2008/765/EC: Commission Decision of 11 December 2007 on the aid No C 7/06 (ex NN 83/05) implemented by Finland for Tieliikelaitos/Destia (notified under document number C(2007) 6073) (Text with EEA relevance)
Date: 2007-12-11
Institutions: European Commission
Subjects: Finland, State aid, control of State aid, public works, road building, road transport, transport infrastructure

10.10.2008

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Official Journal of the European Union

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II

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

DECISIONS

COMMISSION

COMMISSION DECISION

of 11 December 2007

on the aid No C 7/06 (ex NN 83/05) implemented by Finland for Tieliikelaitos/Destia

(notified under document number C(2007) 6073)

(Only the Finnish and the Swedish version is authentic)

(Text with EEA relevance)

(2008/765/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity, 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:

1.

PROCEDURE

(1) On 22 February 2006, the Commission took a decision to
open the formal
investigation procedure (C(2006) 461
final) following several complaints by two Finnish industry
associations, alleging that the Finnish authorities, during
from the Finnish
the process of divesting Tieliikelaitos
national administration as a State enterprise, had violated a
number of EC Treaty provisions, including those on State
aids.

(2)

In a letter dated 23 February 2006,
the Commission
informed Finland of its decision to initiate the procedure,
giving the Finnish authorities the opportunity to present
their observations within a period of one month.

(1) OJ C 274, 10.11.2006, p. 2.

(3)

(4)

(5)

(6)

(7)

(8)

In a letter dated 3 May 2006, the Commission transmitted a
the decision to initiate the procedure to the
copy of
complainants, giving them the opportunity to provide
comments on the decision within a period of one month.

The Commission received Finland’s
response to the
Commission’s decision to initiate the procedure with letter
of 31 May 2006, after having twice prolonged the time
period for submitting the reply.

In a letter dated 22 June 2006,
the complainants
transmitted their comments on the Commission’s decision
to initiate the procedure.

The Commission transmitted these comments by letter of
6 July 2006 to the Finnish authorities, giving them an
opportunity to respond within a period of one month.

The Commission received Finland’s
response to the
complainants’ comments by letter of 27 September 2006.

Following the meeting of 7 September 2006 between the
Finnish authorities and the Commission, additional infor-
mation was submitted by the Finnish authorities on
6 February 2007.

(9) On 20 April 2007 the Commission sent to the Finnish
authorities a letter requesting further clarifications. The
response of the Finnish authorities was received on 22 May
2007.

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(10)

In its letters dating from 4 July and 27 July 2007 the
Commission asked the Finnish authorities to provide the
outstanding information that was necessary for
the
adoption of the final decision. The replies were received
on 10 August and 29 August 2007, respectively.

(17) The Road Service was a State agency, which was responsible
for managing and maintaining public roads and developing
road traffic conditions and related service activities. Under
Finnish administrative law, a State agency is a department
of the national administration, which does not have legal
personality on its own, but which is part of the State.

2.

FACTS

2.1.

The beneficiary

(11) Tieliikelaitos is a Finnish State Enterprise, which is active in,
on the one hand, road design, road construction and road
ferry services.
maintenance, and, on the other hand,
Although since 14 February 2007 the undertaking’s name
has been changed to Destia, for reasons of continuity the
Commission will use throughout the text of the present
decision the entity’s initial name, i.e. Tieliikelaitos.

(12) Under Finnish administrative law, a State Enterprise is a
State-owned entity that is not incorporated and that carries
out business activities. State Enterprises are governed by the
provisions of the State Enterprise Act (2). The status of a
State Enterprise is a hybrid status between an administrative
agency and a State-owned company. A State Enterprise
operates in accordance with business principles, however,
Parliament, the Government and the relevant Ministries
have decision-making and steering powers over it.

(13) Although its annual turnover figure has been decreasing
over the last 6 years (15 % decrease), with the annual
turnover of EUR 474,1 million in 2006, Tieliikelaitos
remains an important market player in the infrastructure
sector of the Finnish civil engineering market.

(14) The most

important components of

its turnover are
construction services (47 %), maintenance services (31 %),
surfacing and mineral aggregates services (asphalt works,
road marking services, mineral aggregates production —
11 %). Tieliikelaitos provides services to the Finnish Road
Administration (68 % of Tieliikelaitos’ turnover), commercial
enterprises (15 %), municipalities and cities (13 %), other
government agencies (2 %), etc.

(15) Tieliikelaitos’

2006

to
EUR 10,6 million. Its average number of employees stood
at 2 469 in 2006.

amounted

operating

profit

2.2.

Road services and ferry services reform in

Finland

(18)

In the pre-liberalisation period,
the services of private
consultants, developers and maintenance companies were
used only to the extent that the ‘road production’ part (3) of
the Road Service could not provide the service.
In
particular, in the sector or regular road maintenance (4),
which mostly consists of keeping roads free from ice, there
were practically no private contractors before the start of
they had got only two tiny
the liberalisation process:
projects when preliminary/test tendering took place in late
1990’s.

(19)

In March 2000, the Finnish authorities decided that the
Road Service’s production activities would be divested as a
State Enterprise and change its name to Tieliikelaitos while
the Road Administration would function as the customer
agency in road maintenance. This was done in order to split
the roles of the customer for buying maintenance and
construction services and of the provider of these services.

(20) Finland opted for a gradual opening of the market. In this
context, the task of the Road Administration was to create
opportunities for the emergence of active markets, for
example, by bringing in new competitive tendering
procedures.

(21) As a result of the reform, the design, the construction and
the maintenance of State roads were fully opened up to
competition by the end of 2004. As to municipal roads, in
line with the principle of subsidiarity, the choice is left to
individual municipalities as to whether they use their in-
house production capacities or not. However if they choose
to outsource respective services, they should do so using
open tender procedures.

(22) As far as ferry services are concerned, the opening of the

market for competition will take place in 2010.

2.3.

Rules governing Tieliikelaitos, including

special arrangements for the transitional period 2001
to 2004

(23) During a transition period from 2001 to 2004, pursuant to
the Act governing Tieliikelaitos (5) and the Government
decree on Tieliikelaitos (6) , Tieliikelaitos:

(16) Until the end of 2000, the maintenance of the Finnish
network of State roads was carried out mainly by the
Finnish Road Service. The Road Service also partially
carried out the design and the construction of new State
roads. In this context it has to be mentioned that in Finland
there are 78 000 km of State roads, 26 000 km of
municipal streets and 350 000 km of private (low grade)
‘forest’ roads.

(2) Act 1185/2002 adopted on 20 December 2002.

— could not operate as a provider of mineral aggregates
and could use such aggregates only to cover roads;

(3) The Road Service was divided internally into two parts: the Road
administration and the Road Production, the latter one taking care of
road design, construction and maintenance.
(4) The service which today is tendered out
contracts covering the whole of Finland

through 84 regional

(5) Act 569/2000 adopted on 16 June 2000 (amended by Act 1081/

2003 adopted on 15 December 2003).
(6) Decree 660/2000 adopted on 29 June 2000.

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had to abstain from inland water work, rock cavern
construction, energy network construction, ground-
work, area work in building construction, and work
which is not related to traffic lanes and the traffic
environment, including demolition work;

— was under obligation not to create overcapacity in its
own sector; did not have the right to buy excavating
machines, crushing plants or to increase the number
of other equipment.,

(24) Furthermore, during the transition period, the personnel
transferred to Tieliikelaitos were given job security:
the
Parliament’s decision on the Road Service reform (7)
stipulated that Tieliikelaitos would not give notice to its
staff, lay staff off or impose forced job transfers during the
transition period.

(25) A number of other

restrictions were

imposed on

Tieliikelaitos which apply to it on a permanent basis.

(26) Firstly, in accordance with the Act governing Tieliikelaitos,
the undertaking is under permanent obligation to make
offers for all road maintenance contracts and provision of
ferry traffic throughout the country.

are under

(27) Secondly, the company must be prepared to provide its
services in emergency situations. The Road Administration
and Tieliikelaitos
the obligation to make
preparations for emergency situations in accordance with
a separate act on the matter, the Emergency Powers Act (8).
The preparations would be made by means of prior
planning, prior preparations for activities in emergency
conditions, and other measures. Based on a government’s
bill (9), the Ministry of Transport and Communications
decides separately about the level of preparedness neces-
sary, and the division of responsibilities between the Road
Administration and Tieliikelaitos. Furthermore, during the
transitional period Tieliikelaitos was obliged to maintain
emergency stockpiles of liquid fuels.

(28) Finally, as any other State Enterprise, Tieliikelaitos is required
it is
to concentrate on its key functions.
subject to restrictions as to the activities that can be carried
out by its subsidiaries and as to its ability to operate abroad,
as well
a ban on certain intra-group financial
as
transactions.

In particular,

2.4.

Description of the relevant measures

2.4.1. State loan

(29) At its general session of 21 December 2000, the Finnish
Government decided on the asset structure of the balance
sheet of Tieliikelaitos, which started up activities at the
the assets transferred to
beginning of 2001. Part of

(7) EV 84/2000 vp.
(8) Act 1080/1991 adopted on 22 July 1991.
(9) Government bill 25/2000 whereby proposals for the Act governing
Tieliikelaitos and the Act governing the Road administration were
submitted to the Parliament.

Tieliikelaitos’ control was entered as a long-term loan and
part as equity capital.

(30) Tieliikelaitos was thus granted by the State long-term
in the amount of EUR 41,44 million.
borrowed capital
The repayment period of the loan is 15 years (1 January
2001 to 1 January 2015), of which the first three years
were free from principal payments. It was also decided that
the interest rate would gradually rise to 5 %, so that in
2001 it would be 1 %, in 2002 1,5 %, in 2003 2,5 %, in
2004 3,5 %, and from 2005 onwards, 5 %.

2.4.2. Non-financial assets put at the disposal of Tieliikelaitos,

including land and gravel sites

(31) When the split-up of the Road Services into the Road
Administration and Tieliikelaitos was decided, the principle
for the division of the Road Service’s property was that
assets covered by road legislation,
i.e. mainly the roads
themselves, remained in the control of the Road Admin-
istration, whereas assets used in the course of
road
maintenance and ferries were entered into the books of
Tieliikelaitos.

(32) The transfer of equipment took place at book value, which
was based on the acquisition cost less any accumulated
depreciation. Also extracted gravel resources were entered
into Tieliikelaitos’ balance sheet at book value.

(33) The book value of land and gravel sites was raised, because
the Finnish government considered that it was below the
real value of the sites. For this purpose the Finnish Ministry
of Transport and Communications established a working
group (10) which had to make proposals about
the
resources sites remaining with the Road Administration
and those being transferred to Tieliikelaitos and about the
fair market value of these sites. It did not, however, reach
consensus on the value of land sites.

(34) The Ministry of Transport and Communications decided on
the valuation of the land and gravel sites itself after having
asked for advice of an independent consultant, Catella Real
Estate Consulting Ltd (hereinafter referred to as ‘Catella’).

2.4.3. Negotiated contracts for road services

(35) The transition arrangements for the Road Service reform
foresaw that for the years 2001 to 2004, only a part of the
contracts for road planning, road construction and road
maintenance on State roads would be contracted out
through a call for tenders by the Road Administration, but
that this part would gradually increase. The remaining
contracts would be concluded between Tieliikelaitos and the
Road Administration as negotiated contracts without
tendering procedure.

(10) The Working Group included representatives of the Road Admin-
istration, private earthworks contractors, the Competition Authority
and the Competition council.

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(36) The starting point of pricing applied to negotiated contracts
was the price level of contracts which had been awarded in
a call for tenders. The Road Administration accordingly
examined the price bids of Tieliikelaitos for the negotiated
contracts and compared them with the competitive tender
prices. During the following negotiation between Tieliike-
laitos and the Road Administration, account was taken of
the fact that Tieliikelaitos had excess staff, which had the
effect of increasing its costs. The cost differential that was
factored into other staff adjustment measures (notably
special services projects) was however not compensated
through negotiated contracts.

(37) During the transitional period, the Road Administration
and Tieliikelaitos agreed each year on the expenditure
adjustment procedure, by which the differences in margin
generated in contract pricing between negotiated contracts
and contracts put out to tender were subsequently levelled
out to a certain extent. The extent to which it was done is
analysed in the subsequent Chapters — Chapters 4, 5 and 6
(even after
there were still certain
differences in margins of negotiated and tendered con-
tracts). These arrangements helped to bring the project
margins of negotiated contracts and contracts put out to
tender closer together during the transition period.

the adjustments

2.4.4. Negotiated contracts for ferry services

(38)

In Finland, ferry services are provided as part of the public
road service at 43 ferry berths. The ferry berths are
concentrated in the Turku archipelago and inland water
areas in Eastern Finland.

(39)

In conjunction with the road administration reform, it was
decided that ferry traffic provided as part of public road
service would be gradually opened to competition starting
in 2005, and that as of 2010 all new contracts for ferry
services would be attributed through calls for tenders.

(40) The 2005 call for expression of interest concerning 3 of a
total of 10 contracts for ferry traffic did not bring about
satisfactory results in that it would result in higher expenses
for the Road Administration on the one hand (11) and
reinforcement of Tieliikelaitos’ market position on the other
hand. Therefore, for the time being, the Road Administra-
tion continues with the negotiated contracts with Tieliike-
laitos while looking for another procurement model to be
used for future rounds of competitive bidding.

2.4.5. Special provisions for the reduction of overstaffing

to significant overstaffing at Tieliikelaitos. This fact is not
contested by the complainants, who recognise in their June
2006 submission that
‘Tieliikelaitos had a structural
disadvantage because it was obliged to employ its entire
staff and could not lay off anyone’. Three types of measures
were taken during the transition period in order to deal
with this issue.

(42) Firstly, 116 employees were offered and used a possibility
to fill vacant positions in other government agencies (9
thereof were positions in the Road administration).

(43) Secondly, EUR 20,1 million were allocated to support
Tieliikelaitos’ personnel
to help
employees with finding new jobs, to finance supplementary
education and retraining measures and to support pensions
for early retirement.

adjustments, namely,

for

(44) Thirdly, individuals for whom there was no work available
on the basis of either contracts awarded to Tieliikelaitos in a
call
tenders, or on negotiated contracts between
Tieliikelaitos and the Road Administration, and who could
not yet benefit from early retirement or similar arrange-
ments, were employed in service projects commissioned by
the Road Administration. These projects
for
example, to the cleaning of roadsides, or to the restoration
of buildings and outdoor areas.
the Road
administration paid EUR 68 million for financing these
service projects. On average, the service projects have been
used to purchase 600-700 man-years of annual work over
2001-2004.

In total,

related,

(45) During the transitional period, the staff of Tieliikelaitos
from 4 235 employees in 2001 to 3 037

decreased,
employees in 2004.

2.4.6. Inapplicability of bankruptcy legislation

(46) State Enterprises are not independent legal persons and the
State is
therefore ultimately responsible for a State
Enterprise’s commitments, as provided for in Article 6 of
the State Enterprise Act.

(47)

In view of the State’s responsibility, pursuant to Article 3 of
Chapter 1 of the Bankruptcy Act, State Enterprises cannot
be declared bankrupt.

(41) When Tieliikelaitos was created, all road maintenance staff of
the Road Service were transferred into Tieliikelaitos. This led

(11) Given the way the formation of a negotiated price takes place, for the
time being it is lower than the market price would have been (the
agreement price for the previous year is taken as a starting point for
determining negotiated price; thereafter it is adjusted taking into
account changes in the cost level and the content and quality of the
service).

(48) To counter-balance the advantages related to the inappli-
cability of bankruptcy legislation, the Finnish legislation
foresees that a fee shall be payable to the State with respect
to the loans raised and guarantees granted by a State
Enterprise after 1 January 2003 (12).

(12) Section 5 of the State Enterprise Act — Act 1185/2002 adopted on

20 December 2002.

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(49) According to section 15 of the Act governing State lending
and the provision of State guarantees (13) in determining the
size of such a guarantee fee, it is necessary to take into
account the size of possible obligatory payments by the
State caused by the guarantee, the nature and extent of the
operations of the risk subject and its economy, the risk
subject’s creditworthiness,
the
national economy of the risk subject, and other matters
and competitive conditions which affect the risk covered.

the creditworthiness of

(50) With respect to long-term credits, the Government decree
on fees collected from state guarantees (14) stipulates the
lump sum to be collected at the level of 0,25 % of the credit
(a handling fee). If the risk of loss related to the guarantee is
exceptionally high, the lump sum collected is increased by
1,50 percentage points. Besides, the annual fee is levied at
the level of 0,35 % of the credit. Upon occurrence of
significant changes in market conditions, the level of the
annual fee is to be adjusted within 12 months at the latest.

(51) With respect to short-term credits, the annual fee is set at
half the annual fee for a long-term credit by the above-
mentioned Act governing State lending and the provision
of State guarantees.

2.4.7. Particularities of
purposes

treatment

for

corporate income

tax

(52) The treatment of State Enterprises with regard to corporate
income tax is laid down in the Income Tax Act (15). In line
with the principles laid down in section 21(3) of the Act,
State Enterprises which mainly operate to satisfy the needs
of other State institutions are not liable to pay the tax.

(53) During the transitional period, most of Tieliikelaitos’
turnover was generated from contracts to another State
institution (the Road Administration), and due to this, no
taxes have been levied on the income received from this
activity.

(54) Furthermore, until

July 2004, whenever Tieliikelaitos
purchased land sites, the sellers were largely relieved of
tax on the respective capital gains according to Section 49
of the Income Tax Act (16). In July 2004, this measure was
removed from the Income Tax Act.

3.

THE COMMISSION’S DOUBTS

(55)

In its decision to initiate the procedure, the Commission
raised doubts:

— as to the question of whether the special provisions
for staff transfer between Tieliikelaitos and government
agencies and the special projects for redundant, but

(13) Act 1988/449 adopted on 20 May 1988 (last amended by

Act 2001/1110 adopted on 30 November 2001).
(14) Decree 20/2003 as amended by Decree 25/2005.
(15) Act 1992/1535 adopted on 30 December 1992.
(16) Act 1535/1992.

laid-off workers conferred an advantage to

not
Tieliikelaitos,

— as to the question whether the transfer of land and
gravel sites from the Finnish State to Tieliikelaitos took
place at market value,

— as to the exact monetary value of the advantages the

Finnish government has granted Tieliikelaitos,

— as to the compatibility of the interest-reduced loan,
the negotiated contracts and (potentially) the special
projects for redundant, but not laid-off workers and
the transfer of land and gravel sites with the Common
market based on Article 86(2) of EC Treaty, and here
especially as to the presence of a public service
obligation and as to the absence of over-compensa-
tion,

— as to the compatibility of the interest-reduced loan,
the negotiated contracts and (potentially) the special
projects for redundant, but not laid-off workers and
the transfer of land and gravel sites with the Common
market based on Article 87(3)(c) of EC Treaty, and
here especially as to the proportionality of
the
measures and as to the question whether the positive
effects of the aid outweigh the negative effects on
competition,

— as to the compatibility of the special tax provisions
and the absence of the application of the bankruptcy
law with the Common market based on Arti-
cle 87(3)(c) of EC Treaty.

4.

COMMENTS FROM INTERESTED PARTIES —

COMMENTS JOINTLY SUBMITTED BY THE
CONFEDERATION OF FINNISH CONSTRUCTION
INDUSTRIES RT AND THE CENTRAL ASSOCIATION OF
EARTH MOVING CONTRACTORS IN FINLAND

4.1.

State loan

(56) The complainants consider that the interest rate set for the
State loan granted to Tieliikelaitos is clearly below the market
the corresponding monetary advantage
rate, and that
received by Tieliikelaitos was of approximately EUR 3,2 mil-
lion during 2001-2004.

(57) The

that

consider

the higher

complainants

interest
payments fixed for the period 2005-2015 does not really
mitigate this advantage. As
rates have been
increasing since 2005 the 5 % interest rate determined for
the period 2005-2015 may soon cease to be a higher
interest rate than those currently prevailing on the market.

interest

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4.2.

Land and gravel sites put at the disposal of

4.4.

Negotiated contracts for ferry services

Tieliikelaitos

(58) The complainants note that the value at which the land
resources were entered into Tieliikelaitos’ opening balance
sheet by the Finnish State is FIM 15 million (17) lower than
the estimate by an independent expert (Catella). On the
basis of
the estimate by private earth-work sector the
difference would be even bigger. Besides, in complainants
it would be more appropriate if Tieliikelaitos was
view,
buying land resources needed for carrying out its contracts
from external suppliers at market price.

(65) The complainants consider that negotiated contracts for
ferry traffic services confer an advantage to Tieliikelaitos.
They believe that Tieliikelaitos
is able to provide ferry
services at a comparatively low price only because it
received ferry equipment from the Road Administration
which either does not need to be renewed, or because the
associated capital costs do not need to be taken into
account in the value of the equipment.

(59) The complainants also consider that non-marketability
deductions with respect to the value of land and gravel sites
that were done in Tieliikelaitos’ financial statements during
years 2002-2004 and accepted by Tieliikelaitos’ auditors
cannot be considered as a proof of absence of aid in the
transfer of land and gravel sites. The complainants believe
that the auditors of Tieliikelaitos did not possess sufficient
expertise regarding land resources to carry out this kind of
appraisal. According to the complainants,
the auditors
based their view on the estimate made by Tieliikelaitos’
management.

4.3.

Negotiated contracts for road services

(60) The

the

that

consider

complainants

aid related to
negotiated contracts given to Tieliikelaitos by the Road
Administration has been EUR 21,5 million which they
calculated on the basis of difference in margins of
negotiated and tendered contracts undertaken by Tieliike-
laitos.

(61) Furthermore, complainants suspect that the margins of
negotiated contracts could have been artificially lowered by
taking into account also the costs of personnel not involved
in implementation of the negotiated contracts.

(62) Besides,

they believe that

the so called expenditure
adjustment procedure related to negotiated contracts (18)
gave Tieliikelaitos access to extra funds each year during
2001-2004 that it could use for about one year without
having to pay interest on it to the Road Administration.

(63) Complainants consider that the aid received by Tieliikelaitos
has, inter alia, allowed it to undertake plan-and-implement
contracts (19) which had a lower margin.

(64) The complainants believe that the fact that Tieliikelaitos’
financial performance compared with its competitors were
below industry average only shows that the operations of
Tieliikelaitos were inefficient and it used anti-competitive
pricing policy in liberalised sectors.

(17) In their 22 June 2006 submission the complainants refer to
EUR 15 million, but from their earlier submissions and the data
provided by the Finnish authorities it appears that the right amount
is FIM 15 million.
(18) Cf. Section 2.4.3.
(19) Plan-and-implement contracts are contracts where design services

and construction works are procured as one package.

4.5.

Measures for the reduction of Tieliikelaitos’

staff

(66)

In the complainants’ view, Tieliikelaitos
received about
EUR 100 million in State aid during 2001-2004 for solving
the issue of overstaffing.

(67)

inter alia, the complainants believe that Tieliikelaitos has
benefited from an aid related to the fact that its employees
have been in a privileged position in filling vacant positions
in the government agencies, including the Road Adminis-
tration.
In total, this enabled Tieliikelaitos to reduce its
problem of overstaffing by 116 persons.

(68) The complainants believe that the respective employees’
transfer procedure led to a loss of the freedom for involved
to choose the best and most
government agencies
affordable applicant available on the labour market for a
position, and caused additional expenses to the State. The
State might have been able to hire personnel from outside
more affordably and with more favourable employment
conditions. Individuals from Tieliikelaitos were transferred
with their old employment conditions into new positions
and treated as veteran staff.

(69) Besides,

the complainants point out

that Tielliikelaitos
received EUR 20,1 million as State aid from the Road
the purposes of helping
for
Administration’s budget
Tieliikelaitos
financing
to find new jobs,
employees
supplementary education and retraining and for supporting
pensions for early retirement.

(70) The complainants also believe that the personnel involved
in special service projects constituted Tieliikelaitos’ own
labour reserve whereas its expenses were paid by the
Finnish State. The complainants assert that opportunities
for this kind of arrangement do not exist in the private
sector; rather, when a project or contract ends, a private
employer is still obliged to pay the employee his or her
salary or alternatively give a layoff notice and pay his or her
salary during the notice period.

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(71) Finally, the complainants doubt that Tieliikelaitos contrib-
uted sufficiently from its own resources for financing staff
reduction measures. According to them,
the financial
statements of Tieliikelaitos do not give any evidence in this
respect.

4.6.

Indirect fiscal aid related to land purchase

(72) The complainants note that to the extent that Tieliikelaitos
purchased land sites during the transitional period, the
sellers were largely relieved of tax on capital gains that also
constitutes indirect State aid for the benefit of Tieliikelaitos.

4.7.

Advantages conferred to Tieliikelaitos on a

permanent basis: the inapplicability of bankruptcy law
and deviations from normal tax law

4.7.1. Bankruptcy legislation

property and permanent
provided by financial institutions and other parties.

leases, as well as guarantees

4.7.2. Tax treatment

(78)

In the complainants’ view, the fact that Tieliikelaitos does not
pay corporate income tax to the State, because State
turnover,
contracts make up more than half of
constitutes prohibited aid.

its

(79) The complainants consider that Tieliikelaitos obtained an
advantage of EUR 14,5 million through this tax exemption
for the years 2001 to 2004 alone, as it would have had to
pay EUR 14,5 million more taxes, had it been subject to the
29 % tax rate applicable to private undertakings in the years
2001 to 2004 (in 2005 the rate was lowered to 26 %).

(73) The complainants consider that the fact that Tieliikelaitos is
not included within the scope of bankruptcy legislation
constitutes prohibited State aid. They point out
that
although the current Bankruptcy Act (20) entered into force
the possibility to declare
only on 1 September 2004,
Tieliikelaitos bankrupt did not exist before either.

(80) The fact that Tieliikelaitos has disbursed part of its earnings
to the State corresponds to the payment of a dividend by a
private limited company, the size of which is always decided
by the shareholders at the Annual General Meeting. The
dividend is only paid from earnings that are left over after
the payment of corporate income tax.

(74) The complainants believe that

the
possibility for this sort of aid exists, even if the threat of
bankruptcy never arose.

is sufficient

that

it

(75) They stress that Tieliikelaitos had a possibility to receive
financing on more favourable conditions thanks to the
In addition, Tieliikelaitos con-
respective legal provision.
tinually orders
from external
services and materials
suppliers, which constitutes debt by Tieliikelaitos to these
external actors. Tieliikelaitos can thereby obtain a competi-
tive advantage as it cannot be declared bankrupt.

that

(76) Furthermore, they draw the Commission’s attention to the
fact
the guarantee fee on the loans raised and
guarantees granted by a State Enterprise, the purpose of
which is to compensate for the fact that an organisation
the State may receive external
operating as a part of
financing on more favourable terms, was introduced only
in 2003 (Article 5 of the State Enterprise Act). This implies
that Tieliikelaitos has not paid such a fee so far (it is not
applicable retroactively to pre-2003 loans
raised by
Tieliikelaitos).

4.8.

Burdens ensuing from the specific status of

Tieliikelaitos

(81) With respect to Tieliikelaitos being legally obliged to submit
offers to every call for tenders for the maintenance of the
road network, both during the transition period and after
its expiry, the complainants do not see any additional
financial burden on Tieliikelaitos. In any case, complainants
consider that Tieliikelaitos’ financial statements do not show
such additional expenditure.

(82) As Tieliikelaitos has offices throughout Finland, complai-
nants believe it has an excellent opportunity to provide
maintenance services in the whole country. In addition, the
Road Administration has introduced, in order to support
participation to tenders, a EUR 5,000 fee that it pays to all
bidders whose bids corresponded to tender documentation.
On average, 4-4,7 contractors submitted their bids for each
maintenance contract put for tender in 2001-2004. This
demonstrates companies’ interest in making bids.

(77)

In any case, the complainants note that private under-
takings, which can be declared bankrupt under Finnish law,
must also give the loan provider guarantees which match
the cost of the State guarantee fee. Expenses of this kind are
incurred due to, for example, the mortgaging of immovable

(20) Act 120/2004 adopted on 20 February 2004 (last amended by

Act 709/2007 adopted on 15 June 2007).

(83) Similarly the complainants contest that Tieliikelaitos’ had
additional expenses compared to other companies active in
the sector due to its obligation to be prepared for providing
its services in emergency situations. First, they stress that no
such extra expense could be identified in Tieliikelaitos’
financial statements. Second, the complainants believe that
all companies must prepare for emergency conditions, and
that it is a part of a private company’s risk management
system.

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(84) Furthermore, the complainants believe that in Tieliikelaitos’
financial accounts there is no separation between costs and
receipts associated with clearly identified service of general
economic interest and those associated with other services,
and that no parameter has been defined for allocating costs
and revenue between two such categories of services.

(85) Therefore the complainants stress that the measures in
favour of Tieliikelaitos cannot be qualified as compensation
for public service obligation.

(86) As to restrictions imposed on operations of Tieliikelaitos, the
complainants emphasize that the follow-up group estab-
lished by the Ministry of Transport and Communications
has noted that Tieliikelaitos has repeatedly violated respec-
tive restrictions, for example by building energy networks
and municipal engineering. Hence, they have not caused
significant costs and loss of income, nor have such items
been presented in Tieliikelaitos’ financial statements.

4.9.

Overall conclusions by the complainants

allowed Tieliikelaitos to carry out contracts at a lower
margin than private actors in a competitive market. In the
complainants’ view Tieliikelaitos has enjoyed a dominant
market position in road maintenance contracts throughout
the transitional period, and in 2005 it got 88 % of new
maintenance contracts awarded by the Road administra-
tion. This would show that the opening up of the market
has failed.

(92) Thus, the complainants dispute that the State aid measures
have been necessary and proportionate to the results, in
other words the liberalisation of Finland’s road main-
in the
tenance and ferry traffic markets. Therefore,
complainants’ view, the State aid received by Tieliikelaitos
has not been justified and is thus incompatible with the
common market.

5.

COMMENTS SUBMITTED BY THE FINNISH

AUTHORITIES

(87) All in all, the complainants believe that the Tieliikelaitos has

received at least EUR 164-171 million in prohibited aid:

(93) First, the Finnish authorities explain the reasons underlying
liberalising road

the approach which was chosen for
services market in Finland.

(EUR)

Measures

Resulting aid

Interest rate subsidies from the
loan 2001-2004,

3 182 978

Equipment,

13 800 000-20 700 000

(94)

In their view, the gradual opening of the market together
with granting a job security to the employees of Tieliikelaitos
was necessary to achieve a political compromise on the
market opening.

Extractable land resources,

7 230 000

Extracted land resources,

3 750 000

Negotiated contracts 2001-
2004,

21 500 000

Adjustment of personnel 2001-
2004,

100 000 000

Tax benefits 2001-2004,

14 454 620

(95)

(88) According to the complainants, respective sums must be
increased by the amount of aid received through negotiated
contracts in ferry traffic and interest income on funds
returned annually from negotiated contracts through the
expenditure adjustment procedure.

(89) The complainants believe that Tieliikelaitos has received
advantages which have reduced its expenses and which it
could not have received under normal market conditions.

(90) While the complainants do not contest that there were the
cost savings achieved through the opening up of the market
to competition, they stress that during the transitional
period Tieliikelaitos received aid that was almost equal to the
savings for the State for the same period.

It

is only at

functions of

In fact, the Finnish government started to work on the
design of
the road services reform already in 1994.
Nevertheless, given the vested interests involved, for a long
time it was not possible to reach an agreement on the
market liberalisation and on 20 May 1997 the Govern-
ment’s Committee on Economic policy decided to keep the
existing system largely unchanged except for introducing
certain ‘border-lines’ between administrative and ‘produc-
the
the Road Service.
tion’
beginning of 2000 that the Government could reach a
political agreement on the gradual liberalisation of the road
services' market. This agreement was reflected in the
package of legislative proposals submitted to the Parlia-
ment, namely the proposals for the Act on the Road
Administration and the Act governing Tieliikelaitos, as well
as the preliminary proposal for the annual budget law (the
latter containing the foreseen financing necessary to
measures accompanying the reform). When approving the
the Parliament not only endorsed the
respective acts,
package of support measures for the benefit of Tieliikelaitos
proposed by the Government, but decided that additional
safeguards for the benefit of the undertaking’s employees
would be introduced.

(91) The complainants consider the aid granted to Tieliikelaitos
has distorted competition in the infrastructure sector and

(96) On top of the political and social considerations, there was
also a competition-related aspect underpinning the market
liberalisation model chosen by the Finnish Government. In

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view of the Finnish authorities, market opening without
transition may have led to an oligopoly or even monopoly
on the market, as Tieliikelaitos would have disappeared from
the market, with its share being picked up by the biggest
private competitors.

(97) Finland believes that the actions it has carried out do not
constitute State aid. Even if the Commission were to hold
that the actions include State aid, the Finnish authorities
believe that the aid should be declared compatible with the
common market.

(98) To substantiate its position, Finland submitted , inter alia, an
expert economic statement
from brokerage company
Icecapital Securities Ltd related to the alleged economic
advantages conferred to Tieliikelaitos (hereinafter referred to
as ‘the Expert statement’).

that

(99) While the complainants doubt the validity of this Expert
Icecapital would be
statement, on the grounds
economically dependent on Tieliikelaitos,
Finnish
the
authorities argue that Tieliikelaitos is only one of Icecapital’s
clients among many others. IceCapital’s work for Tieliike-
laitos was occasional during the two years they had business
relation (In 2005 IceCapital’s work for Tieliikelaitos brought
4,7 % from its annual revenues; in 2006 — 3,1 %). The
Finnish government has subjected the provision of the
Expert statement to tender, and Icecapital was chosen to
provide the statement. The Finnish authorities also observe
that the fact that Tieliikelaitos has used Icecapital’s services in
the past has deepened Icecapital’s understanding of the
earth-moving sector, which has been of benefit in the
preparation of the Expert statement.

5.1.

State loan

(102) If the measure is examined as a normal long-term loan,
Finland believes that
the loan should be
the cost of
compared with the financing available on the market
during the whole term of the loan. A comparison which
only compares some years of
the loan with market
alternatives does not give a total picture of the cost of
the loan. Therefore, Finland believes that the period 2005-
2015 must be considered alongside the transitional period
2001-2004.

the loan without

(103) The Finnish authorities state that Tieliikelaitos has not the
possibility of terminating the loan agreement during the
term of
the lender.
Therefore, in calculating the possible advantage conferred
by the long-term loan, due account must be taken of the
entire time period during which Tieliikelaitos has to pay
interest. Such a calculation results
in a significantly
different result from the calculations of the complainants.

the consent of

(104) With respect to the relevant rate of interest, the Finnish
authorities observe that 12-month Euribor is generally
used as the reference rate of interest in corporate loans.
Finland notes that a forward curve exists that predicts what
the level of market interest rates will be till 2015. The curve
is based on the expectations of the development of interest
rates by various market participants. The reference rates of
interest used in the calculations of the Expert statement are
based on information available from the forward market,
and thus describe the market’s understanding of what the
future rate of interest will be.

(105) Based on this, it is evident from the Expert statement that
from the end of the transitional period until the end of the
term of the loan, Tieliikelaitos must pay about EUR 2,0 mil-
lion more than for financing at the market rate of interest,
as they were forecast by market analysts as of 8 May
2006 (21).

(100) The Finnish authorities assert that it was not a case of a
normal granting of a loan, where a company is granted a
loan of a certain size, which is repaid with interest within a
certain time. Rather,
to
Tieliikelaitos with a repayment obligation.

it was a transfer of assets

(106) Thus, Finland concludes that, in any event, this amount of
EUR 2 million should be deducted from the EUR 3,2 million
that
evaluated by the complainants, with the result
Tieliikelaitos’ maximum possible advantage from the State
loan is EUR 1,2 million.

equity,

(101) Finland believes that if the entire stock of assets had been
disbursed to Tieliikelaitos
a distortion of
as
competition might have been created. When examining
the balance sheets of private undertakings in this sector, the
undertakings have fixed assets in their balance sheets
acquired both as equity and as loans. Therefore,
it was
important that Tieliikelaitos’ balance sheet included assets
acquired as loans. If this had not been done, Finland claims
that Tieliikelaitos would have gained a competitive advan-
tage financially equal to the capital repayment of the loan.
The Finnish authorities believe that
the structure of
Tieliikelaitos’ opening balance sheet was created in line
with the balance sheets of private undertakings in the
sector.

5.2.

Land and gravel sites put at the disposal of

Tieliikelaitos

(107) To start with, the Finnish authorities explain that one of the
main principles underlying the split-up of
the Road
Services into the Road Administration and Tieliikelaitos
was that assets covered by road legislation, i.e. mainly the
roads themselves, had to be kept by the Road Administra-
tion, whereas assets formerly used by the ‘production part’
of the Road Service (Tieliikelaitos’ predecessor) in the course
of road maintenance had to be kept for road maintenance
purposes by Tieliikelaitos.

(21) Source: Bloomberg.

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(108) As to the valuation of land and gravel sites at the disposal
of Tieliikelaitos, Finnish authorities believe that the appraisal
of land sites and gravel sites was carried out in accordance
with the principles described in the Commission’s com-
munication on State aid elements in sales of
land and
buildings by public authorities (22).

(109) Finland asserts that Catella’s valuation which was taken as
the basis for establishing the value of the gravel and land
sites can be considered to be the result of estimate by an
impartial valuator.

(110) The adjustment of Catella’s estimate (downwards revision
from FIM 128 million to FIM 113 million (23)) was made
because the Finnish Ministry of Transport and Commu-
nication considered that the price of concrete gravel would
decrease when Tieliikelaitos would enter on the respective
market as a seller, that value added in the extraction process
was lower on the basis of the National Land Survey of
Finland and that after-treatment costs would be higher
based on new requirements concerning the after-treatment
of land resource areas.

(111) In view of the downwards revision of the value of the land
assets done in Tieliikelaitos financial reports during the
transitional period and accepted by Tieliikelaitos auditors
(Ernst and Young) the Finnish authorities estimate, that
land and gravel sites were still entered into Tieliikelaitos’
balance sheet at an excessive value compared with the
audited book values. This conclusion was confirmed by
IceCapital which carried out the overall evaluation of the
arrangements for the benefit of Tieliikelaitos. Therefore,
Tieliikelaitos did not gain an economic advantage, but rather
incurred an economic disadvantage of EUR 4,3 million.

(112) Finland notes that the auditors are experts in the evaluation
of
the bases of expected income and therefore had
necessary qualification to verify the validity of the non-
marketability deductions made by the company.

5.3.

Negotiated contracts for road services

(114) First,

that

recall

the Finnish authorities

the annual
expenditure rectifying procedure, which existed during
the transitional period (cf. Section 2.4.3), ensured that
differences in margins between negotiated contracts and
contracts put out to tender were levelled out to a large
extent. Expenditure adjustments during the transitional
period totalled EUR 16,8 million.

(115) As to the remaining differences in margins, according to
Finland, it is not appropriate to compare the margin of
Tieliikelaitos’ negotiated contracts with the average margin
Tieliikelaitos received on tendered contracts during the
whole
it was done by the
complainants.

transitional period as

(116) In the Finnish authorities’ view, one should calculate
differences in margins for contracts which are mutually
comparable.

(117) In this respect, the specificity of years 2001 and 2002 was
that many of the tendered contracts during these years
were new kind of plan-and-implement contracts
(ST
contracts). Initially Tieliikelaitos was not prepared for the
significantly higher level of risk compared with traditional
contracts. For this reason the margin level of plan-and-
implement contracts turned out to be much lower than the
in turn, did not
expected margin. Negotiated contracts,
is
include plan and implement contracts. Therefore it
appropriate to exclude plan-and-implement contracts from
the calculation.

(118) The specificity of years 2003 and 2004, in turn, was that
the negotiated contracts received from the Road Admin-
istration in 2003 and 2004 were exclusively road
maintenance and design contracts. Therefore, the margin
level has to be compared with the margin level of similar
tendered contracts.

(113) With respect to the complainants’ preference for no land
being entered in Tieliikelaitos’ books and for Tieliikelaitos
buying all land resources it needed externally at market
prices (Cf. Section 4.2), Finland notes that during the
transitional period Tieliikelaitos bought significant amounts
of land resources from external parties at market prices:
47 % in 2001, 39 % in 2002, 41 % in 2003 and 34 % in
2004.

(22) Commission Communication on State aid elements in sales of land
and buildings by public authorities, OJ C 209, 10 July 1997,
paragraph 2.

(23) Downwards revision from EUR 21,5 million to EUR 19 million.

(119) Besides, the Finnish authorities point out that part of the
contracts implemented as negotiated contracts could have
been — even without the transitional provision contained
the Act governing Tieliikelaitos —
in section 9 of
implemented in another way using direct negotiation in
accordance with the procurement legislation in force.

(120) In accordance with the Expert statement, Tieliikelaitos has
gained an advantage of at most EUR 8,5 million from the
negotiated contracts, when the difference in margins
between comparable negotiated and tendered contracts is
calculated:

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Negotiated contracts

Comparable tendered contracts

Difference in margins (1)

Year

MEUR

margin

MEUR

margin

MEUR

2001

451,4

12 %

88,4

10,1 %

8,6

2002

346,3

9,3 %

183,8

8,5 %

2,8

2003

207,1

8,9 %

231,7

10,2 %

- 2,7

2004

85,9

11,9 %

280,5

12,1 %

- 0,2

Total

1 090,7

784,4

8,5

(1) Difference in margins remaining after the annual expenditure adjustment procedure.

(121) Even if Tieliikelaitos received an economic advantage of
EUR 8,5 million, this advantage was justified compensation
for the obligation to perform public services, and expenses
caused by structural disadvantages (Cf. Section 2.3).

(122) During the transitional period, the additional expenses
resulting in particular from the excessive personnel costs
had to be considered in the pricing of negotiated contracts
to the extent that they had not been taken into account via
other staff adjustment measures. Although a big part of
excess staff was engaged in special service projects, there
were still on average 100 employees more in Tieliikelaitos
than would have been the optimum number during the
transitional period.

5.4.

Negotiated contracts for ferry services

(126) According to the Finnish authorities, for the time being it is
cheaper for the Road Administration to continue with
negotiated contracts. The first attempt to tender out part of
ferry services was unsuccessful for the following reasons.

(127) Firstly, the prices offered by the bidders were 17-25 %
higher than the prices of the negotiated contracts in force
between the Road Administration and Tieliikelaitos, about
which the parties have held separate annual price
negotiations. Therefore, having accepted the results of the
tender, the Road Administration would have had to pay
more for the respective services.

(123) The Finnish authorities reject allegations that

the aid
received by Tieliikelaitos has allowed the State Enterprise to
accept a lower margin level on plan-and-implement
contracts. As explained above, the margin level of plan
and implement contracts was low because Tieliikelaitos was
unprepared for the level of risk they involve.

(128) Secondly, Tieliikelaitos’ market position would have been
strengthened (as the prices quoted by Tieliikelaitos were the
lowest prices offered, although still being higher than the
prices in the negotiated contracts, the Road administration
would have to accept Tieliikelaitos as the winning bidder).

(124) As to the complainants’ claim that expenses caused by
additional personnel were considered to be a cost that
artificially reduced the margin of Tieliikelaitos
in the
negotiated contracts,
the Finnish authorities note that
excess personnel were not included in the calculation of the
margin level of negotiated contracts. Excess personnel were
placed into service projects.

(129) Therefore the Finnish authorities reject the allegation that
the negotiated contracts between the Road administration
and Tieliikelaitos would involve any competitive advantage
for Tieliikelaitos. On the contrary, they may constitute a
disadvantage since the conditions of negotiated contracts
do not
renewal of
equipment (capital costs are not included in their entirety
in the price of ferry services).

reflect adequately the need for

financial performance of Tieliikelaitos points

(125) Finally, Finland rejects the allegation that the comparatively
poor
to
inefficiencies on the part of Tieliikelaitos operations and
the use of uncompetitive pricing policy in liberalised
markets. In Finland’s view, the poor result can be accounted
for by the additional costs due to the adjustment of
Tieliikelaitos’ personnel, and the fact
the special
arrangements made for personnel could not cover all the
costs of additional personnel.

that

(130) Finland is developing a new procurement model for future
rounds of competitive bidding, by revising the conditions
of
the liberalisation associated with capital costs and
refurbishing of ferries. An opportunity to do this can be
obtained by reducing the risks associated with investments
through redemption conditions
ferry equipment
attached to the agreement. Another option is to require
that all tenderers have new vessels. In the meantime, the
existing ferry contracts have been extended until the end of
2009.

for

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5.5.

Special provisions for the reduction of

overstaffing

(131) The Finnish authorities argue that the special arrangements
and special projects cannot be considered to constitute an
advantage.

(132) When Tieliikelaitos started operations on 1 January 2001, it
had 4 235 employees, although in reality it needed
significantly fewer personnel. It is clear that the former
Road Service, as an official institution based on hierarchy,
had a significant number of positions and tasks which were
not needed in Tieliikelaitos, which thus led to significant
overstaffing at Tieliikelaitos.

(133) In Finland’s view, the fact that Tieliikelaitos was required to
employ its entire staff and was prohibited from any lay-offs
has been a structural disadvantage to Tieliikelaitos. The
expenses the company incurred due to that structural
disadvantage have exceeded any, even theoretical, economic
advantages gained by Tieliikelaitos. The personnel transfer
procedures available to Tieliikelaitos have been more
expensive and slower than the personnel policies available
to Tieliikelaitos’ competitors.

(134) According to Finland, the Finnish State could have opted
not to transfer the excess employees to Tieliikelaitos at the
time it was established.

(135) Finland also refers to the Combus judgment of the Court of
First Instance (24) in which the Court dealt with a similar
situation concerning transfers of personnel.
It was
concluded in this case that a one-off payment by the
Danish State to officials who were employed by Combus
and who agreed to give up their status as officials and
become employed on a contract basis by that undertaking
did not constitute State aid. The CFI considered that the
measure did not result in lightening the burden normally
assumed in an undertaking’s budget.

(136) The reform of road administration and maintenance sector
in Finland was carried out in a situation similar to the one
in Combus. The fact that Tieliikelaitos did not pay any
compensation to personnel who was
transferred to
government agencies, including the Road Administration,
cannot be considered to constitute State aid.

(137) In Finland’s view, the applicability of the Combus judgment
is in no way reduced by the Court judgements cited by the
Commission in its decision to initiate the procedure
(Altmark Trans (25) and France v. Commission (26)). These
judgments indeed predate the Combus judgment and were
thus necessarily taken into account by the Court of First
Instance.

(24) Judgment of the Court of First Instance of 16 March 2004 in the

case T-157/01, Danske Busvognmaend v. Commission.

(25) Judgment of the Court of Justice of the European Communities in
the case C-280/00, Altmark Trans, judgment of 24 July 2003.
(26) Judgment of the Court of Justice of the European Communities in
judgment of 5 October

the case C-251/97, France v Commission,
1999.

(138) Furthermore, Finland argues that

if a measure is not
intended to confer an advantage which has an effect on the
budget, it is not a case of a transfer of State funds and
aid (27). Finland
therefore does not
considers that administrative measures which have no
effect on State finances do not constitute State aid.

constitute State

(139) Thus, Finland believes that the State has not lost income
because it agreed to employ 116 former personnel of
Tieliikelaitos and pay their salaries. No one of
these
employees was appointed without an assessment of his/
her suitability for the position. Transfers of personnel
between Tieliikelaitos and civil service departments were
only possible when a post became open and it was
published. If a suitable applicant could not be found within
Tieliikelaitos other applicants were considered.

(140) With respect to financial transfers by the State for solving
Tieliikelaitos’ overstaffing problem, Finland stresses that
Tieliikelaitos did not receive EUR 100 million in State aid as
is claimed by the complainants. Tieliikelaitos
received
EUR 68 million from the Road Administration to fund
service projects (from 68 million approximately 56 million
went to cover personnel costs and the rest was spent on
materials and other ‘non-personnel’ items). In addition, the
Road Administration paid EUR 20,1 million to support the
adjustment
of
EUR 88,1 million did not cover all the expenses incurred
from the excess staff. According to the Expert statement the
excess staff caused structural disadvantages amounting to
EUR 157 million over the period 2001-2004.

compensation

staff.

total

The

of

(141) Finland notes that sound accounting procedures were
followed in the preparation of Tieliikelaitos’
financial
statements, and that the financial statements have been
audited. The financial statement does not include notes at
the level of detail
referred to by the complainants.
Nevertheless, the Expert statement provides the following
justifications for uncovered structural disadvantage related
i.e.
staff
to the
EUR 157 million — EUR 88 million):

(EUR 69 million in total,

excess

the

respective

(142) Firstly, the Road Administration did not cover all costs
related to the special service projects. For example it did not
cover
supervision costs which were
estimated at EUR 2,8 million over four years. Furthermore,
the service projects recorded a total loss of EUR 1,4 million
during the transitional period in addition to the respective
supervision costs (the deficit was calculated by subtracting
the expenditure for wages and materials for service projects
from revenues related to those projects). Therefore, the
service projects caused to Tieliikelaitos a net disadvantage of
EUR 4,2 million.

(27) inter alia Finland refers to Joined Cases C-72/91 and C-73/91, Sloman
judgment of

Neptun Schiffarts AG v. Seebetriebsrat Bodo Ziesemer,
17 March 1993.

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(143) Secondly, the funds provided by the Road Administration
to finance measures related to looking for new jobs,
supplementary training and re-training and support for
anticipatory early retirement were not sufficient. As a
result, Tieliikelaitos had to earmark over EUR 20 million in
its own funds
personnel
(EUR 12,8 million thereof were paid out in 2004 and
2005).

costs out of

adjustment

(144) Thirdly, Tieliikelaitos had to bear additional administrative
expenditures related to personnel adjustments, which were
estimated at
the
transitional period.

the level of EUR 2,8 million for

(145) Fourthly, Tieliikelaitos had to face additional expenses also
those
due to more favourable holiday conditions for
Tieliikelaitos employees which fell in the category of long-
(50 % longer holiday). These
term State
additional
level of
EUR 42 million during the four years of the transitional
period.

expenses were estimated at

employees

the

(146) In any case, pension schemes have left Tieliikelaitos with a
heavy burden. Even after
its conversion into a State
Enterprise the staff of Tieliikelaitos remained governed by
the State Pension Act No 280 of 20 May 1966, which
implies that the State Enterprise had to pay the state
employer’s pension contribution, which is higher than the
employer’s pension contribution in the private sector. The
Amendment to the State Pension Act (No 679 of 30 July
2004) will
the pension
lead to the approximation of
contributions and employees’ pension benefits between the
private and the public sector, but only in the long run. In
2005, the general pension contribution for private sector
employers was 16,8 %. By contrast,
the Tieliikelaitos’
pension contribution was determined individually and
stood at 21,13 % in 2005.

(147) Moreover,

is only on 16 February 2005 that
the
it
the collective agreements of Tieliikelaitos
provisions of
concerning wages paid on sick leave were adapted to
correspond to the equivalent conditions of private sector
agreements. Prior to that, these provisions were more
expensive for Tieliikelaitos than those applicable to private
sector employers.

(148) Considered as a whole, Finland states that

the staff’s
employment conditions are still better than those of staff in
private companies. This is true regardless of the fact that
the 2005 amendments
to the collective agreements
brought the conditions of employment closer to those
existing in the private sector. The right to annual leave, for
example, which is based on contract provisions equivalent
to those in state contracts, is still better than that enjoyed
by staff in the private sector. So employment conditions as
a whole,
including pension benefits, can still be clearly
considered a burden in comparison with those prevailing
for private sector operators.

5.6.

Fiscal measure related to land purchases by

Tieliikelaitos

(149) According to Section 49(1)(4) of the Income Tax Act, the
taxable amount of the capital gains received by a taxable
person other than a corporation, partnership or limited
partnership used to be calculated by deducting either 80 %
of the sales price or the real acquisition cost, whichever is
more, provided that the real property is sold to the state,
province, municipality or joint municipal authority. There-
fore, the amount of taxable capital gains would be at most
20 % of
the purposes of
determination of the amount of taxable capital gains, the
respective sellers could deduct from the sales price 30 % or
60 % more than they could deduct under the normal
taxation rules, depending on whether they sold their land
before or after having owned it for 10 years.

the sales price. Thus,

for

(150) Land transfers to Tieliikelaitos/its predecessor were included
in the scope of the concession scheme from the very
outset (28). That is, also Tieliikelaitos’ predecessor, the Road
Service,
indirectly benefited from the same measure.
Therefore the Finnish authorities stress that even if this
measure constituted an indirect State aid for the benefit of
Tieliikelaitos it complies with the definition of ‘existing aid’
pursuant to Article 1(b) of the Council Regulation (EC)
No 659/1999.

(151) Section 49 of the Act was amended in such a way in July
2004 (29) that it is no longer applicable when property is
sold to a State Enterprise for purposes other than nature
protection, use by the armed forces, and research or other
similar social purposes. As a result, the income from sales
of land sites to Tieliikelaitos is now subject to the standard
tax on capital gains.

5.7.

Advantages conferred to Tieliikelaitos on a

permanent basis: the inapplicability of bankruptcy law
and corporate income tax law to Tieliikelaitos

(152) With respect to the advantages conferred to Tieliikelaitos on
a permanent basis, the Finnish authorities stress that even if
these measures constitute State aid they comply with the
definition of ‘existing aid’ pursuant to Article 1(b) of the
Council Regulation (EC) No 659/1999.

(153) Tieliikelaitos

and the predecessors of

respective
economic entity (until 31 December 1997 — the Road
Service as such, from 1 January 1998 until 31 December
2000 — the Production part of the Road Service) have
never been subject either to bankruptcy or to normal
corporate income tax rules.

the

(154) This situation pre-dates not only the start of the liberal-
isation of the road services’ sector in Finland (point v of
Article 1(b) of Regulation 659/1999), but also Finland’s
accession to the EU (point i of Article 1(b) of Regulation
659/1999).

(28) The Act was adopted on 30 December 1992.
(29) Act 728/2004

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(155) The Finnish authorities undertakes a commitment

to
transform Tieliikelaitos into a State-owned limited company
which will be subject to normal bankruptcy and corporate
income taxation rules by 1 March 2008 at the latest.

5.7.1. Bankruptcy law

(156) This stems from Tieliikelaitos’ status as State Enterprise and
from the Road Service’s status as government agency that
they could not go bankrupt.

(157) The Finnish authorities observe that according to the
Commission’s notice on the application of Articles 87 and
88 of the EC Treaty to State aid in the form of guarantees
more favourable funding terms obtained by enterprises
whose legal form rules out bankruptcy are considered to
constitute State aid. The Finnish authorities consider
however that Tieliikelaitos has not received such more
favourable funding terms as Tieliikelaitos has not had to
borrow funds.

(158) There has never been a threat of Tieliikelaitos’ bankruptcy
and the ensuing realisation of the State’s responsibility.

(159) Therefore, according to the Finnish authorities, it has not
to gain a competitive

been possible for Tieliikelaitos
advantage in comparison with private competitors.

(160) With respect

to the use of external

financing in the
foreseeable future, a guarantee fee prescribed by the Act on
State Enterprises puts State Enterprises financially on equal
footing on the loan market with other companies which
operate without state guarantees (Cf. Section 2.4.6).

(161) The reference used by the Finnish Government

for
periodical revision of the annual fee is the yield spread
on the market between State serial bonds and investment-
grade corporate bonds in the JP Morgan business loan
index. The new fee is applicable to loans disbursed after the
adjustment in question.

(162) The Finnish authorities disagree with the complainants’
view that
the guarantee fee is comparable to private
companies’ expenses arising from a mortgage. Mortgages
are one-off expenses, while the guarantee fee is annual.
Mortgage fees are relatively small in the case of large loans,
and in a corresponding loan the collateral would have been
handled through a corporate mortgage. In practice, the
guarantee fee corresponds rather to a margin calculated on
top of Euribor.

the tax liability of State enterprises i.e. in accordance with
Section 21 of the Income Tax Act. Thus, the predecessor of
Tieliikelaitos (‘production part’ of the former Road Service)
was not subject to income tax. Section 21 of the Income
Tax Act was already included in the initial version of
Income Tax Act, which entered into force on 1 January
1993. The Income and Wealth Tax Acts (30), which were
previously in force, contained similar provisions on the
income tax liability of the State and its undertakings.

(164) Although Tieliikelaitos does not pay corporate income tax to
the State on its profits, the Finnish authorities argue that
this factor is taken into account when taking annual
decisions on profit-crediting to the State by Tieliikelaitos.

(165) Tieliikelaitos’ total profit during the transitional period was
EUR 62 million, and during the first four years, Tieliikelaitos
disbursed to the State total profit-crediting of 59 %
(EUR 37,3 million). The profit-crediting percentage has
varied between 47 % and 71 %. Tieliikelaitos’ theoretical
taxes during the transitional period at a tax rate of 29 %
would have been less than EUR 18 million.

(166) In the view of the Finnish authorities, companies such as
YIT Group and Lemminkäinen Group (the former — a
group with annual sales exceeding EUR 3 billion and the
latter — a group with annual sales close to EUR 2 billion),
which are the main private competitors of Tieliikelaitos, can
be considered as benchmark companies for comparative
analysis of the respective information. Based on informa-
tion by Bloomberg, in 2001-04 the combined share of
dividends and corporate income tax amounted to 68 % of
for YIT group and to 63 % for
the pre-tax profit
Lemminkäinen Group. The annual indexes for these period
varied between 58 % and 85 % of pre-tax profits for YIT
and between 37 % and 98 % for Lemminkäinen Group.

(167) In 2005, the first year following the transitional period,
profit-crediting was 69 % of profit (EUR 4,6 million). In
2006, it was 50 % (EUR 4,8 million). Based on information
from the annual reports of the competitor-companies, the
percent of profits YIT group and Lemminkäinen group gave
away as dividends and corporate income tax amounted,
respectively, to 52 % and 59 % in 2005, and to 50 % and
61 % in 2006, respectively.

(168) Finland considers that, by exercising its rights as owner, the
State has received significantly more from Tieliikelaitos
during its entire period of operations than would have been
the corporate income tax on profits of the same size.

5.7.2. Tax law

(169) Finland further notes that the value-added tax rate, capital
transfer tax rate, and real estate tax rate applied to State
Enterprises are the same as for limited companies.

(163) The income tax liability of undertakings operating within
the State administration, is determined in the same way as

(30) Acts 1240/1988 and 1043/1974.

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5.8.

Burdens ensuing from the specific status of

Tieliikelaitos

(176) In any event, the Finnish authorities consider that the
amount of these expenses is manifestly greater than the
resources made available to Tieliikelaitos.

5.8.1. Public service obligations

(170) Finland considers that, even if the Commission were to
conclude that Tieliikelaitos was granted State aid, such aid
should be deemed necessary to compensate for expenses
Tieliikelaitos is facing due to special tasks imposed on it by
the Act governing Tieliikelaitos. (Cf. Chapter 2.3).

(171) By imposing on Tieliikelaitos the obligation to bid for all
road maintenance contracts, in addition to ensuring that
the quality requirements and monitoring included in
ordering procedures and contract agreements are achieved,
this special task would also further the implementation of
functioning
contracts,
because, in addition to private undertakings, Tieliikelaitos
should also bid for the tendered contracts.

in maintenance

competition

(177) The Finnish authorities note that costs like these do not
have to be borne by private sector actors in the earth work
and the building trades.

(178) With respect to the complainants’ claim that the Road
Administration pays a EUR 5,000 fee for contract offers,
the Finnish authorities note that the Road Administration
has paid the fee referred to by the complainants to all offers
for maintenance contracts that meet the quality criteria of
the offers. This sort of compensation paid to all bidders
must be distinguished from compensation paid for public
service obligations. The compensation paid to all bidders
does not remove the fact that Tieliikelaitos has accrued
expenses from its obligation to make an offer in all
competitive bidding.

(172) As to the undertaking’s obligation to be prepared to
provide its services during emergency situations,
this
arrangement was considered by Finland to be necessary
because during such emergency situations there may be a
need to handle various road maintenance activities on a
very tight schedule and in a way that diverges from the
ordinary.

5.8.2. Other conditions imposed on Tieliikelaitos’ operations

(179) During the transitional period, Tieliikelaitos had to abide by
quite significant restrictions which were not imposed on
private actors, e.g. the regulation of the sector, restrictions
on subsidiaries, the prohibition of group contributions, and
restrictions on foreign operations.

(173) Finland believes that these special tasks can be considered
public service obligations referred to in Article 86(2) of the
EC Treaty. It believes that the obligations in question result
in substantial costs for Tieliikelaitos.

(180) As is evident from the Expert statement the restrictions
related to foreign operations have caused difficulties for
in making offers on road maintenance
Tieliikelaitos
contracts abroad (in Estonia,
for example). Tieliikelaitos
has not been able to bid directly on foreign projects.

(174) As

regards

the obligation to make offers on the
maintenance of public roads and the provision of ferry
traffic throughout the country, Finnish authorities observe
that it is difficult to estimate exactly the corresponding
expenses.

(175) As to the preparation for emergency conditions, according
to the Expert statement, it has resulted in approximately
EUR 4,6 million in additional costs for Tieliikelaitos during
the transitional period (2001 to 2004). These costs have
from Tieliikelaitos’ obligation to
resulted in particular
maintain emergency stockpiles of
liquid fuels until the
end of 2004 (the respective cost amounted to EUR 2,2 mil-
lion). Other cost items included:

(181) Furthermore, Tieliikelaitos has incurred expenses due to the
broader reporting obligations imposed upon State Enter-
prises in comparison with private undertakings, and the
administrative bureaucracy of State enterprises.

focuses on its core
(182) The requirement
in the
operations,
diversification of Tieliikelaitos’ operations into e.g. electric
power network contracts, which led to a loss of income.

that Tieliikelaitos
example, has

led to delays

for

(183) Finland, however, recognises that the estimation of the
expenses due to the structural disadvantages listed above
has been very difficult.

— storage, maintenance and repair of emergency bridge

for free in 2001 (EUR 0,4 million),

— handling of preparation matters at the service group

and head office level (EUR 0,6 million), and

— obligation to make preparations and arrange training
included within the service agreements (EUR 1,4 mil-
lion).

(184) Finland estimates that, as a result of the restriction to sell
mineral aggregates to outside parties, Tieliikelaitos
lost
profits of approximately EUR 1,6 million during the
transitional period. This estimate is based on average
annual potential sales of mineral aggregates of EUR 3 mil-
lion (this corresponded to the 2006 sales forecast) had the
restriction not been present, and on the 2006 cost
structure (31).

(31) With this cost structure, annual sales of EUR 3 million yield

EUR 0,4 million operating margin.

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(185) With respect to the complainants’ claim that Tieliikelaitos
continually violated all the restrictions on its operations
that were in place during the transitional period,
the
Finnish authorities observe that the alleged violations were
investigated and found to be insignificant.
Insignificant
violations do not change the fact that the restrictions
caused disadvantages to Tieliikelaitos.

5.9.

Global evaluation of Tieliikelaitos advantages

and disadvantages

(186) In the Expert

statement

submitted by the Finnish
authorities Tieliikelaitos’ possible advantages and disadvan-
tages during the transitional period have been summarised
in the following graphic manner:

Source of advantage/disadvantage

Effect

(EUR)

State loan

Negotiated contracts

Transfer of land and gravel sites

Public service obligations

Structural disadvantages (1)

+ 1,2 million

+ 8,5 million

- 4,3 million

- 4,6 million

- 70,6 million

(1)

Includes an estimate of uncompensated costs of personnel arrange-
ments to reduce the overstaffing problem and the size of the burden
due to extra personnel as well as the foregone income (EUR 1,6 million)
due to the restrictions imposed on trading in mineral aggregates.

In 2005 all of

the Road administration decreased from EUR 451,4 million
to EUR 85,9 million.
the contracts
commissioned by the Road administration were awarded
through a tender procedure. The value of road services
carried out
than Tieliikelaitos
contractors other
in turn, from EUR 20,2 million in 2000 to
increased,
EUR 203,5 million in 2004.
In addition to main
contractors, the reform benefited private companies that
function as subcontractors to Tieliikelaitos.

the

(191) Enough offers were received for all types of

tendered
contracts (starting with planning contracts and ending with
construction contracts) with an average of 4,0-4,7 offers
per contract.

road maintenance work (32)

(192) The price level of the contracts has decreased clearly in
comparison with the period before the reform. According
to an estimate by the Finnish Road Administration, the
Road Service reform has thus resulted in total annual
savings of EUR 60 million. This includes EUR 48 million
annual savings in regional maintenance contracts (all the
regular
is contracted out
through regional maintenance contracts); at the end of
the transitional period the costs of
the competitively
tendered maintenance contracts concluded by the Road
Administration were 21,7 % lower than the costs of the
contracts concluded through the negotiated procedure at
the beginning of
the
EUR 60 million savings are mostly made up of construc-
tion and planning services.

the period. The remainder of

(187) Based on the above estimates, Finland concludes that the
overall effect of the advantages and disadvantages incurred
by Tieliikelaitos during the transitional period was a total
loss of EUR 69,8 million for Tieliikelaitos.

(193) More specifically, for regional maintenance contracts, the
largest source of cost savings was winter maintenance (33)
(EUR 15,2 million a year), followed by maintenance of
gravel roads (EUR 8,6 million) and maintenance of traffic
environment (34) (EUR 8,3 million).

5.10.

Market developments

that

competition has
(188) The Finnish authorities argue
developed quickly in all
the product groups of road
maintenance, planning and construction. The reform of the
Road Administration’s procurement strategy has led to the
development of a community of independent contractors
and consultants.

(194) According to the Finnish authorities, today Tieliikelaitos’
competitors include several
large national and foreign
competitors such as Skanska Oy (subsidiary of Swedish
Skanska AB’ and NCC Roads Oy (subsidiary of Swedish
NCC Ab) (35) and also an important number of small and
medium-sized, dynamic and highly profitable regional and
local competitors, which are limited companies.

5.10.2. Evolution of

regional
commissioned by the Road administration

road maintenance

contracts

(189) Looking at all types of works and services provided by
Tieliikelaitos in Finland, its share decreased from 31 % at the
beginning of the reform process till 17 % in 2006.

5.10.1. Evolution of Road Administration’s contracts during the

transitional period

(190) The value of tendered road services commissioned by the
Road Administration increased from EUR 54,1 million in
2000 to EUR 549,1 million in 2004. During the same
period, the value of negotiated contracts commissioned by

(195) The sector of

the Road administration’s regional road
maintenance contracts is specifically looked at in view of
the complainants’ allegation that Tieliikelaitos’ 88 % share of
new maintenance contracts tendered out in 2005 in this
sector would indicate that the market liberalisation has
failed.

(32) Winter maintenance, maintenance of

the traffic environment,

maintenance of gravel roads, etc.

(33) Anti-skid measures, snowploughing, road levelling, snow bank

removal and traffic sign cleaning.

(34) upkeep of traffic signs, road markings, etc.
(35) Companies with much higher turnover than the one of Tieliikelaitos.

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(196) The Finnish authorities consider it inappropriate to make
judgements based on the results of a specific year’s tender
results. In this context it explains that the Finnish Road
administration has divided Finland into 84 areas/contracts.
One contract lasts between 3-7 years and the most of the
work/costs consists of keeping the roads clear from ice.
Each year just a relatively small percentage of
those
contracts is to be tendered. Therefore the results for one
year are not necessarily representative.

(197) As to the 2005 results, there were several 10 million EUR
contracts that Tieliikelaitos won just by a very narrow
margin (20 000-30 000 euro). Those contracts could have
easily gone also to its competitors.

(198) When it comes to the 2006 tendering results, they were
radically different: Tieliikelaitos won just 5 of
the 15
maintenance contracts the Finnish Road Administration
put out for competitive bidding. The total value of the
contracts awarded was EUR 48,2 million, and, based on
contract values, the market share of Tieliikelaitos was 31 %.

(199) In this context Finnish authorities find it necessary also to
provide information on the development of overall package
of the ongoing contracts held by Tieliikelaitos. In 2000
Tieliikelaitos’ predecessor accounted for close to 100 % of
the respective regional road maintenance work whereas at
the end of 2006 Tieliikelaitos’ share in the Road adminis-
tration’s portfolio of road maintenance contracts was 68 %.
If one focuses on Tieliikelaitos’ share of contracts that were
attributed through open tender procedure,
it decreased
from 77 % in 2001 to 68 % at the end of 2006.

(200) This still relatively high Tieliikelaitos’ share of the road
maintenance market was something to be expected in the
liberalisation process
sense that at
Tieliikelaitos had an advantage linked to its incumbent
position and new entrants needed some time to establish a
foothold in the Finnish market
for road maintenance
services.

the beginning of

(201) Furthermore, a number of indicators suggest that effective

competition has developed.

(202) First, the number of bids has been increasing and in 2006
for each new contract put out to tender there were 5,7 bids
received that met tender specifications. As a result of 2006
tendering, 9 of 15 contracts went to other operators than
incumbents.

(204) Currently, there are six different contractors carrying out
regional maintenance contracts. In addition to the Finnish
Road Enterprise the following contractors are involved
(market share in brackets): YIT Rakennus Oy belonging to
YIT group (20 %), NCC Roads Oy (5 %), Koillistie Määttä
Oy (3 %), Savon Kuljetus Oy (2 %) and an Estonian
contractor, AS Teho (2 %).

5.11.

Overall conclusions by the Finnish

authorities

(205) The Finnish authorities emphasise that

the alleged aid
measures mainly have been associated with the transitional
period, which ended in 2004. Tieliikelaitos’ activities in
other Member States were
insignificant during the
transitional period.

(206) The liberalisation of closed national markets is a central
goal of EU competition policy. In this respect, Finland refers
to several documents (36).

(207) The transitional market arrangement has been a necessary
precondition of
road
maintenance market. Therefore, the aid measures have
been necessary to facilitate a project that is in accordance
with the Community’s overall interests.

liberalisation of Finland’s

the

(208) Besides, the aid measures alleged by the complainants have
been proportionate to the intended results, in other words
the liberalisation of Finland’s road maintenance and ferry
traffic markets. The benefits from the aid have exceeded its
possible adverse effects.

(209) Finally, Finland refers to its commitment to transform
Tieliikelaitos into a State-owned limited company subject to
normal bankruptcy and corporate income tax rules by
1 March 2008 at the latest.

6.

EXISTENCE OF AID WITHIN THE MEANING OF

ARTICLE 87(1) EC

(210) Article 87(1) of the EC Treaty prohibits in principle 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, in so far as it affects trade
between Member States.

(211) Tieliikelaitos, in spite of its specific legal status, is an entity
is an
engaged in an economic activity and, as such,
undertaking within the meaning of Article 87 of
the
EC Treaty. This has not been contested by the Finnish
authorities.

(203) Second, prices have decreased. The prices that were the
outcome of tenders undercut the ex-ante estimation by the
Road Administration by 16 % in 2005, by 18 % in 2006
and by 14 % in 2007. Therefore, competition on the
market was effective and intense.

(36) XXXth Report on Competition Policy (2000), p. 128; Lisbon
European Council, 23-24 March 2000, Presidency Conclusions,
SN 100/00; Communication to the Spring European Council,
COM(2005) 24, p. 21, Brussels, 2 February 2005; Green Paper on
Interest, COM(2003) 270 final, para-
Services of General
graph 5, Brussels, 21 May 2003.

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6.1.

Applicability of the Altmark jurisprudence

Commission that no manifest error has been committed in
such classification (39).

(212) As has been outlined above, the Finnish authorities argue
that the measures considered here constitute compensation
for additional expenses that Tieliikelaitos had to bear due to
special tasks imposed on it.

(213) In Altmark (37), the Court of Justice held that public service
compensation does not constitute State aid within the
meaning of Article 87 of the EC Treaty provided that four
cumulative criteria are met. Firstly, the recipient under-
taking must actually have public service obligations to
discharge, and the obligations 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 transparent manner. Third,
the
compensation cannot exceed what is necessary to cover
all or part of the costs incurred in the discharge of the
public service obligations, taking into account the relevant
receipts and a reasonable profit. Finally, where the
undertaking which is to discharge public service obliga-
tions, in a specific case, is not chosen pursuant to a public
procurement procedure which would allow for
the
the tenderer capable of providing those
selection of
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 typical undertaking, well
run and adequately equipped, would have incurred. When
these four criteria (hereinafter, ‘the Altmark criteria’) are met
cumulatively,
the State intervention does not entail
conferring an advantage upon an undertaking.

(214) As to the first Altmark criterion, the Commission notes that
the task imposed on the undertaking by Section 3 of the
Act governing Tieliikelaitos, namely the obligation to make
offers for all road maintenance contracts and provision of
ferry traffic throughout the country, appears to constitute a
public service obligation,
i.e. the obligation to provide
services of general economic interest. The same is true with
to the obligation to take care of emergency
respect
stockpiles of liquid fuels during the transition period and
the obligation to store, maintain and repair the Road
administration’s emergency bridge equipment for free (the
latter obligation was limited to 2001) (38).

(215) In fact, with the exception of the sectors in which there are
Community rules governing the matter, Member States
have a wide discretion in the definition of services that
could be classified as being services of general economic
subject only to a control by the
interest, which is

(37) Judgment of the Court of 24 July 2003 in Case C-280/00 (Reference
for a preliminary ruling from the Bundesverwaltungsgericht):
Altmark Trans GmbH, Regierungspräsidium Magdeburg v Nahver-
kehrsgesellschaft Altmark GmbH) [2003] ECR I-7747

(38) Obligations stemming from the Act governing Tieliikelaitos and the

Emergency Powers Act.

(216) Thus, the Commission agreed that Tieliikelaitos’ task to take
care of emergency stockpiles of
liquid fuels during the
transition period, its continuous obligation to bid for all
road maintenance and ferry services contracts tendered out
by the Road administration as well as the obligation to
store, maintain and repair of emergency bridge for free
during 2001 are clearly burdens that Tieliikelaitos competi-
tors are not subject to and can be classified as public service
obligations.

(217) As regards other emergency preparation measures and staff
training obligations imposed on Tieliikelaitos the Commis-
sion has not been provided with sufficient information to
exclude that, as is claimed by the complainants, they are
not more burdensome than the risk management measures
its competitors are carrying out (40) (all undertakings must
prepare for emergency conditions, it being a part of all
undertakings’ risk management system). Furthermore, the
Commission notes that the respective obligations only
extended to roads whose maintenance was entrusted to
Tieliikelaitos itself. However, there is no need to pursue
further the examination of this point as it appears that
there are problems with the fulfilment of other Altmark
criteria.

(218) None of the measures described in Section 2.4 was targeted
at compensating the possible financial burden created by
the respective tasks. This goes against points 90 and 91 of
the Altmark judgement, which presuppose a link between
the costs and the compensation (compensation to be set
ex ante on the basis of objective parameters). There is
nothing of that kind in the case of Tieliikelaitos. In fact, the
various advantages have been granted and calculated on the
basis of objectives that are wholly unrelated to the alleged
the second Altmark
public service obligations. Thus,
criterion is not fulfilled.

(219) Furthermore, the data provided by the Finnish authorities
do not make it possible for the Commission to conclude
that the compensation does not exceed what is necessary to
cover costs incurred in the discharge of the public service
obligations (third Altmark criterion). The fact that that there
were no public service compensations budgeted after the
end of
the
contention that the package of measures carried out for
the benefit of Tieliikelaitos was not needed to help it to cope
with the alleged public service obligations.

the transitional period further

supports

(39) See Commission’s 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
C(2005)2673, OJ L312, 29.11.2005, p. 67-73, at recital 7.

(40) From the information provided by the Finnish authorities, it appears
that after the end of the transitional period emergency preparations
at the service group and headquarters levels as well as training
measures require the annual expense of EUR 0,5 million, including
incidental expenses. Given the value of Tieliikelaitos annual
all
turnover, this sum does not appear excessive.

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(220) Finally, Tieliikelaitos was not

selected to provide the
respective services through an open tender procedure.
Nor were the costs involved determined on the basis of an
analysis of the costs which a typical undertaking, well run
and adequately equipped, would have incurred.

(221) The set of measures taken together therefore cannot be
considered to exclude the involvement of State aid on the
basis of the Altmark criteria. Therefore, the Commission
must analyse whether the measures concerned are selective
(Chapter 6.2 below), confer an advantage upon Tieliikelaitos
that
is financed through State resources (Chapter 6.3
below), and whether they distort or threaten to distort
trade between Member States
competition and affect
(Chapter 6.4 below). All these elements are cumulative
conditions for the finding that a measure involves State aid
within the meaning of Article 87(1) EC.

6.2.

Selectivity of the measures

(222) It is not contested that all the relevant measures were either
specifically designed for Tieliikelaitos or are limited to
undertakings benefiting from the Finnish State Enterprise
status. It is equally clear that, in the markets where it is
active, Tieliikelaitos is in competition with undertakings that
the Commission
are not State Enterprises. As
considers that the measures at stake are selective.

such,

6.3.

Existence of a selective advantage granted
through the use of State resources

(223) Under this heading the Commission will verify whether or
not the measures put in place by the Finnish government
are financed through State resources and confer a selective
advantage to Tieliikelaitos. The latter entails assessing
whether the measures in question lighten for Tieliikelaitos
the burdens normally assumed in an undertaking’s budget
and are therefore to be regarded as an economic advantage
which it would not have obtained under normal market
conditions (41).

6.3.1. Grant of a preferential State loan

(224) The long-term borrowed capital

in the amount of
EUR 39,5 million (FIM 237 million) provided to
Tieliikelaitos at the moment of
its formation has been
defined differently by the complainants and the Finnish
authorities. While the former considered it to be a loan, the
latter considered it to be the transfer of assets with a
the Commission
repayment obligation.
considers that
less
important than its actual impact on the charges borne by
the undertaking concerned, namely whether it relieves that
undertaking of charges it would normally have to bear.

the definition of

the measure is

In this respect

(41) Case 173/73 Italy v Commission [1974] ECR 709, paragraph 26. Case
C-387/92 Banco Exterior de España [1994] ECR I-877, paragraphs 12
and 13; and Case C-280/00 Altmark Trans and Regierungs presidium
Magdeburg [2003] ECR I-000, paragraph 84 and the case-law cited
therein.

at

the

lender

the moment

(225) For the purposes of evaluating aid element of the measure,
the situation should be viewed from the point of view of
the private
loan was
approved (42). As the respective promissory note of the
Finland’s State Treasury was signed on 28 December 2000
(State Enterprise loan No 6030-14) (43), for the purposes of
calculation of State aid element of the preferential loan, the
Commission has to use the reference rate that was in force
at
In line with the relevant
Commission notice (44) the applicable rate to be applied
throughout the duration of the credit agreement thus is
5,7 % — the interest rate calculated as five-year interbank
swap rate plus a premium of 75 basis points.

that date for Finland.

lower

interest rate,

(226) Thus, in 2001 Tieliikelaitos benefited from 4,7 percentage
point
in 2002, 2003 and 2004,
respectively 4,2, 3,2 and 2,2, and in subsequent years —
0,7 percentage point lower interest rate. Multiplying the
respective interest rate difference with the outstanding
credit
the
Commission has arrived at
the total aid element of
EUR 7,2 million.

the beginning of each year (45),

sum at

than the market

(227) To the extent the loan has been granted at an interest rate
foregone
rate,
lower
resources that could have accrued to it, had it provided
the loan in question at market rent. As such, Tieliikelaitos
receives an advantage granted through State resources.

the State has

6.3.2. Land and gravel sites

(228) With respect to the land and gravel sites put at the disposal
of Tieliikelaitos, first of all the question arises as to whether
this implies a State aid. In this respect, the Commission
notes that the land and gravel sites in question had already
been at the disposal of Tieliikelaitos prior to its incorpora-
tion.
the Road
Service within the Finnish administration, already had at its
disposal the very same land and gravel sites. The creation of
Tieliikelaitos seems to have merely established the ‘road
production’ section of the Road Service as a separate entity,
without affecting the means at the disposal of this entity.

the predecessor of Tieliikelaitos,

Indeed,

(42) See e.g. point 42 of the Commission communication to the Member
States — Application of Articles 92 and 93 of the EEC Treaty and of
Article 5 of Commission Directive 80/723/EEC to public under-
takings in the manufacturing sector, JO C 307 du 13. 11. 1993,
p. 3). See also point 76 of Judgment of the Court of First Instance of
30 April 1998 in Case T-16/96 — Cityflyer Express Ltd v
Commission of the European Communities.

(43) The data from the 31.05.2006 submission of the Finnish authorities
(44) Commission notice on current State aid recovery interest rates and
reference/discount rates for 15 Member States applicable as from
1 January 2005 and historic recovery interest rates and reference/
discount rates applicable from 1 August 1997 — Published in
accordance with Article 10 of Commission Regulation (EC) No 794/
2004 of 21 April 2004 (OJ L 140, 30.4.2004, p. 1) and the
Commission notice on the method for setting the reference and
discount rates (OJ C 273, 9.9.1997, p. 3) Official Journal C 088, 12/
04/2005 P. 0005 — 0005

(45) The data obtained from the 31.05.2006 submission of the Finnish

authorities

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(229) Secondly, the decision to initiate formal proceedings has
raised the issue of the adequate valuation of the land and
gravel sites.

(230) In the present case, the value of the land and gravel sites
has been assessed by an independent asset valuer namely
Catella Real Estate Consulting Ltd. The Finnish authorities
decided to revise the value established by the independent
asset valuer from EUR 21,5 million to EUR 19 million
because, in the opinion of the Finnish authorities, Catella’s
assessment did not take properly into account three factors
explained in Chapter 5.2.

(231) Moreover, according to the auditor (Ernst and Young) of
Tieliikelaitos’ books during the transitional period, the value
entered into Tieliikelaitos’ books was still too high and it
approved extraordinary depreciations of the value of land
and gravel sites at the level EUR 4,3 million. The valuation
by Ernst and Young was in addition verified by the
brokerage
company IceCapital Securities Ltd, which
certified that the land and gravel sites were valued in
Tieliikelaitos’ balance sheet at a price above their market
value.

(232) The complainants contest the valuations carried out.

(233) The Commission considers that it is not necessary to
definitively decide whether a State aid has been granted in
connection with the land and gravel sites, as any such aid
would be compatible with the common market for the
reasons set out in Section 7.2.

6.3.3. Attribution of negotiated contracts in road services

(234) The method of calculating the price for negotiated
contracts in the road sector necessarily leads to a price
that is higher than the market price, since it takes as point
of departure the price of a comparable tendered contract,
which is itself comparable to the market price, and then
increases such price in order to take into consideration
that are not
structural disadvantages of Tieliikelaitos,
otherwise compensated. This confers an economic advan-
tage to Tieliikelaitos, which is financed through State
resources: Tieliikelaitos obtains from the State more money
than a normal market operator would obtain for an
equivalent service.

(235) While the complainants believe that the total aid related to
the
negotiated contracts amounted EUR 21,5 million,
Finnish authorities, based on the Expert Statement,
consider that Tieliikelaitos has gained an advantage of at
most EUR 8,5 million from negotiated contracts.

types of contracts were on the one hand maintenance and
planning contracts, and on the other hand plan and
implement contracts. In order to establish the advantage
Tieliikelaitos has received through its negotiated contracts,
the Commission considers that it is appropriate to compare
these
the price paid by the Finnish government
negotiated contracts to the price paid by the Finnish
government for tendered contracts, which have a compar-
able degree of risk and involve a comparable kind of work.

for

(237) The negotiated contracts have been exclusively mainte-
nance and planning contracts. Accordingly, for establishing
the advantage received by Tieliikelaitos, the Commission has
in negotiated
to compare the margins of Tieliikelaitos
maintenance and planning contracts to the margins of
Tieliikelaitos in tendered maintenance and planning con-
tracts (46).

(238) IceCapital has carried out an analysis of the respective
profit margins. Its report shows that the difference in profit
margins has procured Tieliikelaitos
an advantage of
EUR 8,5 million.

(239) At

the same time,

the Commission considers

that
Tieliikelaitos total benefit related to negotiated contracts is
slightly larger than EUR 8,5 million. The difference of
EUR 8,5 million was calculated using the final margin of
negotiated contracts (the margin after the annual expend-
iture adjustment procedure). As stressed by the complain-
ants and not contested by the Finnish authorities, during
the transitional period the undertaking could thus benefit
every year from the value of annual downwards ‘adjust-
ment’ without paying the corresponding interest. There-
fore, in addition to EUR 8,5 million difference in margins,
Tieliikelaitos benefited from short-term (47)
interest-free
credits. Knowing that the amount of expenditure down-
wards adjustments during the transitional period amounted
to EUR 16,8 million and that credit interest rates in this
period did not exceed 5,7 %, the value of the benefit
Tieliikelaitos kept from these short-term interest-free credits
is not higher than EUR 1 million.

(240) Thus, the total aid element related to the conditions of the
road service contracts attributed to Tieliikelaitos under
negotiated procedure during the
transitional period
approximately amounts to EUR 9,5 million.

6.3.4. Attribution of

contracts

for

ferry

services under a

negotiated procedure

(241) The Commission notes that the first attempt by the Finnish
authorities to shift from negotiated to tendered contracts
for ferry services did not bring the expected results. The
prices obtained in the call for tenders were much higher
than the prices of the negotiated contracts in force between
the Road Administration and Tieliikelaitos. Furthermore,
acceptance of the tender’s results would not serve the goal

(236) The Commission notes

there is a considerable
that
heterogeneity with respect to the degree of risk involved
and the kind of work requested in the different contracts
concluded between the Road administration and the
different operators, including Tieliikelaitos. The two main

(46) The cost of the excess staff that were not employed in special service
projects was compensated through the difference in margins of
negotiated contracts as compared to the margins of
tendered
contracts
(47) Below 1 year.

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Official Journal of the European Union

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liberalizing the market as it would result

in the
of
strengthening of Tieliikelaitos position (Tieliikelaitos offer
was still the cheapest). Therefore Finland is looking for a
new procurement model
that would put all potential
bidders on a level playing field.

(242) The continuation of the negotiated contracts does not give
any advantage to Tieliikelaitos since the conditions of
negotiated contracts do not reflect adequately the need for
renewal of equipment. Rather, the continuation of the
negotiated contracts creates hence a disadvantage for
Tieliikelaitos.

(243) Accordingly, the Commission takes the position that the
price paid by the Road Administration to Tieliikelaitos for
the negotiated ferry contracts is not above the market price.
Hence, the Commission concludes that the remuneration
does not involve State aid.

6.3.5. Special provisions for the reduction of overstaffing

(244) Tieliikelaitos was obliged, through the act governing its
transformation from being a part of the administration to
to overtake the entire
becoming a State Enterprise,
workforce of the Road production branch of the former
Road Service, even though this
staff was oversized
compared to its needs.
In addition, the act prohibited
Tieliikelaitos to lay off any staff in the transitional period.

(245) The Finnish authorities contest that any of the measures
aimed at solving Tieliikelaitos’ overstaffing problem con-
stituted State aid. Indeed, such measures would only serve
to partially compensate a structural disadvantage suffered
by Tieliikelaitos due to the overstaffing problem and costly
employment conditions inherited from pre-liberalisation
time as well as due to the ban imposed by the Finnish
Parliament to lay off the employees during the transitional
period. In this regard, the Finnish authorities rely on the
Combus
Instance as
described above.

judgment by the Court of First

(246) In the specific circumstances of the Combus case, the Court
of First Instance has relied on the argument that, ‘instead of
paying the DKK 100 million directly to the officials employed by
Combus, the Danish Government could have obtained the same
result by reassigning those officials within the public adminis-
tration, without paying any particular bonus, which would have
enabled Combus to employ immediately employees on a contract
basis falling under private law’. (48)

(247) The Commission recalls that the reasoning expressed in the
Combus judgment and referred to by the Finnish authorities
has not been explicitly confirmed by the Court of Justice or
indeed referred to in any subsequent judgment by the
Court of First Instance. In any event, certain elements of the

(48) Combus judgment, paragraph 57.

the Court of

Justice militate against

the
case law of
assumption that the grant by the State of a compensation
for a structural disadvantage could not qualify as aid and
thus suggest that the Combus judgment should not be given
an overbroad interpretation.

(248) In its constant case law, the Court of Justice has held that
whether a measure constitutes aid must be established on
the basis of the effects of the measure, and not on the basis
of the causes or aims of that measure (49). The Court of
Justice has also held that any measure which relieves an
undertaking from the charges which are normally included
in the budget of the undertaking constitutes State aid. (50)
The Court of Justice has clarified that this includes in
particular costs related to the remuneration of employ-
ees. (51) On this basis, the Court has not accepted that a
measure does not confer an advantage on the undertaking
in question merely because it compensates a ‘disadvantage’
suffered by the undertaking. (52)

(249) Based on these considerations, the Commission will assess
separately each of the specific measures concerned.

6.3.5.1. T r a n s f e r o f s t a f f

i s t r a t i o n a n d o t h e r p u b l i c
t r a t i o n d e p a r t m e n t s

t o t h e R o a d A d m i n -
a d m i n i s -

(250) With respect

to the transfer of 116 employees of
Tieliikelaitos to vacant public administration positions, the
Commission first needs to assess whether this transfer was
financed through State resources. This is only the case if
filling vacancies in the Finnish administration with former
employees of Tieliikelaitos was more costly for the Finnish
State than filling these vacancies with other candidates. In
the Finnish
this context,
administration did not create any additional posts for
former employees of Tieliikelaitos, but only filled posts that
had become vacant due to a departure of a civil servant.

to note that

is important

it

(251) The complainants claim that the employees from Tieliike-
laitos were transferred back to the administration without
any change to their employment conditions, and hence
the administration than other
were more costly for
potential applicants.

(252) The Finnish government has undertaken that transfers of
personnel between Tieliikelaitos and the Finnish adminis-
tration were only possible when a post in the administra-
tion became open and it was published. Tieliikelaitos’

(49) Case 173/73, Italy/Commission, [1974] ECR 709, para. 13; Case C-
310/85, Deufil, [1987] ECR 901, para. 8; Case C-241/94, France/
Commission, [1996] ECR I-4551, para. 20.

(50) Case C-387/92, Banco Exterior, [1994] ECR I-877, para. 13; Case C-

241/94, France/Commission, [1996] ECR I-4551, para. 34.
(51) Case C-5/01, Belgium/Commission, [2002] ECR I-1191, para. 39.
(52) Case 30/59, Gezamenlijke Steenkolenmijnen, [1961] ECR p. 3, 29-
30; Case C-173/73, Italy/Commission, [1974] ECR 709, para. 12-
13; Case C-241/94, France/Commission,
[1996] ECR I-4551,
para. 29, 35. Case C-251/97, France/Commission, [1999] ECR I-
6639, para. 40, 46-47. Cf. equally case T-109/01, Fleuren Compost,
[2004] ECR II-127, para. 54.

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employees were only hired if the vacancy arose at the
corresponding level of seniority, and if
their level of
qualification corresponded to the published vacancy. Prior
to the transfer, Tieliikelaitos’ employees had to undergo an
assessment of his/her suitability for the position.

(253) The Commission notes that

the complainant has not
submitted any proof for its allegation, according to which
filling vacancies with former Tieliikelaitos employees rather
than with other candidates was more costly for the Finnish
government.

(254) In the view of the Commission, the assessment of all
information at its disposal has not revealed any indication
that the Finnish administration has incurred additional cost
through the transfer of 116 employees of Tieliikelaitos to
vacant public administration positions. In particular, the
the 116 employees had been
Commission notes that
formerly, when they were still working for the road service,
been subject to the same employment conditions as civil
servants in the Finnish administration. By re-integrating
former civil servants into the public administration, at
positions corresponding to their seniority and to their
qualification profile, the Finnish State had the same costs as
if it hired other people on these positions.

(255) In the light of

the Commission
these considerations,
concludes that the transfer of 116 employees has not
created any additional
the Finnish State.
costs
for
it does not constitute State aid, as it does
Accordingly,
not involve the transfer of State resources.

6.3.5.2. F u n d i n g o f S p e c i a l s e r v i c e p r o j e c t s

(256) As far as the special projects for redundant, but not laid-off,
workers are concerned, the Road Administration has paid a
total of approximately EUR 68 million to fund them,
including EUR 56 million funding of personnel costs
(Cf. Section 5.5)

(257) The Commission recognises that the respective service
projects were clearly targeted at alleviating the under-
taking’s structural disadvantage relating to overstaffing.

(258) From the explanations given by the Finnish authorities as
confirmed by Expert statement,
the
payment of EUR 68 million by the State did not involve
overcompensation for carrying out the respective services
(cleaning of roadsides, restoration of buildings and outdoor
areas). On the contrary, the service projects had generated
losses (Cf. Section 5.5).

it considers that

(259) Nevertheless the Commission considers that in the absence
of such special service projects the undertaking would have
had to remunerate its redundant workers without them
contributing to the increase of revenues of the undertaking.
There are no proofs that in other circumstances the Finnish
authorities would still have considered contracting out the
respective services and that it was the most economically

advantageous solution for the State to award the respective
contract(s) to Tieliikelaitos. As such, the measure must be
held to be financed through State resources.

(260) Furthermore, unlike the transfer of staff to the administra-
tion, the situation of Tieliikelaitos as regards the special
service projects is different to the situation contemplated by
the Court of First Instance in Combus.

(261) Unlike what happens when the 116 employees are
transferred back to the administration, with this measure
the overstaffing is not directly addressed. Rather the State is
procuring from Tieliikelaitos exclusively and without any
form of competitive tendering, the realisation of special
service projects that it seems it otherwise would not have
procured, or would not have procured to the same extent.
The State is then by the same token clearly distorting the
competitive playing field in the market undergoing the
liberalisation process. The measure does not remove the
structural disadvantage of the company, it rather allows it
to survive in spite of that disadvantage, and does not in
itself provide any incentive to put an end to this situation.

(262) The above considerations, examined in conjunction with
the relevant jurisprudence, including the Combus judgment,
thus lead to the conclusion that the measure concerned
must be regarded as aid.

6.3.5.3. S t a f f a d j u s t m e n t m e a s u r e s

(263) In addition to the

two above described measures
EUR 20,1 million were transferred from the Road
for
Administration’s budget
the purposes of helping
financing
to find new jobs,
employees
Tieliikelaitos’
supplementary education and retraining and for supporting
pensions for early retirement.

(264) The Finnish authorities have not provided detailed
information about the relevant measures. As mentioned
above,
jurisprudence must be interpreted
narrowly and the Commission can therefore not conclude
that these measures do not lead to the grant of a selective
advantage to Tieliikelaitos.

the Combus

6.3.6. Fiscal measure related to land purchases by Tieliikelaitos

(265) As regards the fact that during the transitional period those
persons that sold land to Tieliikelaitos were largely relieved
from tax on capital gains, the Commission notes that the
Finnish authorities in fact do not provide any argument
that measure as aid, as
contesting the qualification of
the
claimed by the complainants. On the basis of
information at
the
it must conclude that
measure in question may involve the grant of an advantage
to Tieliikelaitos.

its disposal,

(266) The Commission notes that Tieliikelaitos was not the direct
the
beneficiary of respective fiscal advantages. Besides,
Commission notes that not all land sellers could benefit

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from these advantages — only the sellers other than a
corporation, partnership or limited partnership. Tieliikelai-
tos might have benefited from the measure provided that
the direct beneficiaries would have (partially) passed these
advantages onto Tieliikelaitos.

(267) Should there have been any advantage to Tieliikelaitos, this
measure is in any case to be classified as existing aid
pursuant to Article 1 (b)-v of the Council Regulation (EC)
No 659/1999 — ‘aid which is deemed to be an existing aid
because it can be established that at the time it was put into
effect it did not constitute an aid, and subsequently became
an aid due to the evolution of the common market and
without having been altered by the Member State’ — for
the following reasons:

(268) No aid at the time it was put into effect. When Tieliikelaitos’
predecessor (‘road production’ part of the Road Service)
was still part of the Finnish administration, it benefited
from the fiscal advantages in question: According to
Section 49(1)(4) of the Income Tax Act, all State agencies
and State Enterprises benefit from this tax exemption.

services

(269) However, the Road service did not exercise any economic
activity at the time when the measure was put into effect,
for the following reason: according to its statute, the ‘Road
service’ was not
against
allowed to offer
remuneration on the market. It was confined to exclusively
working within the administration. Therefore, its activity of
planning, constructing and maintaining public roads was
constituted in a reserved area. In 1993 when the Income
Tax Act came into force, Tieliikelaitos formed part of the
Finnish administration and was not active in any other
market. The Commission concludes that at the time the
measure was put into effect, it did not constitute State aid,
because it did not benefit an undertaking in the sense of
Article 87(1) EC Treaty.

(270) Subsequently aid due to the evolution of the common market. As
of 2001, the ‘production part’ of the Road Service, now
established under the name Tieliikelaitos, could offer its
services on the market, thanks to the reform of the Finnish
road service market which is the object of the present
to
decision. The decision of
liberalise the provision of road services was part of a major
liberalisation movement, which has also prompted other
EU and EEA Member States to successively open their
markets for road services States on a voluntary basis (the
most recent one being carried out by Norway). Today,
many companies offer their services in the sector of road
maintenance and construction (53) across the entire EU and
EEA territory.

the Finnish government

(271) These reforms have changed the market in two ways: on
the one hand, former government agencies have entered
the market; on the other hand, the overall size of the
contestable market has increased substantially (e.g. as a
result of the liberalisation carried out by Finland, the size of
the contestable market has
increased by more than
EUR 400 million).

(272) In the light of

the Commission
these developments,
concludes that as of 2001, Tieliikelaitos is performing an
economic activity, namely offering road services against
payment, and hence constitutes an undertaking in the sense
of Article 87(1) EC Treaty. Due to the evolution of the
common market, the measure which at the time of its
introduction did not constitute State aid has therefore
become State aid.

(273) Aid without being altered by the Member State. As long as the
Section 49(1)(4) of the Income Tax Act was applicable to
Tieliikelaitos
it was applied in
unaltered way since 1993 when the Income Tax Act came
into force.

(till 1 January 2005),

6.3.7. Inapplicability of bankruptcy law

(274) The Commission considers that inapplicability of bank-

ruptcy law provides an advantage for Tieliikelaitos.

(275) The Commission refers to its Notice on the application of
Articles 87 and 88 of the EC Treaty to State aid in the form
of guarantees, (54) where it is stated in point 2.1.3:
‘The
Commission also 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
procedures or provides an explicit State guarantee or
coverage of losses by the State.’ (55)

(276) The Finnish authorities acknowledge that the fact that
Tieliikelaitos cannot go bankrupt pursuant to the Bank-
ruptcy Act could theoretically constitute an advantage as
Tieliikelaitos’ financing expenses could have been reduced
due to a reduction in the lender’s risks. But Tieliikelaitos did
not borrow new funds on the financial market after it had
been formed. Therefore, according to the Finnish author-
ities, it has not been possible for Tieliikelaitos to gain a
in comparison with private
competitive
competitors due to non-applicability of the bankruptcy law.

advantage

(277) As to the future external borrowing by Tieliikelaitos, the
Commission does not agree that existence of a guarantee
fee for the loans raised by Tieliikelaitos will eliminate the
presence of aid as it is not possible to quantify the market
price of an unlimited guarantee, simply because no market
operator would grant such guarantee.

(278) Besides, Tieliikelaitos

and
materials from external suppliers, which constitutes debt
by Tieliikelaitos to these external actors. In view of non-

continually orders

services

(53) The main EU companies active on the Finnish market are referred to

throughout the text of the decision.

(54) Officia Journal C 71, 11.3.2000, pages 14-18.
(55) See the decision to initiate the procedure, para. 103.

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applicability of bankruptcy law to Tieliikelaitos the Commis-
sion considers it is not excluded that Tieliikelaitos benefits
terms than otherwise
from more favourable payment
would have been possible. As
the
the State bears
responsibility for eventual default by Tieliikelaitos with
respect to its suppliers without being remunerated for this
guarantee,
‘financed from the State
resources’.

the measure is

(279) The Commission agrees however with the

Finnish
authorities that this measure is to be classified as existing
aid pursuant to Article 1 (b) of the Council Regulation (EC)
No 659/1999 ‘because it can be established that at the time
it was put into effect it did not constitute an aid’. Indeed,
the respective economic entity (56) has never been subject
to bankruptcy legislation, including the period before the
liberalisation of road services sector in Finland. For the
reasons set out above in point 0 and following, the measure
its
did not constitute State aid at
introduction, and has become State aid due to the
evolution of the common market.

the moment of

6.3.8. Particularities of
purposes

treatment

for

corporate income

tax

(280) The Commission considers that continuous de facto full
exception from the corporate income tax provides an
advantage for Tieliikelaitos (57).

(281) The Commission considers that, as such, the exemption
from the corporate income constitutes State aid. It is not
justified by the nature and the economy of the tax system.

(282) When it comes to the determination of

the State aid
element,
the Finnish authorities argue that although
Tieliikelaitos does not pay corporate income tax to the
State on its profits, this is taken into account when taking
annual decisions on profit-crediting to the State by
Tieliikelaitos, i.e. the percent of the profit that the under-
taking gives away in profit crediting comes close to what
the competitor companies pay as corporate income tax and
dividends.

(283) In the view of the Commission, this argument of the
Finnish authorities mixes the role of the State as fiscal
the State as the owner of
authority and the role of
undertakings. The Commission considers that
the
purpose of State aid control,
it is important to clearly
distinguish these two roles in line with the jurispru-
dence (58). On the one hand, the Commission needs to
verify whether the State, in its role as fiscal authority, has
treated all undertakings in the same manner; on the other
hand, the Commission needs to verify whether the State, in
its role as the owner of undertakings, behaves like a private

for

(56) Tieliikelaitos and its predecessor — the Road Service.
(57) State enterprises operating primarily to satisfy the needs of other

State institutions do not pay the tax.

(58) See paragraph 317 of

joined cases T-228/99 and T-233/99
Westdeutsche Landesbank Girozentrale and Land Nordrhein-Westfalen v
Commission [2003] ECR II-00435. See also paragraph 97 of
Commission decision of 16 December 2003 relating to EDF
(OJ L 49, 22.2.2005, p. 9) as well as Commission Decision of
19 May 2004 on measures implemented by Denmark for TV2/
Danmark (OJ L 85, 23.3.2006, p. 1).

investor,
payments.

for example when it decides on dividend

in order to
(284) Therefore the Commission considers that
ensure that Tieliikelaitos does not benefit
from more
favourable business conditions than its competitors, it is
necessary to subject
the undertaking to the standard
taxation rules.

(285) The Commission notes that

the exemption from the
corporate income tax is to be classified as existing aid
pursuant to Article 1 (b) of the Council Regulation (EC)
No 659/1999 ‘because it can be established that at the time
it was put into effect it did not constitute an aid’. Indeed,
the respective economic entity has never been subject to
standard corporate income tax rules. For the reasons set
out above in point 0 and following, the measure did not
constitute State aid at the moment of its introduction, and
has become State aid due to the evolution of the common
market.

6.4.

Impact on competition and trade between

Member States

(286) It is settled case-law that, ‘where an undertaking operates in
a sector in which producers from various Member States
compete, any aid which it may receive from the public
authorities is liable to affect trade between the Member
States and impair competition, inasmuch as its continuing
presence on the market prevents competitors from other
Member States from increasing their market share and
reduces their chances of increasing their exports to that
Member State’ (59).

(287) In the present case, the Commission observes that the
degree of opening of markets for the maintenance of road
infrastructure in the various Member States has been
sufficient to allow international groups, which are active in
more than one Member State, to emerge. Tieliikelaitos itself
in 2004, a subsidiary in Estonia, thus
has established,
is
engaging outside Finland.
currently involved in a joint venture in Sweden. Therefore
it is clear that Tieliikelaitos ‘operates in a sector in which
producers from various Member States compete’. As such,
it must be held that the grant of a selective advantage to
Tieliikelaitos finance by State resources constitutes State aid
that is in principle prohibited pursuant to Article 87(1) EC.

In addition, Tieliikelaitos

6.5.

Conclusion on the presence of State aid

(288) The Commission thus concludes

the measures
‘Negotiated contracts for provision of ferry services’ and
‘Transfer of staff to public administration departments’ do
not constitute State aid in the sense of Article 87(1) EC, as
they do not confer an economic advantage to Tieliikelaitos.

that

(59) Judgment of the Court of 21 March 1991 in Case C-305/89, Italian
Republic v Commission, European Court reports 1991 Page I-
01603.

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‘the grant of a preferential State loan’,

(289) However, the measures described above under the follow-
ing terms:
‘the
attribution of negotiated contracts in road services’ the
‘Funding of Special service projects’, the ‘Staff adjustment
measures’,
the
‘inapplicability of the normal corporate tax law’ and the
‘fiscal measure related to land purchase by Tieliikelaitos’
constitute aid that is in principle prohibited pursuant to
Article 87(1) of the EC Treaty. There might have been some
aid involved also in relation to land and gravel sites.

the ‘inapplicability of bankruptcy law’,

7.

COMPATIBILITY OF THE AID WITH THE COMMON

MARKET

(290) The same reasons which prevented the Commission from
declaring the package of measures carried out for the
benefit of Tieliikelaitos as ‘non-aid’ based on the criteria
developed in the Altmark judgement (cf. Chapter 6.1), make
it impossible for the Commission to clear those measures
of
the package, which contain State aid elements, as
compatible with the common market on the basis of
Article 86(2) of EC Treaty. In line with the Community
framework for State aid in the form of public service
compensation (60), Commission cannot declare as com-
patible with the common market on the basis of Arti-
cle 86(2) of the Treaty aid which is not clearly necessary for
the performance of the tasks assigned and proportional to
that end.

(291) As no other specific legal basis exists for examining the aid
package in question, the Commission has to assess whether
the aid granted to Tieliikelaitos is compatible with the
common market on the basis of Article 87(3)(c) EC, which
foresees that
certain
economic activities or of certain economic areas, where such aid
does not adversely affect trading conditions to an extent contrary
to the common interest’ can be declared compatible with the
common market.

‘aid to facilitate the development of

— the positive effects that are thus directly attributable
to the aid measure must thus be balanced against the
aid’s negative effects on competition and trade
between Member States, so that it can be concluded
that
trading
conditions to an extent contrary to the common
interest.

the aid does not adversely affect

(293) In assessing the relevant measures against these criteria, the
Commission will distinguish the various State aid measures
identified above within two groups:

— existing aid measures (advantages related to the
inapplicability of bankruptcy law, the inapplicability
the normal corporate tax law and the fiscal measure
related to the acquisition of land by Tieliikelaitos),

— new aid measures mainly linked to the transitional
period (advantages related to the State loan,
the
negotiated contracts
the special
the staff adjustment measures,
services projects,
possible aid related to land and gravel sites).

in road sector,

7.1.

Compatibility of the existing aid measures

(294) The Commission notes that the special corporate income
tax provisions and the non-application of the bankruptcy
law are measures inherent to the legal status of Tieliikelaitos
as a State Enterprise. The same is true with respect to the
fiscal measure related to land acquisition by Tieliikelaitos.

(295) Furthermore, these measures are not linked either to the
opening of the Finnish market for road construction, road
planning, road maintenance or to the development of other
economic activities. On the basis of
the information
the
available to the Commission,
measures pursuant to Article 87(3)(c) of the EC Treaty can
thus not be established.

the compatibility of

(292) In order for an aid measure to be compatible with the
the

common market pursuant
EC Treaty, the aid must fulfil the following criteria:

to Article 87(3)(c) of

— the aid must promote or further a project that is in

the interest of the Community as a whole,

(296) The Commission considers

the so called profit
crediting mechanism and guarantee fee mechanism do
not guarantee that the advantages related to inapplicability
of bankruptcy legislation and corporate income tax
legislation are entirely eliminated (see Chapter 6.2).

that

(297) The Commission also notes

arrangements
involving unlimited State guarantees for the benefit of
entities engaged in commercial activities have always been
found
the
EC Treaty (61).

incompatible with State

rules of

that

the

aid

— the aid must be necessary for the achievement of this
result, in that the objective it is seeking to promote
could not have been obtained in its absence, and the
duration,
intensity and scope of the aid must be
proportional to the importance of the intended result,

(60) OJ C 297/4, 29 November 2005, pp. 4-7.

(61) See Decision on the State aid granted by France to EDF and the
electricity and gas industries (OJ L 49, 22.2.2005, p. 9). See also E8/
2005 Spanish national public broadcaster RTVE (OJ C 239,
4.10.2006, p. 17; E50/2001 — Garantie accordée par CDC à sa
filiale CDC Ixis (OJ C 154, 02.07,2003, p13); E10/2000 — State
in Germany (Anstaltslast und
guarantees
Gewährträgerhaftung) — OJ C 150, 22.6.2002, p. 7).

for public banks

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(298) Consequently, the Commission concludes that the con-
tinuation of derogations from normal corporate income
taxation rules and bankruptcy legislation are incompatible
with the common market.

Furthermore, foreign undertakings have competed for the
EUR 630 million contract to build a highway between
Muurla and Lohja; Estonian contractors, among others,
have competed for Finnish maintenance contracts (63).

(299) In this respect the Commission welcomes the commitment
of the Finnish Government to reorganise Tieliikelaitos as a
government owned limited company by 1 March 2008.
The Commission agrees with this deadline since it appears
to be a reasonable time limit for carrying out such a
procedure,
its complexity from a legal
standpoint.

in the light of

(300) Finally, the Commission notes that the existing aid part of
the fiscal measure related to the land acquisition by
Tieliikelaitos was repealed in 2004.

(305) The development of prices for road maintenance services
(cf. Section 5.10) has been for the benefit of the Finnish tax
payers and the economy as a whole. Convincing evidence
to that effect, which has not been contested by the
complainants, has been provided by the Finnish authorities.

(306) The Commission therefore concludes that the aid measures
related to the transitional period do not appear to have
affected competition and trade to an extent contrary to the
common interest. It is against this background that the
necessity and proportionality of the aid will have to be
assessed, within the overall balancing test that is called for
under Article 87(3)(c).

7.2.

Compatibility of the new aid measures

7.2.1. Project that is in the interest of the Community as a whole

(301) This section concerns aid involved in the grant of a
preferential State loan, funding of special service projects,
attribution of negotiated contracts and funding of Staff
adjustment measures, as well as possible aid related to land
and gravel sites.

(302) By way of preliminary observation, the Commission notes
that, as is clear from the submission of
the Finnish
authorities, the aid in question, which were mainly of
transitional nature, do not seem to have negatively affected
the competitive structure of
the markets on which
Tieliikelaitos operates. Indeed, the information submitted
to the Finnish authorities
in
Section 5.10, shows that competition in the relevant
activity has significantly increased throughout the transi-
to
tional period and that Tieliikelaitos
substantial competitive pressure. The evidence put forward
by the complainants does not undermine this conclusion.

and described above

is now subject

(303) As regards the alleged high market share of Tieliikelaitos in
the sphere of regular road maintenance (see above,
in
Section 5.10), the Commission considers that, when the
relevant figure put forward by the complainant is looked at
in its proper economic context, it cannot be established
that
in the
respective market. This is in particular the case when the
high number of bids submitted, the switching rate of
customers, and the outcome of the tenders organised in
2006 are considered. (62)

the competition would not

function well

(304) Commission notes in this respect that, according to the
complainants themselves, already during the transitional
period in 2001-2004, foreign operators were active in the
Finnish infrastructure market, including Sweden’s Skanska
AB and NCC AB through their Finnish subsidiaries.

(62) See Section 5.10.

(307) The common interest invoked by the Finnish authorities is
the effective opening of the State segment of the Finnish
road service market to competition, combined with the
preservation of
the ‘Road
the Road Service (Tieliikelaitos’
Production’ section of
predecessor),
to transform into a
competitive undertaking while avoiding from the forced
lay-offs of existing employees at least during the transi-
tional period.

the industrial potential of

and allowing it

(308) The Commission considers that such a project can indeed

serve the common interest of the Community.

(309) As correctly mentioned by the Finnish authorities, the
opening of closed national markets to competition at
European level constitutes a positive development and an
important policy objective of the Community. (64)

(310) The Commission considers that the liberalisation of the
road service market and the preservation of Tieliikelaitos’
industrial tool were intimately linked. Firstly, it notes that
the adoption of the liberalisation legislation was directly
linked to the adoption of a provision guaranteeing that
Tieliikelaitos could not lay-off personnel — although at that
time the company had a serious problem of overstaffing.
Secondly, as is evident from the evolution of the market,
there was ample scope for Tieliikelaitos to play a significant
role in the competitive landscape and offer road services
that adequately met the demand by the various customers,
in terms of both price and quality.

(63) Paragraph 80 of the complainants’ June 2006 submission.
(64) See , inter alia, XXXth Report on Competition Policy (2000), p. 128;
Lisbon European Council, 23-24 March 2000, Presidency Conclu-
sions, SN 100/00; Communication to the Spring European Council,
COM(2005) 24, p. 21, Brussels, 2 February 2005; Green Paper on
Services of General Interest, COM(2003) 270 final, paragraph 5,
Brussels, 21 May 2003.

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(311) The examined State aid package, by relieving Tieliikelaitos
from the extra personnel costs it had to bear due to
inherited liabilities from the time when the respective
services were part of the public administration system (in-
house services), would enable the company to operate
freely in the liberalised market and to make the necessary
adjustments to respond to market and other technological
developments that affect the company’s viability in the long
term.

(312) The Commission further notes that the complainants do
not challenge in substance the argument by the Finnish
authorities that opening the market to competition is in the
common interest of the Community. Nor do they contend
that there was no link between the opening of the market
and the preservation of staff at Tieliikelaitos. They essentially
argue that the desired results could also have been achieved
without aid.

7.2.2. Necessity and proportionality of the aid measures, no effect
on competition and trade contrary to the common interest

(313) In order to assess whether the relevant aid measures are
necessary and proportionate to the objective of common
interest identified above, it is appropriate to distinguish first
between the various aid measures.

7.2.2.1. L a n d a n d g r a v e l s i t e s

(314) As set out in Section 6.3.2 of the present decision, State aid
might have been granted to Tieliikelaitos by the Finnish
government in relation to the land and gravel sites.

(315) The Commission acknowledges

if

the

that

Finnish
authorities were to introduce competition in the road
and ferry services, they had to transform Tieliikelaitos into a
separate entity and to provide it either with the assets
necessary to perform its tasks or with the capital necessary
to buy these assets. Therefore, in the present case, taking
into consideration the process undertaken by the Finnish
authorities to open road services to competition,
the
possible State aid in relation to the land and gravel sites can
be considered as a proportionate measure.

(316) The Commission concludes that, should there be State aid
this State aid is

in relation to land and gravel sites,
necessary and proportionate.

7.2.2.2. S t a f f a d j u s t m e n t m e a s u r e s

(317) The various Staff adjustment measures described above in
Section 5.5 provided incentives to Tieliikelaitos’ employees
to leave the company. Such measures were clearly
necessary to the objective sought, in view of Tieliikelaitos’
overstaffing, which is not contested by the complainants.
They were also manifestly proportionate, since the State
financed only 50 % of
expenditure
(EUR 20,1 million were financed by the State and
EUR 20 million by the undertaking). Since their effect

respective

the

was largely dependent on whether the relevant staff would
seize the opportunity of leaving the company, they were
not sufficient
to compensate the significant costs of
Tieliikelaitos’ overstaffing.

7.2.2.3. F u n d i n g o f S p e c i a l s e r v i c e s p r o j e c t s

(318) As has been described above, Special service projects
provided an activity to part of Tieliikelaitos’ excess staff. Had
not such projects been put in place, it is clear that, in view
of the fact that Staff adjustment measures could only solve
part of the overstaffing problem, Tieliikelaitos would have
either maintained the remaining excess staff temporarily
without work or would have affected it to maintenance
contracts. Both such options would have been detrimental
to the objective of common interest aimed at through the
measure. Maintaining the staff concerned inactive would
have wasted human capital accumulated in the period prior
to liberalisation, in terms of specific skills and know-how.
Affecting the staff to maintenance contracts would have
prevented Tieliikelaitos’ from progressively adapting its way
of working in order to deliver the relevant road services in
a cost-effective way. Therefore, the Commission considers
that the funding of Special services projects through State
aid may meet the criterion of necessity of the aid to a
common interest objective.

(319) As

regards

the proportionality of

the
Commission notes that there was no overcompensation
for the work carried out in the Special service projects.
Convincing evidence to that effect was submitted by the
Finnish authorities (see above, Section 5.5).

that measure,

7.2.2.4. A t t r i b u t i o n o f n e g o t i a t e d c o n t r a c t s

i n r o a d s e r v i c e s

(320) There was naturally a limit as to the amount of work that
could be done through Special service projects, this limit
residing in the State’s actual need for such services to be
provided. The Commission concludes from the various
data submitted by the Finnish authorities that the Special
services project only absorbed a part of Tieliikelaitos’
overstaffing-related costs. As mentioned above in Chap-
ter 5.3, on average, Tieliikelaitos had during the transitional
period, still 100 employees more than the optimum
number, in spite of the Staff adjustment measures and the
Special service projects.

(321) For the same reasons set out above in relation with Special
service projects,
it was not in the common interest for
Tieliikelaitos to maintain this extra staff inactive. The ability
not
to overburden tendered contracts, where it was
submitting bids to open tender, with the costs related to
redundant staff was indeed essential if Tieliikelaitos was to
adapt to a competitive market. Therefore the respective
financial burden was compensated through the negotiated
contracts.

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(322) As regards the negotiated contracts, their existence was
linked to the gradual nature of the liberalisation process as
devised by Finland. These contracts represented at the
beginning of the period a large portion of Tieliikelaitos’
activity, which then gradually decreased. Not taking into
account the additional costs borne by the undertaking as a
result of
its overstaffing would have led to significant
deterioration of its financial situation.

(323) In the light of the above considerations, the Commission
considers that the aid mechanism linked with negotiated
contracts was necessary.

profit/turnover ratio during the transitional period stood at
a low level of 2,4 % whereas for its competitors the average
indicator was 4,5 % (68). As staff reduction measures were
not completed during the transitional period, the respective
indicator was even worse in 2005 (1,6 %). In 2005 the
undertaking had to bear the financial cost of reducing its
staff number by more than 400 persons without any State
support. The operating profit indicator improved again in
2006 (2,2 %) and continues to improve (69). It therefore
seems
to
removing the respective structural disadvantage had a
negative impact on the undertaking’s profitability and
hence its competitive position.

the own contribution of Tieliikelaitos

that

(324) As regards the proportionality condition, a procedure was
organised in order to limit risks of overcompensation. The
Commission considers that the annual expenditure adjust-
the beginning of
ment procedure described above at
Section 5.3 was appropriate in this regard.

(328) Furthermore,

it must be recalled that the aid measure
package does not seem to have had any lasting impact on
the structure of competition (Cf. Section 5.10).

7.2.2.5. P r e f e r e n t i a l

l o a n a n d o v e r a l l c o n c l u -
s i o n o n n e c e s s i t y a n d p r o p o r t i o n a l i t y

(325) As

regards

finally the preferential

loan granted to
Tieliikelaitos, the Commission notes firstly that it yields a
net advantage for the undertaking of EUR 7,2 million,
which is approximately 8 % of the overall amount of aid
granted to Tieliikelaitos.

(326) When adding this aid amount to the amount represented
by the above-mentioned aid measures, Tieliikelaitos received
from the State directly or indirectly EUR 92,8 million (65).
This manifestly did not
structural
disadvantage borne by Tieliikelaitos, which was estimated
at EUR 157 million. (66) As such, Tieliikelaitos made a
significant contribution from its own resources in order to
inherited from pre-
solve the overstaffing problem it
liberalization time. In this regard, one should mention in
particular EUR 20 million that were
allocated by
Tieliikelaitos for financing severance packages. (67)

compensate

the

(327) In the light of the financial statements of Tieliikelaitos, it
appears that the undertaking could have faced difficulties,
had it contributed much more from its own resources to
the personnel adjustment measures. Tieliikelaitos’ operating

(65) This includes EUR 7,2 million aid element of preferential

loan,
EUR 9,5 million aid element related to the negotiated contracts,
EUR 56 million financing of staff expenditures related to Special
service projects and EUR 20,1 million financing for staff adjustment
measures.

(66) This sum comprises only additional staff-related costs. As to the
foregone income due to restrictions on the use of land resources
during the transitional period, the Commission takes on board only
real costs; besides, in this particular case it is very probable that the
undertaking will very soon recuperate the foregone income. The so
called public service obligation costs are of relevance only under
Article 86(2) of the Treaty. They would have been looked at only if
the whole of the aid package could not be approved on the basis of
Article 87(3)c of the Treaty.

(67) See above, in Section 5.5.

(329) In this regard, the Commission notes that the Finnish
authorities had designed the aid package to Tieliikelaitos in a
way that limited possible distortions of competition. In
particular this concerns the approach chosen with respect
to the structure of the opening balance sheet of Tieliikelaitos
(not distributing the entire stock of financial assets as
equity) in order to align it with the balance sheets of private
undertakings in the sector. This also concerns the efforts to
limit as much as possible the differences between the
margins of negotiated and tendered contracts,
inter alia,
through the annual expenditure adjustment procedure.

(330) The Commission also notes that the Road Administration
carried out a number of measures to facilitate entry of new
market players. To reduce possible barriers to market entry
which could be caused for instance by the complexity of
the Road administration arranged
tender documents,
briefings for contractors and prepared the procurement
programmes and tendering rules involving to the extent
possible all the interested parties. The Road administra-
tion’s procurement strategy has been prepared by taking
into account the opinions of actors in the sector about e.g.
how big the maintenance contracts should be. Offer fees
paid (5 000 EUR per offer) with respect to offers meeting
the minimum requirements set by the Road Administration
also were conducive to the entry of new market players (70).

(331) In 2006 the Ministry of Trade and Industry blocked
Tieliikelaitos’ negotiations with several cities about setting
up joint ventures that would combine the technical service
units of the cities with Tieliikelaitos local service units. The

(68) These figures are based on the data from annual reports submitted
by the Finnish authorities
reports of
Tieliikelaitos, YIT-Yhtimä Oyj, Lemminkäinen Oyj, Skanska Oy,
NCC Finland Oy, Palmberg Group, Oy VR-Rata Ab)

(data from the annual

(69) Data taken from the publicly available Tieliikelaitos annual reports.
(70) The Government’s 2005 report to the Parliament about the road

service reform.

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Ministry required that the cities wishing to set up the
planned joint ventures select their partner through an open
competitive tender (71).

(332) The Commission rejects

the complainants’ allegation
according to which Tieliikelaitos would have been using
predatory pricing practices during the transitional period
or in 2005. The information provided by the Finnish
authorities shows that Tieliikelaitos had positive margins
from the tendered contracts it entered into. In fact, the
Commission notes that
the level of Tieliikelaitos profit
during the transitional period would have corresponded to
the average of its competitors if it did not have non-
compensated additional costs (EUR 65 million — see
Section 7.1.2) resulting from the legacy of the previous
regime.

(333) In the light of the above, the Commission concludes that,
on balance, the examined new aid measures, which were
transitory in nature since they were linked to the
transitional period, are compatible with the common
market, since they are necessary and proportionate to an
objective of common interest and do not distort trade and
competition to an extent contrary to the common interest.

(334) This conclusion is in line with the Commission’s decision
practice, notably in the OTE (72) and EDF (73) cases.

(335) In EDF, the Commission declared compatible a measure by
which the French State relieved enterprises in the French
electricity and gas sectors of the payment of some of the
specific pension rights the employees had acquired in the
past, at a time when companies were operating under a
legal monopoly. The Commission considered that at that
time the companies were shielded from any intra-industry
competition and could thus bear the higher pension rights
without suffering any significant economic disadvantage.
The Commission acknowledged, that these ‘past liabilities’
represented a significant difficulty for these enterprises,
once they were operating in competition with other
electricity or gas enterprises that did not have to bear
similar costs from the past (par. 143 of the Decision). The
Commission regarded the aid granted ‘with the view to such
sectoral reorganization’ as necessary and proportionate on the
grounds that the other aspects of the sectoral reform did
not involve any State aid (paragraph 146 of the Decision).
In the present case, similarly, the overstaffing that burdened
Tieliikelaitos was
inherited from the pre-liberalisation
period; the measures contributed to alleviate that burden
in a proportionate manner and to allow Tieliikelaitos to
participate fully in the competitive process, and hence take
part in the reorganisation of the road services sector.

(336) In OTE, where the Commission explicitly referred back to
the EDF decision (74), the Commission assessed the Greek

(71) Source: the Annual Report of Tieliikelaitos for 2006.
(72) The Commission decision of 10 May 2007 in State aid case No C 2/
see http://ec.europa.eu/comm/competition/

06 (ex N 405/05),
state_aid/register/ii/

(73) Commission Decision of 16 December 2003 ‘on the State aid
granted by France to EDF and the electricity and gas industries’,
OJ L 49/9 of 22.2.2005
(74) OTE decision, paragraph 116.

government’s contribution to the Hellenic Telecommunica-
tion Operator’s (OTE) voluntary early retirement scheme.
Due to the life tenure status of OTE employees, which was
inherited from the time when OTE had a monopoly
position, OTE could not unilaterally dismiss personnel, but
had to have recourse to voluntary redundancy offers. To
make such offers attractive, OTE had to offer its employees
voluntary redundancy terms and conditions that reflect the
latter’s permanent status, which, in turn, led to higher costs
for OTE than the costs of comparable early retirement
schemes offered by other companies under general labour
laws and regulations. The Commission verified that the
respective aid measure would only partially compensate for
the extraordinary costs caused by the structural disadvan-
tages resulting from OTE’s former position as State-owned
monopoly, and that the burden was not associated with
directly related advantages of its former status that would
mitigate it. The Commission also assessed whether the
relevant market was fully liberalised in the sense that an
appropriate legal or regulatory framework existed and
concluded that
the aid measure was compatible with
Article 87(3) of the EC Treaty. In the present case, the
overall compensation obtained by Tieliikelaitos does not go
beyond the burden derived from the overstaffing, which is
not compensated through other advantage, and the market
development point to a development of effective competi-
tion in the relevant market.

8.

CONCLUSION

(337) In the light of the above considerations, the Commission
considers that the aid provided during the transitional
period (2001 to 2004) to Tieliikelaitos is compatible with
the common market on the basis of Article 87(3) c of the
EC Treaty. At the same time the Commission considers that
the continuation of exemptions from the application of
normal bankruptcy law and corporate income tax rules are
not justified and that such derogations have therefore to be
abolished.

HAS ADOPTED THIS DECISION:

Article 1

State aid provided to Tieliikelaitos on a transitional basis and
consisting of the following measures:

— preferential State credit in the amount of EUR 41,44 million
granted at the time of transformation of undertaking from
the production part of the Road Service into the State
Enterprise,

— aid amounting to EUR 9,5 million provided through
negotiated contracts for services/works contracts with
respect to State roads during the period 2001-2004,

— aid provided through Special service projects for employ-
ment of excess staff of Tieliikelaitos, which were financed by
the Road administration at the level of EUR 68 million,

L 270/30

EN

Official Journal of the European Union

10.10.2008

— staff adjustment measures financed by the Road adminis-
tration at the level of EUR 20,1 million (measures helping
employees to find new jobs,
financing supplementary
education and retraining and supporting pensions for early
retirement),

of normal corporate income tax) have to be repealed by 1 March
2008 at the latest in accordance with the commitment provided
by the Finnish authorities.

Article 3

— possible aid related to the land and gravel sites put at the

disposal of Tieliikelaitos

This Decision is addressed to Finland.

is compatible with the common market on the basis of Arti-
cle 87(3)(c) EC.

inform the Commission, within two months
Finland shall
following notification of this decision, of the measures already
taken and planned to comply with it.

Article 2

Existing aid measures for the benefit of Tieliikelaitos consisting of
inapplicability of bankruptcy legislation,
inapplicability of
normal corporate income tax and the fiscal aid measure related
to land purchase by Tieliikelaitos are not compatible with the
common market. Those existing aid measures which are still in
force (inapplicability of bankruptcy legislation and inapplicability

Done at Brussels, 11 December 2007.

For the Commission

Jacques BARROT

Vice-President