Opinion of the Committee of the Regions on the Draft Commission decision on the application of Article 86 of the Treaty to state aid in the form of public service compensation, the draft directive amending Commission Directive 80/723/EEC on the transparency of financial relations between Member States and public undertakings and the draft Community framework for state aid in the form of public service compensation
Date: 2004-09-29
Institutions: European Committee of the Regions
Subjects: State aid, drafting of EU law, interpretation of the law, judgment of the Court (EU), legal basis, public service, service concession, services of general interest

18.2.2005

EN

Official Journal of the European Union

C 43/13

2.5
asks the Commission to make implementation of
regional and local policies a priority in the 2005 budget, and
to make the case for inclusion of
the Municipalities and
Regions at institutional level;

highlights, in this respect, the important role played by
2.6
the European Forum for Urban Safety (EFUS)
in promoting
European-level awareness of crime prevention and urban safety,
with particular reference to public policy appraisal and dissemi-
nation of good practice;

2.7 would make the case for establishing a European
Observatory for urban safety as a lightweight structure in order

for

to equip the European Union and the Member States with a
common instrument
the collection, organisation and
processing of data relating to the victims of crime and percep-
insecurity; promoting and coordinating research;
tions of
designing security policies for other areas of EU competence,
and for building regional and local partnerships;

2.8
and lastly, calls on the Commission, when framing
prevention policies, always to bear in mind that these should
not translate in practice into a violation of fundamental rights
while meeting the security objective for citizens.

Brussels, 29 September 2004.

The President

of the Committee of the Regions

Peter STRAUB

Opinion of the Committee of the Regions on the Draft Commission decision on the application of
Article 86 of the Treaty to state aid in the form of public service compensation, the draft directive
amending Commission Directive 80/723/EEC on the transparency of financial relations between
Member States and public undertakings and the draft Community framework for state aid in the
form of public service compensation

THE COMMITTEE OF THE REGIONS

(2005/C 43/05)

Having regard to the draft Commission decision on the application of Article 86 of the Treaty to state aid
in the form of public service compensation,
the draft directive amending Commission Directive
80/723/EEC on the transparency of financial relations between Member States and public undertakings and
the Community framework for state aid in the form of public service compensation,

Having regard to the letter sent by Mario Monti, member of the European Commission responsible for
competition policy, on 19 March 2004 requesting the opinion of the Committee under the first paragraph
of Article 265 of the EC Treaty,

Having regard to the decision of its president of 26 May 2004 to instruct the Commission for Economic
and Social Policy to draw up an opinion on the subject,

Having regard to Article 16 of the EC Treaty concerning services of general economic interest as well as
Articles 2, 5, 73, 81, 86, 87, 88 and 295 of the Treaty,

Having regard to Article 36 of the European Charter of Fundamental Rights concerning access to services
of general economic interest,

Having regard to Article III-6 of the draft European Constitution,

Having regard to the White Paper on services of general interest (COM (2004) 374 final),

C 43/14

EN

Official Journal of the European Union

18.2.2005

Having regard to the judgment of the Court of Justice of the European Communities (hereinafter referred
to as the CJEC) of 24 July 2003 in case C-280/00 (Altmark Trans),

Having regard to its opinion of 20 November 2003 on the Green Paper on services of general interest
(COM (2003) 270 final, CdR 149/2003 fin) (1),

Having regard to its opinion on the Communication from the Commission on services of general interest
in Europe (COM (2000) 580 final – CdR 470/2000 fin) (2),

Having regard to the draft opinion (CdR 155/2004 rev. 1) adopted on 6 July 2004 by the Commission
for Economic and Social Policy (rapporteur: Mr Claudio Martini, President of the Region of Tuscany (IT-
PES)),

Whereas, according to the Altmark Trans judgement, compensation awarded for the provision of services
of general interest does not constitute state aid and is therefore subject neither to the prior notification
obligation nor to the approval of the Commission, provided four conditions are met:

— the recipient undertaking must actually be required to discharge clearly defined public service obliga-

tions;

— the parameters on the basis of which the compensation is calculated must have been established before-

hand in an objective and transparent manner;

— the compensation must not exceed what is necessary to cover the costs incurred in discharging the
public service obligations less the relevant receipts (it may nonetheless include a reasonable profit);

— fourth, where the undertaking which is to discharge public service obligations, in a specific case, is not
chosen pursuant to a public procurement procedure which would allow for the selection of the
tenderer capable of providing those services at the least cost to the community, the level of compensa-
tion needed must be determined on the basis of an analysis of the costs which a typical undertaking,
well run and adequately provided with means of transport so as to be able to meet the necessary public
service requirements, would have incurred in discharging those obligations, taking into account the
relevant receipts and a reasonable profit for discharging the obligations;

Whereas the CJEC stated, inter alia, that, notwithstanding the further criteria listed in the Altmark Trans
judgement, compensation does in any case not represent a notifiable type of state aid if the recipient is
selected as part of an open and transparent public procurement procedure. In all other cases, the recipient
is required to demonstrate that such compensation does not constitute state aid by proving that it received
no more than the additional net costs less all receipts as would be incurred for the provision of the service
at a reasonable price by any well-run undertaking with adequate personnel,

Whereas according to the Altmark Trans judgement, all other types of compensation fall into the category
of state aid and are therefore subject to the rule governing prior notification,

adopted the following opinion unanimously at its 56th plenary session of 29 and 30 September
2004 (meeting of 29 September):

1. General comments of the Committee of the Regions

define their public service contracts better and this in turn will
lead to greater transparency and democratic accountability in
the management of services of general economic interest;

On the Altmark Trans judgment

THE COMMITTEE OF THE REGIONS

feels

that, given that

1.1
the Community legislative
authority was unable to establish rules capable of providing
adequate legal certainty with respect
to services of general
economic interest, the involvement of the Court of Justice was
an absolute necessity and had considerable impact;

i.e.

1.2 welcomes the first two criteria outlined in the Altmark
Trans judgment,
the need to clearly define the public
service obligation with which the recipient undertaking is
entrusted and to establish the parameters on the basis of which
the compensation is calculated beforehand in an objective and
transparent manner. These criteria require local authorities to

(1) OJ C 73, 23.3.2004, p. 7
(2) OJ C 19, 22.1.2002, p. 8

1.3
notes that public undertakings which deliver services of
general economic interest may be unsure of how to understand
the fourth Altmark Trans criterion which stipulates that:‘where
the undertaking which is to discharge public service obligations is not
chosen in a public procurement procedure, the level of compensation
needed has been determined on the basis of an analysis of the costs
which a typical undertaking, well run and adequately equipped so as
to be able to meet the necessary public service requirements, would
have incurred in discharging those obligations, taking into account
the relevant receipts and a reasonable profit for discharging the obli-
gations’;

18.2.2005

EN

Official Journal of the European Union

C 43/15

1.4
is unclear as to the economic definition of an under-
taking that is ‘well run and adequately (equipped) (…) so as to be
able to meet the necessary public service requirements’, in particular
given that in its judgment of 3 July 2003 on joined cases C-83/
01, C-93/01 and C-94/01 (Chronopost SA), the CJEC indicated
that undertakings entrusted with the management of a service
of general economic interest can be ‘in a situation which is very
different from that of a private undertaking acting under normal
market conditions’ (point 33);

1.5
therefore feels that a set of Community rules should be
drafted in order to enforce the Altmark Trans judgment, and in
particular its third and fourth criteria, and define those under-
takings entrusted with the provision of a service of general
interest that must comply with the requirements of that judg-
ment, and welcomes the rapid action undertaken by the
Commission to propose such rules;

is concerned that the CJEC's broad interpretation of the
1.6
concept of potential allocation of
intra-Community trade
means that even those undertakings entrusted with discharging
a public service at a strictly delimited local level may be subject
to the provisions of Article 87(1);

1.7
believes that the administrative burden placed onto the
shoulders of local authorities will be lightened in the medium
term, once compensation in respect of public service obliga-
tions complying with the Altmark Trans criteria, and for which
notification is not necessary, has been defined, but that this
unfortunately will not guarantee full
legal certainty. Rather,
provision must be made for the reimbursement of state aid
initially thought by a government authority genuinely to fulfil
the Altmark Trans criteria and therefore to be exempt from
notification, but later shown in court proceedings brought by a
competitor undertaking to be illegal.

point of implementation so that the opening – if desired – of
service provision to private service providers can be effected
smoothly and effectively;

1.10
notes that the CoR is bound to follow through its
commitment to ensuring that greater account is taken of issues
of public interest in relation to the organisation of services of
general
interest (hereinafter referred to as SGI), their specific
nature and the responsibility of local authorities in this area.
SGI are an integral part of the European social model and a
balance must be established between the rights of each
authority to directly oversee its own services and the require-
ments of CJEC case law, particularly insofar as they relate to
transparency and tendering procedures;

1.11 welcomes the decision by the Commission to run,
together with the Committee of the Regions, a series of consul-
tations on the draft decision to exempt small-scale public
funding and the draft directive amending Commission Directive
80/723/CEE on the transparency of financial relations between
Member States and public undertakings;

1.12
stresses that this is the first time that the Commission
has consulted the CoR on an area governed by Articles 81 to
93 of the EC Treaty on rules on competition;

1.13
feels that this consultation procedure implements for
the first time the principles put forward by the Commission in
the documents on the follow-up to the White Paper on Euro-
pean governance (1) and that it meets the need for greater
involvement of regional and local authorities in the EU deci-
sion-making system, and in particular
in those processes
carried out PRIOR TO a decision;

On the Commission methodology

THE COMMITTEE OF THE REGIONS

1.8
points out that the Green Paper comprises a series of
contributions, assessed in SEC(2004) 326 of 29 March 2004,
which stress the urgent need to enhance both the certainty and
services of general
stability of
economic interest (hereinafter referred to as SGEI);

framework for

the legal

believes

initiated should be
the dialogue
1.14
continued as part of the debate on the Commission framework
for large-scale funding of public services;

that

to coincide.

1.15
questions the logic of allowing the debate launched in
February 2004 on the Commission proposals based directly on
the Altmark Trans judgment and that dealing with the White
Paper on Services of General Interest (2), published on 12 May
the White Paper outlines the
2004,
Commission's intention to adopt a series of measures aiming to
clarify and simplify the legal framework for the financing of
public service obligations by July 2005, whilst the majority of
these elements have already been submitted for consultation as
drafts.

Indeed,

1.9
feels that, in future preparatory work, the Commission
needs to better assess the interactions between competition,
public procurement and state aid legislation from the stand-

(1) Cf. opinion of the CoR of 2 July 2003 on the Follow-up to the
White Paper on European governance (rapporteur Michel Dele-
barre (PES/FR): COM(2001) 428 final, COM(2002) 704 final,
COM(2002) 705 final, COM(2002) 709 final, COM(2002) 713
final, COM(2002) 718 final, COM(2002) 719 final, COM(2002)
725 final2

(2) COM(2004) 374 final

C 43/16

EN

Official Journal of the European Union

18.2.2005

On the work of the intergovernmental conference

THE COMMITTEE OF THE REGIONS

1.16 welcomes Article III-6 (1) of the draft Constitutional
Treaty, which stipulates that:
‘European laws shall define these
principles and conditions (relating to the place and role of services of
general economic interest) without prejudice to the competence of
Member States, in accordance with the Constitution, to provide, to
commission and to fund such services’ (2). Given that article III-6 is
a clause of general application, not curtailed by the rules on
the single market and competition, and can therefore serve as
an autonomous legal base, the Committee of the Regions also
welcomes the scope which the Treaty provides for the adoption
of common legal instruments for services of general interest.

2. Comments on the draft Commission decision on the
application of the provisions of Article 86 of the Treaty
to state aid in the form of public service compensation

THE COMMITTEE OF THE REGIONS

2.1
notes that the purpose of the proposal for a decision is
to strike a balance between competition rules and the perfor-
tasks. The proposal defines compensation
mance of SGEI
which does not comply with the Altmark Trans criteria but
which can nevertheless be exempted from competition rules
(Articles 87 and 88 TEC), provided that the state aid fulfils
public service obligations and does not distort competition;

2.2
notes that, as the purpose of the decision is to define
state aids exempted from the provisions of Article 88 TEC, the
choice of Article 86(3) as the legal base and of a decision as
the vehicle is appropriate. The undertakings concerned receive
state aid, but, as suppliers of SGEI not likely to have an impact
on trade, they do not have to comply with competition rules;

endorses the exemption from notification of the finan-
2.3
cing of hospital and social housing services, for the following
reasons:

— the high unit cost of services, given the nature of the invest-
ment in infrastructure and property, and the fact that the
aid is intended for income redistribution and solidarity
purposes, with no impact on competition;

— the Commission's lack of administrative capacity to deal
local notifications which it would

with the number of
receive in the absence of any exemption.

2.4
considers, however, that exclusion from the scope of
application of the competition rules and consequent exemption
should be extended to
from the notification requirement

services of general interest relating to essential public authority
in particular social housing and public hospitals,
functions,
interest, where
education and services of general social
integration
these services perform social security and social
functions and their general
function cannot be
performed by the market. Commission supervision should be
restricted to cases of clear abuse of discretionary powers in
defining the services;

interest

2.5
calls on the Commission to supplement its proposals
submitted for consultation by defining, inter alia on the basis
of the case law of the Court of
Justice, not only services
deemed not
to be of an economic nature and therefore
excluded from the notification requirement, but also activities
which, despite being partly economic, could be acknowledged
to have characteristics associated with services of general
interest, and could therefore qualify for special status under
Article 86(2) of the TEC. The Communication announced by
the Commission for Summer 2005 on social services and
health could serve as an opportunity for general discussion on
how such characteristics can also be inherent in economic
activities;

economic

importance. Organisations

proposes that the threshold values be set in such a way
2.6
that, when examining individual cases, the European Commis-
sion can, in future, concentrate on untypical groups of cases of
unusual
traditionally
providing services of general interest in the Member States and
the costs typically incurred in carrying out these tasks should
therefore fall within the threshold values. The scope of the deci-
sion could in principle be extended to businesses with an
annual turnover before tax, all activities included, of less than
€50 million and receiving an annual amount of compensation
for services provided of less than € 15 million; the Transpar-
ency Directive should therefore be amended accordingly.

2.7
questions the exemption proposed in Article 1(iv) for
compensation for maritime transport to islands covered by
sectoral rules, provided that annual traffic does not exceed
100,000 passengers:

— Given the specific features of maritime transport within the
Member States (maritime cabotage), would it not be more
appropriate to adopt a separate legal act on the basis of
Article 73 of the Treaty?

(1) Due to renumbering of the draft constitutional treaty as proposed
by the Intergovernmental Conference in document CIG 87/1/04, 13
October 2004, Article III-6 has become Article III-122.

(2) See Presidency document 76/04 of 13 May 2004.

— If the principle of the exemption proposed in Article 1(iv)
is accepted, will the annual volume of traffic be calculated
by reference to a) the link or b) the volume transported by
the public service undertaking?'

18.2.2005

EN

Official Journal of the European Union

C 43/17

2.8
considers that, where compensation satisfies the condi-
tions set out in Article 5 of the proposal for a decision, there is
no clear need for prior notification;

2.9
notes that the definition of compensation in Article 5 is
liable to misinterpretation, as the term refers exclusively to
transfers between the public authority and the SGEI enterprise,
intended to cover structural or cyclical operating deficits. Land
costs and amortisation of operating tariffs should, however,
also be covered;

2.10
considers that the separate accounting requirement of
Article 6 is likely to give rise to additional costs for small and
medium-sized enterprises which are covered by the exemption
provided for in this decision. The obligation should therefore
be dropped;

2.11
notes that Article 7 requires that the Commission be
provided with information on the definition of compensation.
This appears unnecessarily demanding,
in view of the time-
scales involved. Moreover, requiring public authorities to lay
down rules defining compensation, or to set up compensation
databases seems excessively bureaucratic.

3. Comments

on

the

draft Commission Directive
amending Directive 80/723/EEC of 25 June 1980 on the
transparency of financial relations between Member
States and public undertakings

THE COMMITTEE OF THE REGIONS

3.1
considers that the Altmark Trans judgment has effects
on the transparency obligations which render the directive
currently in force partially ineffective, as it is no longer possible
to establish whether compensation is effectively used to fulfil
public service obligations and not also to cover the costs of
commercial activities. The case law of the Court of Justice
allowing compensation to be deemed not to constitute state aid
vitiates the provisions of the directive requiring the assessment
of transparency in relation to all SGEI undertakings receiving
compensation not classified as aid. Hence the need to reform
the directive and replace the concept of state aid with that of
public service obligation compensation;

Brussels, 29 September 2004

3.2
disapproves of the Commission's proposal to abrogate
Article 4(2)(c), as this would extend the scope of the separate
accounting obligation, even to undertakings receiving compen-
sation meeting the Altmark Trans criteria or covered by exemp-
tions proposed by the Commission.

4. Draft Community framework for state aid in the form

of public service compensation

THE COMMITTEE OF THE REGIONS

4.1
notes that point 5 of the draft framework stipulates that
it should apply ‘without prejudice to the Community provisions
in force in the field of public procurement’. There is also a
similar reference in Recital 22 of the draft decision.

With regard to assigning a public service obligation to a
company, these references should be taken to mean that when-
ever a company is chosen under a transparent and non-discri-
minatory public procurement procedure,
it is presumed that
over-compensation has not taken place and that state aid is
therefore legal.

However, the use of a public procurement procedure to impose
a public service obligation on a company is optional, and is
not a requirement for fulfilling the conditions for the legality of
state aid.

4.2
questions the proposal that the parameters for calcula-
tion (point 10, 5th paragraph) could ‘include the specific costs
actually borne by the undertakings in the regions referred to in
Article 87(3)(a) and (c) of the EC Treaty’.

Such a proposal could easily create unnecessary confusion,
given that the objective of the draft framework should always
be to reflect ‘specific costs actually borne’ by a company in
fulfilling a public service obligation, irrespective of location.

In addition, the proposed wording could be taken to mean that
compensation for public service obligations is comparable to
regional state aids.

The President

of the Committee of the Regions

Peter STRAUB