 million in 1997. In 2000, EDF estab-
lished a partnership with Veolia Environnement via the
company Dalkia, the European leader in energy services
to businesses and local authorities. It offers energy engi-
neering and maintenance
services, manages heating
plants and technical services to do with the operation
of buildings and operates district heating networks,
combined heat
energy
production and industrial fluid systems.

and power

schemes,

and

(111) EDF has also developed its activities on the market in
renewable energy sources. In 1997, the holding company
Chart, a wholly owned EDF subsidiary, brought together
its activities in the renewables sector, e.g. geothermal
energy and wind power. Its contribution to consolidated
turnover that year was EUR 70 million.

is

In France,

(112) Lastly, as an electricity producer and distributor, EDF was
in competition with suppliers of other
and still
substitute energy sources such as coal, oil and gas,
both on its domestic market and on international
markets.
for example, EDF has launched a
successful campaign to promote the use of electricity
for heating.
It has thus increased its market share in
comparison with its competitors who supply substitute
energy sources such as oil or gas. In the steel industry,
electric furnaces are in competition with gas and oil-fired
furnaces.

(113) As far as the effect on trade in gas between Member
States is concerned,
it should be noted that as France
has only small gas reserves it has always imported
most of its supplies. The gas market has also been the
subject of a liberalisation directive: Directive 98/30/EC of
the European Parliament and of the Council of 22 June
1998 concerning common rules for the internal market
in natural gas, which was to be transposed by all the
Member States by August 2000. The Member States had
to specify the eligible customers who could choose their
supplier. The definition of eligible customers was to
result in an opening of the market equal to at least
20 % of annual national gas consumption immediately
and then 28 % in 2003.

figures,

(114) A French parliamentary report (28) found that, according
to government
the consumption of eligible
customers who had changed suppliers accounted in
early 2002 for around 25 % of the total consumption
of eligible customers and 5 % of the total market, and
that four new operators had entered the French market.

(115)

It is therefore clear that, in 1997, EDF was already well
established on certain markets in other Member States
and that the aid resulting from the non-payment by EDF
of corporation tax on some of the accounting provisions
created free of tax for the renewal of the RAG inevitably
affected trade between Member States.

(116) The unlimited State guarantee has also conferred on EDF
an advantage which necessarily strengthens its position in
relation to its competitors. In the light of the foregoing
trade between
considerations,
Member States within the meaning of Article 87(1) of
the EC Treaty.

it necessarily

affects

(117) The reform of the pension scheme for the electricity and
gas industries reduces the costs borne by enterprises in
those industries and therefore constitutes an advantage
for the sector. Since European markets in electricity and
gas exist, the grant of an advantage to enterprises in
those
trade
industries
between Member States.

in France necessarily affects

(118) Consequently, since they fulfil the four criteria laid down
in Article 87(1) of
the unlimited State
the Treaty,
guarantee enjoyed by EDF, the non-payment by enter-
prises in the electricity and gas industries of some of
the pension benefits corresponding to rights acquired
in the past, and the non-payment by EDF of corporation
tax on some of the accounting provisions created free of
tax for the renewal of the RAG constitute State aid. The
compatibility of these measures in the light of the Treaty
rules now has to be assessed.

(28) Report by Mr Poniatowski on the energy markets bill, drafted in
2002 at the request of the Senate Committee on Economic Affairs.

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5. Assessment of the compatibility of the State aid
at issue in the light of the Treaty

(a) Unlimited State guarantee

(119) The unlimited State guarantee enjoyed by EDF constitutes
State aid which enables the group to borrow on more
favourable terms on the international financial markets.

It

is the
nothing to do with the issue of State aid.
French authorities that decided to confer such status on
EDF. The status derives from an act passed by the French
Parliament, which can therefore be amended at any time
by the same procedure. The Commission notes, however,
that
the principle of specialisation has not prevented
some diversification of EDF's activities.

(120) Article 87(1) of the Treaty provides that aid fulfilling the
criteria laid down therein is in principle incompatible
with the common market. The exceptions to that rule,
laid down in Article 87(2), are not applicable in the case
in point because of the nature of the aid, which is not
intended to achieve any of the objectives listed in that
paragraph.

(126) Under Article 86(2) of the Treaty, undertakings entrusted
with the operation of services of general economic
interest are subject to the rules of the Treaty, and in
particular the rules on competition, insofar as the appli-
cation of such rules does not obstruct the performance,
in law or in fact, of the particular tasks assigned to them.

(121) Neither does the aid measure in question qualify for the
exceptions allowed by Article 87(3)(a) or (c), for aid to
promote the economic development of certain regions,
particularly since it corresponds to operating aid: it is not
conditional on investments or on job creation as required
by the guidelines on national regional aid (29).

(122) Article 87(3)(c) of the Treaty also allows an exception to
be made for aid to facilitate the development of certain
economic activities, where such aid does not adversely
affect trading conditions to an extent contrary to the
common interest. The aid measure under examination
does not qualify for this exception.

(123) As regards the exceptions allowed by Article 87(3)(b) and
(d) of the Treaty, the aid measure under examination is
not intended to promote the execution of a project of
common interest, remedy a serious disturbance in the
French economy or promote culture and heritage conser-
vation.

(127) The Commission does not dispute the fact that EDF has
to fulfil public service obligations. On that account and
pursuant to Article 86 of the Treaty, EDF could receive
financial compensation or enjoy certain prerogatives
derogating from the generally applicable rules of law.
However, such financial measures or prerogatives must
be proportionate to what
to
compensate for the additional costs incurred by EDF as
a result of those public service obligations. The State
guarantee enjoyed by EDF, insofar as it covers all EDF's
is disproportionate.
activities and is unlimited in time,
The Commission consequently takes the view that
it
creates an undue distortion of competition.

is necessary in order

they have stressed the fact

(128) The French authorities have not relied on Article 86(2) of
that EDF
the Treaty, but
performs public service tasks. They have not, however,
indicated in detail EDF's specific public service obligations
or their cost. There is therefore no way of checking
whether or not the scope of the State's commitment
towards EDF corresponds
its public
service tasks. The Commission stresses in this connection
the difficulty of correctly estimating the value of a
general guarantee that
is unspecified in amount and
unlimited in time.

to the cost of

(124) The compatibility criteria set out in Article 87(2) and (3)

of the Treaty are therefore not met.

(125) The French authorities consider that,

in its assessment,
the Commission has not taken account of EDF's status
and the constraints attached thereto, such as the principle
of specialisation and the ban on arbitration clauses. These
are provisions of French administrative law that have

(129)

considers

the information at
it

the
In the light of
examine
Commission
whether
the conditions formulated by the Court of
Justice in Altmark (30) and the criteria for the application
of Article 86(2) of the Treaty are fulfilled in the case in
point.

its disposal,
to

impossible

(29) OJ C 74, 10.3.1998, p. 9 (amended by OJ C 258, 9.9.2000, p. 5).

and Others, not yet reported.

(30) Judgment of 24 July 2003 in Case C-280/00 Altmark Trans GmbH

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(130) The French authorities argue that

their argument,

the Commission's
action deprives Article 295 of the Treaty of its effec-
they cite the
tiveness.
In support of
Advocate General's Opinion
in Cases C-367/98,
C-483/99 and C-503/99 concerning golden shares.
However, in its judgments the Court of Justice did not
follow that interpretation of Article 295 of the Treaty (31).
the Community is
In accordance with Article 295,
neutral with regard
system of property
to the
ownership in the Member States. No provision of the
Treaty is an impediment to complete or partial State
ownership of enterprises. But, at
the
competition rules must apply in the same way to
private and public enterprises. The Court of Justice has
consistently held that Article 295 does not have the
effect of exempting the Member States'
systems of
property ownership from the fundamental rules of the
Treaty (32).

the same time,

(131) That case-law was upheld by the judgment delivered by
the Court of First Instance of the European Communities
on 6 March 2003 in West LB (33). According to that
judgment, Article 295 of the Treaty cannot be held to
restrict the scope of the concept of State aid within the
meaning of Article 87(1) of the Treaty. The application
of the competition rules to undertakings, irrespective of
the property systems to which they are subject, does not
have the effect of restricting the protection under Article
295 of the Treaty and of leaving the Member States
hardly any latitude in the management of public under-
takings,
in the retention of shareholdings which they
have in those undertakings, or in recourse to consi-
derations other
criteria.
Where the interests to which that
line of argument
relates might conflict with the application of the compe-
tition rules, they are taken into account by Article 86(2)
that undertakings
it provides
of
services of general
entrusted with the operation of
economic interest may escape the application of
the
competition rules if those rules obstruct the performance,
in law or in fact, of the particular tasks assigned to those
undertakings.

than purely profit-making

the Treaty since

(132)

In the present case, the fact that EDF's capital is owned
by the State is not called into question in the slightest:
the unlimited State guarantee is linked not to the system
of ownership of EDF but to its legal status. If that status
has intrinsic features that distort competition, then the
status itself must be examined in the light of the State aid
rules. The Member States are free to choose the legal
choice,
status of undertakings but must,
observe the rules of
the
the Treaty.
Commission's action is in line with the principle of
equal treatment.

in their
In this respect,

(31) Cases C-367/98 Commission v Portugal

[2002] ECR I-4731,
C-483/99 Commission v France [2002] ECR I-4781 and C-503/99
Commission v Belgium [2002] ECR I-4809.

(32) Judgment of

in Case C-483/99 Commission v France
the Court
[2002] ECR I-4781, paragraph 44.
also the Court's
judgments in Cases 182/83 Fearon [1984] ECR 3677, C-305/89
Italy v Commission [1991] ECR I-1603 and C-302/97 Konle
[1999] ECR I-3099.

See

(33) Joined Cases T-228/99 and T-233/99 Westdeutsche Landesbank Giro-
zentrale and Land Nordrhein-Westfalen v Commission, not yet reported.

itself.

It merely examines

(133) The Commission has no objection whatsoever to the
public ownership of EDF's capital or the public enterprise
status
the
exemption from administration and compulsory liqui-
the State as the
dation proceedings and the role of
guarantor of
including
those associated with activities not covered by its
public service obligations.

last resort of all EDF's debts,

the effect of

(134) The unlimited State guarantee enjoyed by EDF thus
incompatible with the
constitutes State aid that
In the decision to propose appropriate
Treaty rules.
the
measures which it adopted in October 2002,
Commission already requested the French authorities to
withdraw it.

is

(135)

(136)

the

following

the French
In their letter dated 11 November 2003,
legislative
authorities notified
draft
‘The public enterprises
provision to the Commission:
Electricité de France and Gaz de France are hereby
converted (…) into limited companies governed (…) by
the rules applicable to commercial enterprises’. They
explain that the effect of converting EDF into a limited
company will be to make it subject to the ordinary rules
applicable
administration or
compulsory liquidation. The Commission considers that
making EDF subject to the ordinary law on bankruptcy
will have the effect of withdrawing the unlimited State
guarantee which it enjoyed.

to companies

under

In a letter dated 16 December 2003,
the French
Government confirmed its intention to ‘table before
Parliament the measures for converting the legal form
of EDF, currently a public enterprise, into a legal form
governed by the ordinary rules so that those measures
can be put into effect by 1 January 2005’. On the basis
of that information, the Commission takes the view that
the unlimited State guarantee enjoyed by EDF must be
effectively withdrawn by 1 January 2005. Such a deadline
is sufficient and reasonable given the legislative and regu-
latory changes that have to be made.

(b) Reform of the pension scheme for the electricity and gas

industries

(137) The Commission notes that the current pension scheme
for the electricity and gas industries in fact constitutes a
barrier
to entry into the French electricity and gas
markets. Firstly, according to the rules of the scheme
which are currently applicable to any new entrant, enter-
prises do not pay a contribution in discharge of their
obligations but participate each year in the payment of
pensions for the entire sector in proportion to their wage
bill. The level of a new entrant's contribution therefore
does not depend on a pre-established fixed rate but is
determined each year on the basis of the amounts needed
to keep the pension scheme in balance. That balance
depends on parameters, such as the total wage bill of
the sector and its demographic structure, that are estab-
lished prior to the firm's market entry and are in no way
related to its own pension liabilities.

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the

recourse

to issuing securities. Once

(138) Secondly, since the electricity and gas industries are
highly capital-intensive, it is likely that any new market
entrant would be listed on a stock exchange or would
have
IAS
accounting standards enter into force, such enterprises
will have to set aside provisions in their accounts to
finance the pension liabilities of the sector that have
accumulated prior
are
chargeable to them in proportion to their current wage
for past pension liabilities
bill. This provisioning
constitutes an additional expense in comparison with
those incurred by enterprises subject
to the ordinary
social security rules, which finance pension schemes by
way of contributions in discharge of their obligations and
do not therefore have to set aside provisions for such
liabilities. Entering a highly capital-intensive market, with
large fixed costs, represents such a heavy investment that
any additional expense can be seen as a major barrier.

to their market

entry but

(139) Lastly, withdrawing the unlimited State guarantee enjoyed
by EDF and GDF and therefore making them subject to
the ordinary law on bankruptcy, without a concomitant
reform of the pension scheme for the electricity and gas
industries, would place all the enterprises in the sector,
including new entrants, under the obligation to take over
the pension liabilities of the two incumbents if they were
declared bankrupt. Given the amounts at stake, such a
risk cannot be borne by the other enterprises in the
sector. The transfer of such a risk to the enterprises in
the sector therefore constitutes a barrier to the entry of
competitors into the French markets.

necessary to examine its compatibility with the Treaty
rules.
to
This Decision
examining the compatibility of
the new scheme with
the Community rules on State aid.

exclusively

confined

is

the chargeable event

the network which is independent of

(142) As regards the tariff-based contribution accruing to the
National Fund for the Electricity and Gas Industries for
the purpose of
financing some of the pension rights
acquired prior to the reform by employees assigned to
electricity or gas transport and distribution, it should be
noted that
is the connection of
consumers to the electricity or gas transport and distri-
bution networks. The contribution is based, for each final
consumer, on a ‘fixed’ component of the standing charge
for use of
the
energy actually consumed. It is thus paid by the final
consumer, even if the latter does not actually consume
any energy; payment of the contribution is not therefore
linked to the amount of electricity or gas consumed. It
follows that the National Fund for the Electricity and Gas
Industries is not financed, through the contribution, by
electricity or gas imported from other Member States.
The way
collected
therefore does not reinforce the effects of the aid on
competition and trade between Member States, since it
it
is not charged on imported products. Consequently,
does not create a barrier to entry into the French elec-
tricity and gas markets.

contribution is

in which the

(143)

firstly,

schemes

to the general

(140) The current pension scheme for the electricity and gas
industries therefore creates barriers to entry into the
French electricity and gas markets. The reform notified
by the French authorities enables these entry barriers to
be removed:
it replaces the balancing contri-
butions paid by enterprises in the sector with contri-
(basic scheme and
butions
schemes)
compulsory
that discharge
supplementary
their obligations; secondly,
it reduces the amount of
the specific pension rights acquired before the reform
that exceeds the amount of the ordinary benefits and
has to be financed by all enterprises in the sector. At
the date of the reform, the specific pension rights that
still have to be financed by the enterprises will be defini-
tively apportioned among them on the basis of
two
criteria: the wage bill of the enterprises concerned and
the length of service with them of the employees covered
by the arrangements for the electricity and gas industries.
The contribution by the enterprises will thus be propor-
tionate to the duration of their presence on the electricity
should the incumbents be
and gas markets;
declared bankrupt, the enterprises in the sector would
take over the specific rights only up to a ceiling that
would take account of their own pension liabilities so
as not to threaten their viability.

lastly,

(141) Since the existing pension scheme is on the point of
being abrogated, the Commission does not consider it

For

towards

their
sure

their
employees.
to obtain payment of

It should also be noted that the specific pension rights
acquired prior to the reform constitute past liabilities
linked to the previous monopoly situation: payment by
enterprises in the electricity and gas industries of benefits
corresponding to specific pension rights did not give rise
to any difficulty as long as those enterprises operated in a
monopoly environment. They did of course incur higher
pension costs than enterprises in other sectors, but they
were shielded from any intra-industry competition.
In
addition, the accounting standards did not require them
to set aside provisions in their accounts to cover the
the specific rights for which they were
amount of
part,
liable
employees were
their
specific pension benefits insofar as those rights were
managed by the EDF-GDF pension department, which
was covered by the unlimited State guarantee. Since the
electricity and gas markets have been opened up to
competition,
a
burden affecting the competitiveness of enterprises in
the sector: the specific rights represent additional wage
costs for the enterprises which their competitors do not
have to bear; and, once the IAS accounting standards
enter
into force, enterprises will have to set aside
provisions in their accounts to cover the specific rights
acquired by their employees. At 1 January 2003, these
specific pension rights amounted to […]. Payment of the
specific pension benefits, which was not an unbearable
burden as long as the enterprises were shielded from any
today constitutes a major
intra-industry competition,
difficulty for these enterprises, now that
they are in
competition with other electricity or gas enterprises.

rights have become

specific

these

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(144) These specific pension rights of employees in the elec-
tricity and gas industries derive from Article 24 of the
National conditions of employment for workers in the
electricity and gas
industries and Annex 3 thereto,
relating to invalidity, pension and death benefits, which
date from 1946. These texts have not been amended
since 1997.

(145) As part of the notified reform, enterprises in the sector
will not pay benefits corresponding to the specific rights
acquired at the date of the reform by employees assigned
to electricity and gas transport and distribution activities.
The reform is proportionate to what is strictly necessary,
since the enterprises are relieved of the payment of only
some of the specific pension benefits acquired in the
past. While the specific rights acquired in the past by
employees in the sector amount to a total of […], the
enterprises are relieved of
the
specific pension benefits acquired before the reform by
employees assigned to electricity and gas transport and
[…] at 1
distribution, which represented a total of
January 2003. The enterprises in the sector therefore
remain responsible for an amount of […]. The reform
of the pension scheme, as notified by the French autho-
rities, does not relieve the enterprises in the sector of the
payment of all the specific pension benefits acquired in
the past, only some of them.

the payment only of

(146) Any market operating in a monopoly environment has a
particular organisation and is not immediately suited to
functioning competitively when it
is opened up. The
liberalisation of the electricity and gas sector therefore
requires it to be reorganised so that it can achieve the
competitive operation sought. The aid granted by the
French State with a view to such sectoral reorganisation
is necessary and proportionate: only the electricity and
gas
traditionally
carried on as a monopoly, will receive aid, while the
other aspects of the reform do not involve State aid.
The aid may therefore be deemed compatible with the
common market in accordance with Article 87(3)(c) of
the Treaty since it allows the development of the activity
trade to an extent
in question and does not affect
contrary to the common interest.

transport and distribution activities,

appropriate in the case in point to treat this aid in the
same way as compensation for stranded costs and will
follow the same approach in its analysis of similar cases.

(148) By eliminating barriers to entry into the French electricity
and gas markets, the reform of the pension scheme for
the electricity and gas industries allows competition to be
stepped up on those markets. This reform of a special
scheme also forms part of the general drive to reform
Member States' pension systems advocated by both the
Council and the Commission (34).

(c) Advantage resulting from the non-payment by EDF in
the accounting
corporation tax on some of
1997 of
provisions created free of tax for the renewal of the high-
voltage transmission network

(149) Article 87(1) of the Treaty provides that aid fulfilling the
criteria laid down therein is in principle incompatible
with the common market. The exceptions to that rule,
laid down in Article 87(2), are not applicable in the case
in point because of the nature of the aid, which is not
intended to achieve any of the objectives listed in that
paragraph.

(150) Neither does the aid measure in question qualify for the
exceptions allowed by Article 87(3)(a) or (c), for aid to
promote the economic development of certain regions,
particularly since it corresponds to operating aid: it is not
conditional on investments or on job creation as required
by the guidelines on national regional aid.

(151) Article 87(3)(c) of the Treaty also allows an exception to
be made for aid to facilitate the development of certain
economic activities, where such aid does not adversely
affect trading conditions to an extent contrary to the
common interest. The aid measure under examination
does not qualify for
this exception. The derogation
from the applicable tax law, granted for the benefit of
a single enterprise, cannot be regarded as being intended
to facilitate the development of an activity.
Its sole
to assist an enterprise by reducing its
purpose is
operating costs.

(147) The Commission regards the situation in the case in
point as not dissimilar in nature to that of stranded
costs in the energy field. It involves aid aimed at faci-
litating the transition to a competitive energy sector.
Although the methodology which the Commission has
adopted for examining aid of that type cannot cover this
reform of the pension scheme, the Commission deems it

(152) As regards the exceptions allowed by Article 87(3)(b) and
(d) of the Treaty, the aid measure under examination is
not intended to promote the execution of a project of
common interest, remedy a serious disturbance in the
French economy or promote culture and heritage conser-
vation.

(34) See in particular the joint Council and Commission report on

adequate and sustainable pensions, 18 March 2003.

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that made

(153) The compatibility criteria set out in Article 87(2) and (3)
of
the Treaty are therefore not met. Furthermore, as
regards compensation for public service costs, the same
observation as
in connection with the
unlimited State guarantee enjoyed by EDF is called for:
the French authorities have not cited Article 86(2) of the
Treaty in defence of the tax concession, but they have
stressed the fact that EDF performs public service tasks.
They have not, however, provided any assessment of the
cost incurred by EDF in carrying out those tasks. The
Commission cannot therefore determine whether or not
the tax concession in question compensates for any addi-
tional cost linked to the public service tasks entrusted to
it (35).

(154)

the

light of

foregoing considerations,

the
In the
Commission accordingly takes the view that
the aid
under examination constitutes operating aid which has
competitive
had the
position in relation to its competitors.
It is therefore
incompatible with the common market.

strengthening EDF's

effect of

(155) Lastly, the Commission considers that, contrary to what
is claimed by the French authorities,
the rule on
limitation periods does not apply in the case in point.
Although EDF created the accounting provisions free of
tax between 1987 and 1996, it should be pointed out,
on the one hand, that corrections to accounting errors,
which by their very nature relate to the posting of past
the National
according
transactions,
Accountancy Council be posted in the accounts for the
financial year in which they are discovered and, on the
other hand, that the Act providing that the grantor rights
were to be reclassified as capital injections without being
to corporation tax dates from 10 November
subject
1997. The tax concession therefore dates from 1997
and any new aid paid on that date is therefore not
time-barred.

should

to

VI. CONCLUSIONS

stressed that, despite

information issued in October 2002,

(156) This Decision has been drawn up on the basis of the
It
information provided by the French authorities.
injunction to
should be
the
provide
to supply
French authorities persisted in their refusal
the Commission with full copies of
the
documents requested. In particular, they communicated
only extracts from the French Court of Auditors' reports
covered by the injunction.

some of

the

(158) The Commission takes note of the French authorities'
undertaking to ensure that the affiliation of the pension
scheme for
the electricity and gas industries to the
ordinary schemes is in all respects financially neutral
the State. The
for
Commission finds that such affiliation will not involve
any State aid provided that this undertaking is fulfilled.

the transferee schemes and for

(159) The Commission notes,

the

that

secondly,

specific
pension rights acquired at the date of the reform by
employees assigned to electricity and gas transport and
distribution will no longer be financed by the enterprises
in the sector but by a tariff-based contribution. The non-
payment by enterprises in the sector of benefits corre-
sponding to some of the specific rights acquired in the
past constitutes State aid that is compatible with the
the
common market pursuant
Treaty.

to Article 87(3)(c) of

(160) The Commission finds, lastly, that the non-payment by
EDF,
the
in 1997, of corporation tax on some of
provisions created free of tax for the renewal of the
RAG constitutes State aid that is incompatible with the
common market. Such tax aid amounts to EUR 888,89
million,

HAS ADOPTED THIS DECISION:

Article 1

The unlimited guarantee granted by France to Electricité de
France (EDF) constitutes State aid that is incompatible with
the common market and must be withdrawn by 1 January
2005.

Article 2

The affiliation of the French pension scheme for the electricity
and gas industries to the ordinary pension schemes does not
constitute State aid within the meaning of Article 87(1) of the
Treaty insofar as such affiliation is financially neutral for the
enterprises, the transferee schemes and the State.

(157) The Commission finds, firstly, that the unlimited State
guarantee enjoyed by EDF must be withdrawn so that
the enterprise is subject to the ordinary law on collective
proceedings.

(35) It is consequently not possible in the case in point to examine
whether the conditions set out in the judgment in Altmark, for
escaping the application of Article 87(1) of the Treaty, and the
criteria for qualifying for the exception allowed by Article 86(2)
of the Treaty are fulfilled.

The non-payment by enterprises in the electricity and gas
industries of benefits corresponding to the specific rights
acquired at the date of the reform by employees assigned to
electricity and gas transport and distribution and the financing
of those rights by a tariff-based contribution constitute State aid
that is compatible with the common market pursuant to Article
87(3)(c) of the Treaty.

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Official Journal of the European Union

22.2.2005

The guarantee granted by France to the National Fund for the
those acquired
Electricity and Gas Industries in respect of
specific
aid within the
meaning of Article 87(1) of the Treaty.

rights does not

constitute State

Article 3

The non-payment by EDF, in 1997, of corporation tax on some
of the provisions created free of tax for the renewal of the RAG,
corresponding to FRF 14,119 billion in grantor rights reclas-
sified as capital injections, constitutes State aid that is incom-
patible with the common market.

shall be calculated on the basis of the reference rate used for
calculating the grant-equivalent of regional aid, applied on a
compound basis in accordance with the Commission commu-
nication on the interest rates to be applied when aid granted
unlawfully is being recovered (36).

Article 5

inform the Commission, within two months of
France shall
notification of this Decision, of the measures taken to comply
with it.

The aid involved in the non-payment of corporation tax
amounts to EUR 888,89 million.

Such information shall be communicated to the Commission
with the aid of the form set out in the Annex.

Article 4

France shall take all necessary measures to recover from EDF the
aid referred to in Article 3 and unlawfully made available to it.

Recovery shall be effected without delay and in accordance with
the procedures of national
law provided that they allow the
immediate and effective execution of the decision. The aid to
be recovered shall include interest from the date on which it
was at the disposal of EDF until the date of its recovery. Interest

Article 6

This Decision is addressed to the French Republic.

Done at Brussels, 16 December 2003.

For the Commission

Mario MONTI
Member of the Commission

(36) OJ C 110, 8.5.2003, p. 21.

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Official Journal of the European Union

L 49/29

ANNEX

INFORMATION SHEET

on implementation of Commission Decision 2005/145/EC concerning EDF

Article 1 of the Decision
Please give the date when EDF’s status changed and attach a copy of the documents substantiating the change of status.

Article 3 of the Decision

1. How will the interest on the amount of aid to be recovered be calculated (1)?

2. What measures are to be taken to secure immediate and effective recovery of the aid in accordance with Article 14 of

Regulation (EC) No 659/1999?

3. What measures have already been taken to secure immediate and effective recovery of the aid in accordance with

Article 14 of Regulation (EC) No 659/1999?

4. What deadline has been set for obtaining full reimbursement of the aid?

5. Any other comments.

(1) In accordance with the Commission communication on the interest rates to be applied when aid granted unlawfully is being recovered
(OJ C 110, 8.5.2003, p. 21), the reference rate is to be applied on a compound basis. The calculation of compound interest,
compounding on a yearly basis, uses the formula: Interest = [Capital (1 + Interest rate) Number of years] — Capital.