2005/842/EC: Commission Decision of  28 November 2005  on the application of Article 86(2) of the EC Treaty to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest  (notified under document number C(2005) 2673)
Date: 2005-11-28
Institutions: European Commission
Subjects: State aid, control of State aid, provision of services, public service, services of general interest

29.11.2005

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Official Journal of the European Union

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COMMISSION DECISION

of 28 November 2005

on the application of Article 86(2) of the EC Treaty to State aid in the form of public service
compensation granted to certain undertakings entrusted with the operation of services of general
economic interest

(notified under document number C(2005) 2673)

(2005/842/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
Community, and in particular Article 86(3) thereof,

establishing the European

confers responsibility for the execution of a certain task
to an undertaking. Secondly, the entrustment must relate
to a service of general economic interest. Thirdly, the
exception has to be necessary for the performance of
the tasks assigned and proportional to that end (here-
inafter
the devel-
trade must not be affected to such an
opment of
the
extent as would be contrary to the interests of
Community.

the necessity requirement). Finally,

Whereas:

(4)

Article 16 of the Treaty requires the Community, without
prejudice to Articles 73, 86 and 87, to use its powers in
such a way as to make sure that services of general
economic interest operate on the basis of principles
and conditions which enable
their
missions.

them to fulfil

For certain services of general economic interest
to
operate on the basis of principles and under conditions
that enable them to fulfil their missions, financial support
from the State intended to cover some or all of the
specific costs resulting from the public service obligations
may prove necessary. In accordance with Article 295 of
the Treaty, as interpreted by the case-law of the Court of
Justice and Court of First
the European
from the viewpoint of
Communities,
Community law whether
such services of general
economic interest are operated by public or private
undertakings.

is irrelevant

Instance of

it

(1)

(2)

(3)

the

In its judgment in the case of Altmark Trans GmbH and
Regierungspräsidium Magdeburg
v Nahverkehrsgesellschaft
Altmark GmbH (1)
(Altmark), the Court of Justice held
that public service compensation does not constitute
State aid within the meaning of Article 87 of
the
Treaty provided that four cumulative criteria are met.
First,
recipient undertaking must actually have
public service obligations to discharge, and the obli-
gations must be clearly defined. Second, the parameters
on the basis of which the compensation is calculated
must be established in advance in an objective and trans-
parent manner. Third, the compensation cannot exceed
the costs
what
incurred in the discharge of
the public service obli-
gations, taking into account the relevant receipts and a
reasonable profit. Finally, where the undertaking which is
to discharge public service obligations, in a specific case,
to a public procurement
is not
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 compensation needed
must be determined on the basis of an analysis of the
costs which a
run and
adequately provided with means of
transport, would
have incurred.

is necessary to cover all or part of

typical undertaking, well

chosen pursuant

Article 86(2) of the Treaty states in this respect that
undertakings entrusted with the operation of services of
general economic interest or having the character of a
to the rules
revenue-producing monopoly are subject
in particular to the rules on
contained in the Treaty,
competition. However, Article
an
exception from the rules contained in the Treaty,
provided that a number of criteria are met. Firstly,
there must be an act of entrustment, whereby the State

allows

86(2)

(5) Where those four criteria are met, public service compen-
sation does not constitute State aid, and Articles 87 and
88 of the Treaty do not apply. If the Member States do
not respect those criteria and if the general criteria for
the applicability of Article 87(1) of the Treaty are met,
public service compensation constitutes State aid that is
subject to Articles 73, 86, 87 and 88 of the Treaty. This
Decision should therefore only apply to public service
compensation in so far as it constitutes State aid.

(1) [2003] ECR I-7747.

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(6)

(7)

(8)

(9)

Article 86(3) of the Treaty allows the Commission to
specify the meaning and extent of the exception under
Article 86(2) of the Treaty, and to set out rules intended
to enable effective monitoring of the fulfilment of the
criteria set out in Article 86(2), where necessary. The
conditions under which certain systems of compensation
are compatible with Article 86(2) and are not subject to
the prior notification requirement of Article 88(3) of the
Treaty should therefore be specified.

(10) When defining public service obligations and in assessing
whether those obligations are met by the undertakings
concerned,
the Member States are invited to consult
widely, with particular emphasis on users.

Such aid may be declared compatible only if it is granted
in order to ensure the provision of services that are
services of general economic interest as referred to in
Article 86(2) of the Treaty. It is clear from the case-law
that, with the exception of the sectors in which there are
Community rules governing the matter, Member States
have a wide margin of discretion in the definition of
services that could be classified as being services of
general economic interest. Thus, with the exception of
are Community rules
the
governing the matter,
to
ensure that there is no manifest error as regards the
definition of services of general economic interest.

the Commission’s

in which there

task is

sectors

In order for Article 86(2) of the Treaty to apply, the
undertaking beneficiary of the aid must have been speci-
fically entrusted by the Member State with the operation
of a particular service of general economic interest.
According to the case-law on the interpretation of
Article 86(2) of
such act or acts of
entrustment must specify, at least, the precise nature,
the public service obligations
scope and duration of
imposed and the identity of the undertakings concerned.

the Treaty,

it

general

interest.

the entrustment of

the Treaty are met,

In order to ensure that the criteria set out in Article
is necessary to lay
86(2) of
down more precise conditions which must be fulfilled
the operation of
in respect of
services of
Indeed the
economic
amount of compensation can be properly calculated
the public service obligations
and checked only if
incumbent on the undertakings and any obligations
incumbent on the State are clearly set out in a formal
act of
the competent public authorities within the
Member State concerned. The form of the instrument
may vary from one Member State to another but
it
should specify, at least, the precise nature, scope and
duration of the public service obligations imposed and
the identity of undertakings concerned, and the costs to
be borne by the undertaking concerned.

(11) Moreover,

the

in order to avoid unjustified distortions of
competition, Article 86(2) of the Treaty requires that
is necessary to
compensation does not exceed what
in
cover
discharging the public
account
being taken of the relevant receipts and a reasonable
profit. This should be understood as referring to the
actual costs incurred by the undertaking concerned.

service obligations,

the undertaking

incurred by

costs

(12)

(13)

Compensation in excess of what is necessary to cover the
costs incurred by the undertaking concerned is not
the service of general
necessary for the operation of
economic interest, and consequently constitutes incom-
patible State aid that should be repaid to the State.
Compensation granted for the operation of a service of
general economic interest but actually used by the under-
taking concerned to operate on another market is also
not necessary for the operation of the service of general
economic interest, and consequently also constitutes
incompatible State aid that should be repaid.

to ensure

In order
compliance with the necessity
requirement set out in Article 86(2) of the Treaty it is
necessary to lay down provisions relating to the calcu-
lation and monitoring of the amount of compensation
granted. Member States should check regularly that the
compensation granted does not
lead to overcompen-
sation. Nevertheless,
in order to allow a minimum of
flexibility for undertakings and Member States, where
the amount of overcompensation does not exceed 10 %
it should be
of the amount of annual compensation,
possible
carried
forward to the next period and be deducted from the
amount of compensation which would otherwise have
been payable. The revenue of undertakings entrusted
with the operation of services of general economic
interest in the field of social housing may vary drama-
insolvency of
tically,
leaseholders. Consequently, where such undertakings
only operate services of general economic interest,
it
should be possible for any overcompensation during
one period to be carried forward to the next period,
up to 20 % of the annual compensation.

in particular due to the risk of

such overcompensation to be

for

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(14)

(15)

To the extent that compensation is granted to under-
takings entrusted with the operation of
services of
general economic interest, the amount of the compen-
sation does not go beyond the costs of the services, and
the thresholds laid down in this Decision are respected,
the Commission considers that the development of trade
is not affected to such an extent as would be contrary to
the interests of the Community. In such circumstances,
the Commission considers that the compensation should
be deemed to constitute State aid compatible with Article
86(2) of the Treaty.

Small amounts of compensation granted to undertakings
providing services of general economic interest whose
turnover is limited do not affect the development of
trade and competition to such an extent as would be
contrary to the interests of the Community. When the
conditions set out in this Decision are fulfilled, prior
notification should therefore not be required. For the
purpose of defining the scope of the exemption from
receiving
notification,
public service compensation and the level of
such
compensation should be taken into consideration.

turnover of undertakings

the

(16) Hospitals and undertakings in charge of social housing
which are entrusted with tasks involving services of
general economic interest have specific characteristics
that need to be taken into consideration. In particular,
account should be taken of the fact that at the current
stage of development of the internal market, the intensity
of distortion of competition in those sectors is not neces-
sarily proportionate to the level of turnover and compen-
sation. Accordingly, hospitals providing medical care,
including, where applicable, emergency services and
ancillary services directly related to the main activities,
notably in the field of research, and undertakings in
charge of social housing providing housing for disad-
vantaged citizens or socially less advantaged groups,
which due to solvability constraints are unable to
obtain housing at market conditions, should benefit
from the exemption from notification provided for in
this Decision, even if the amount of compensation they
receive exceeds the thresholds laid down in this Decision,
if
the services performed are qualified as services of
general economic interest by the Member States.

concept of a public service in transport by rail, road and
inland waterway (1), which lays down general conditions
for public service obligations in the land transport sector
and imposes methods
for calculating compensation.
Regulation (EEC) No 1191/69 exempts all compensation
in the land transport sector that fulfils the conditions of
notification under Article 88(3) of the Treaty.
It also
allows Member States to derogate from its provisions
in the case of undertakings providing exclusively urban,
suburban or regional transport. Where that derogation is
applied, any compensation for public service obligations
is,
in so far as it constitutes State aid, governed by
Council Regulation (EEC) No 1107/70 of 4 June 1970
on the granting of aids for transport by rail, road and
inland waterway (2). According to the judgment
in
Altmark, compensation which does not
the
respect
provisions of Article 73 cannot be declared compatible
with the Treaty on the basis of Article 86(2), or on the
basis of any other Treaty provision. Consequently, such
compensation should not be covered by this Decision.

to Article 86(2) of

(18) Unlike land transport, the maritime and air transport
sectors are subject
the Treaty.
Certain rules applicable to public service compensation
in the air and maritime transport sectors are to be found
in Council Regulation (EEC) No 2408/92 of 23 July
1992 on access for Community air carriers to intra-
Community air routes (3) and Council Regulation (EEC)
No 3577/92 of 7 December 1992 applying the principle
of
freedom to provide services to maritime transport
within Member States (maritime cabotage) (4). However,
contrary to Regulation (EEC) No 1191/69, these Regu-
lations do not refer to the compatibility of the possible
State aid elements nor contain an exemption from the
obligation to notify under Article 88(2) of the Treaty. It
is therefore appropriate to apply this Decision to public
service compensation in the air and maritime transport
in addition to fulfilling the
sectors provided that,
conditions set out in this Decision, such compensation
also respects the sectoral rules contained in Regulation
(EEC) No 2408/92 and Regulation (EEC) No 3577/92
when applicable.

(19)

The thresholds applicable to public service compensation
in the air and maritime transport sectors should normally
be the same as those applicable in general. However, in
the specific cases of public service compensation for air
or maritime links to islands and for airports and ports
which constitute services of general economic interest as

(17) Article 73 of the Treaty constitutes a lex specialis with
regard to Article 86(2). It lays down the rules applicable
to public service compensation in the land transport
sector. That Article has been developed by Council Regu-
lation (EEC) No 1191/69 of 26 June 1969 on action by
Member States concerning the obligations inherent in the

(1) OJ L 156, 28.6.1969, p. 1. Regulation as last amended by Regu-

lation (EEC) No 1893/91 (OJ L 169, 29.6.1991, p. 1).

(2) OJ L 130, 15.6.1970, p. 1. Regulation as last amended by Regu-

lation (EC) No 543/97 (OJ L 84, 26.3.1997, p. 6).

(3) OJ L 240, 24.8.1992, p. 8. Regulation as last amended by 2003 Act

of Accession.

(4) OJ L 364, 12.12.1992, p. 7.

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is more
referred to in Article 86(2) of
appropriate to also provide alternative thresholds based
on average annual number of passengers as this more
accurately reflects the economic reality of these activities.

the Treaty it

HAS ADOPTED THIS DECISION:

(20)

(21)

(22)

(23)

This Decision is to a large extent a specification of the
meaning and extent of the exception under Article 86(2)
of the Treaty as it has been consistently applied in the
past by the Court of
Justice and the Court of First
Instance and by the Commission. To the extent that it
does not modify the material law applicable in this area
it should apply immediately. However, certain provisions
of this Decision go beyond the status quo by setting out
additional requirements aimed at enabling effective moni-
toring of the criteria set out in Article 86(2). In order to
allow Member States to take the necessary measures in
this respect, it is appropriate to foresee a period of one
year prior to the application of those specific provisions.

Exemption from the requirement of prior notification for
certain services of general economic interest does not
rule out the possibility for Member States to notify a
specific aid project. Such notification will be assessed in
accordance with the principles of
the Community
framework for State aid in the form of public service
compensation (1).

This Decision applies without prejudice to the provisions
of Commission Directive 80/723/EEC of 25 June 1980
relations between
on the
Member States and public undertakings as well as on
financial transparency within certain undertakings (2).

transparency of

financial

applies without

This Decision
the
Community provisions in force in the fields of public
procurement and of competition,
in particular Articles
81 and 82 of the Treaty.

prejudice

to

(24)

This Decision applies without prejudice to stricter specific
provisions relating to public service obligations that are
contained in sectoral Community legislation,

(1) OJ C 297, 29.11.2005.
(2) OJ L 195, 29.7.1980, p. 35. Directive as last amended by Directive

2000/52/EC (OJ L 193, 29.7.2000, p. 75).

Article 1

Subject matter

This Decision sets out the conditions under which State aid in
the form of public service compensation granted to certain
undertakings entrusted with the operation of
services of
general economic interest
is to be regarded as compatible
with the common market and exempt from the requirement
of notification laid down in Article 88(3) of the Treaty.

Article 2

Scope

This Decision applies to State aid in the form of public
1.
service compensation granted to undertakings in connection
with services of general economic interest as referred to in
Article 86(2) of
the
following categories:

the Treaty which falls within one of

(a) public service compensation granted to undertakings with
an average annual turnover before tax, all activities included,
of less than EUR 100 million during the two financial years
preceding that in which the service of general economic
interest was assigned, which receive annual compensation
for the service in question of less than EUR 30 million;

(b) public service compensation granted to hospitals and social
housing undertakings carrying out activities qualified as
services of general economic interest by the Member State
concerned;

(c) public service compensation for air or maritime links to
traffic during the two
islands on which average annual
financial years preceding that
in which the service of
general economic interest was assigned does not exceed
300 000 passengers;

(d) public service compensation for airports and ports for
which average annual traffic during the two financial years
preceding that in which the service of general economic
interest was
1 000 000
does
passengers, in the case of airports, and 300 000 passengers,
in the case of ports.

assigned

exceed

not

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The threshold of EUR 30 million in point (a) of the first subpar-
agraph may be determined by taking an annual average repre-
senting the value of compensation granted during the contract
period or over a period of five years. For credit institutions, the
threshold of EUR 100 million of turnover shall be replaced by a
threshold of EUR 800 million in terms of balance sheet total.

(e)

the arrangements for avoiding and repaying any overcom-
pensation.

Article 5

Compensation

In the field of air and maritime transport, this Decision
2.
shall only apply to State aid in the form of public service
compensation granted to undertakings
in connection with
services of general economic interest as referred to in Article
86(2) of the Treaty which complies with Regulation (EEC) No
2408/92 and Regulation (EEC) No 3577/92, when applicable.

The amount of compensation shall not exceed what is
1.
necessary to cover the costs incurred in discharging the public
service obligations, taking into account the relevant receipts and
a reasonable profit on any own capital necessary for discharging
those obligations. The compensation must be actually used for
the operation of
the service of general economic interest
concerned, without prejudice to the undertaking’s ability to
enjoy a reasonable profit.

This Decision shall not apply to State aid in the form of public
service compensation granted to undertakings in the field of
land transport.

Article 3

Compatibility and exemption from notification

State aid in the form of public service compensation that meets
the conditions laid down in this Decision shall be compatible
with the common market and shall be exempt from the obli-
gation of prior notification provided for in Article 88(3) of the
stricter
Treaty, without prejudice
provisions relating to public service obligations contained in
sectoral Community legislation.

application of

to the

The amount of compensation shall include all the advantages
granted by the State or through State resources in any form
whatsoever. The reasonable profit shall take account of all or
some of the productivity gains achieved by the undertakings
concerned during an agreed limited period without reducing
the level of quality of the services entrusted to the undertaking
by the State.

2.
The costs to be taken into consideration shall comprise all
the costs incurred in the operation of the service of general
economic interest. They shall be calculated, on the basis of
generally accepted cost accounting principles, as follows:

Article 4

Entrustment

(a) where the activities of

the undertaking in question are
confined to the service of general economic interest, all its
costs may be taken into consideration;

In order for this Decision to apply, responsibility for operation
of the service of general economic interest shall be entrusted to
the undertaking concerned by way of one or more official acts,
the form of which may be determined by each Member State.
The act or acts shall specify, in particular:

(a)

the nature and the duration of the public service obligations;

(b) where the undertaking also carries out activities falling
the service of general economic
outside the scope of
interest, only the costs associated with the service of
general economic interest shall be taken into consideration;

(b) the undertaking and territory concerned;

(c)

the nature of any exclusive or special rights assigned to the
undertaking;

(c)

the costs allocated to the service of general economic
interest may cover all
incurred in
providing the service of general economic interest, a propor-
tionate contribution to fixed costs common to both service
of general economic interest and other activities and a
reasonable profit;

the variable costs

(d) the parameters for calculating, controlling and reviewing the

compensation;

(d) the costs linked with investments, notably concerning infra-
structure, may be taken into account when necessary for the
operation of the service of general economic interest.

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The revenue to be taken into account shall include at least
3.
the entire revenue earned from the service of general economic
interest. If the undertaking in question holds special or exclusive
rights linked to another service of general economic interest
the reasonable profit, or
in excess of
that generates profit
benefits from other advantages granted by the State,
these
shall be included in its revenue,
irrespective of their classifi-
the purposes of Article 87. The Member State
cation for
concerned may decide that
the profits accruing from other
activities outside the scope of the service of general economic
interest are to be assigned in whole or in part to the financing
of the service of general economic interest.

For the purposes of this Decision ‘reasonable profit’ means
4.
a rate of return on own capital that takes account of the risk, or
absence of risk, incurred by the undertaking by virtue of the
the latter
intervention by the Member State, particularly if
grants exclusive or special rights. This rate shall not normally
exceed the average rate for the sector concerned in recent years.
In sectors where there is no undertaking comparable to the
the service of
undertaking entrusted with the operation of
general economic interest, a comparison may be made with
undertakings situated in other Member States, or if necessary,
in other sectors, provided that the particular characteristics of
each sector are taken into account.
In determining what
the Member States may
constitutes
introduce
to the
quality of service provided and gains in productive efficiency.

reasonable profit,

criteria relating,

in particular,

incentive

a

5. When a company carries out activities falling both inside
and outside the scope of services of general economic interest,
the internal accounts shall show separately the costs and
receipts associated with the service of general economic
interest and those of other services, as well as the parameters
for allocating costs and revenues.

the
The costs linked to any activities outside the scope of
service of general
the
cover all
variable costs, an appropriate contribution to common fixed
costs and an adequate return on capital. No compensation
shall be granted in respect of those costs.

economic

interest

shall

lation of the compensation shall be updated for the future.
Where the amount of overcompensation does not exceed
10 % of the amount of the annual compensation, such over-
compensation may be carried forward to the next annual period
and deducted from the amount of compensation payable in
respect of that period.

to ensure that

In the sector of social housing, Member States shall carry out
regular checks, or ensure that such checks are carried out, at the
the undertaking
level of each undertaking,
concerned is not
the
amount determined in accordance with Article 5. Any over-
compensation may be carried forward to the next period up
to 20 % of the annual compensation, provided that the under-
taking concerned only operates services of general economic
interest.

receiving compensation in excess of

Article 7

Availability of information

The Member States shall keep available for a period of at least
10 years, all the elements necessary to determine whether the
compensation granted is compatible with this Decision.

Upon a written request from the Commission, Member States
shall provide the Commission with all the information that the
latter considers necessary to determine whether the systems of
compensation in force are compatible with this Decision.

Article 8

Reports

Periodic reports on the implementation of
this Decision,
comprising a detailed description of the conditions of appli-
including the social housing and the
cation in all sectors,
hospital sectors, shall be submitted to the Commission by
each Member State every three years.

Article 6

The first report shall be submitted by 19 December 2008.

Control of overcompensation

Member States shall carry out regular checks, or ensure that
such checks are carried out, to ensure that undertakings are
not receiving compensation in excess of the amount determined
in accordance with Article 5.

Member States shall require the undertaking concerned to repay
any overcompensation paid, and the parameters for the calcu-

Article 9

Evaluation

the latest,

By 19 December 2009 at
the Commission will
undertake an impact assessment based on factual information
and the results of wide consultations conducted by the
Commission on the basis, notably, of data provided by the
Member States in accordance with Article 8.

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The results of the impact assessment will be made available to
the European Parliament,
the
European Economic and Social Committee and the Member
States.

the Committee of Regions,

Article 10

Entry into force

Article 11

Addressees

This Decision is addressed to the Member States.

Done at Brussels, 28 November 2005.

This Decision shall enter into force on 19 December 2005.

Points (c), (d) and (e) of Article 4, and Article 6 shall apply from
29 November 2006.

For the Commission

Neelie KROES
Member of the Commission