State aid — application of rules for services of general economic interest (SGEI)

KEY POINTS

Services of general economic interest (SGEI)

Services of general economic interest are economic activities, such as transport networks and postal and social services, regarded by public authorities as being particularly important to citizens, and that would not be supplied (or would be supplied under different conditions) if there were no public intervention.

Compensation for SGEI

According to the 2003 Altmark judgment of the Court of Justice of the European Union (CJEU), public service compensation does not constitute State aid when 4 cumulative conditions are met:

• the recipient service provider must have clearly defined public service obligations;
• the method for calculating the compensation must be objective, transparent and set out in advance;
• the compensation cannot exceed the relevant costs and a reasonable profit, i.e. no overcompensation; and
• the provider is either chosen through a public procurement procedure or the level of compensation is calculated based on an analysis of the costs of an average ‘well-run’ business in the sector concerned.

Where 1 or more of these conditions is not fulfilled, the public service compensation will be examined under State aid rules.

Reform of State aid rules for SGEI

A 4-document SGEI package aims to clarify and simplify State aid rules for SGEI.

Communication on the application of EU State aid rules

• explains two types of notions: general State aid concepts and SGEI-specific concepts;
• clarifies the conditions under which public service compensation does not constitute State aid owing to the absence of any advantage;
• sets out the different requirements for the operation of an SGEI
  • the entrustment act, a public service assignment that defines the obligations of the service provider(s) and of the public authority
  • the method for calculating the compensation, which has to be established in advance in an objective and transparent manner. No specific formula is required, but how the compensation will be calculated must be clear from the outset
  • avoiding overcompensation — the level of compensation must not exceed what is necessary to cover all or part of the costs and a reasonable profit and
  • the selection of provider and the calculation of the compensation, either under an appropriate tendering procedure or through a benchmarking exercise.

The decision and the framework referred to below define the conditions under which a State aid measure is deemed to be or can be found compatible with the internal market on the basis of Article 106(2).

Decision 2012/21/EU

• The decision allows unlimited spending in the area of social services:
  • social housing and hospitals;
  • services meeting social needs as regards health and long-term care;
  • childcare;
  • access to and reintegration into the labour market; and
  • the care and social inclusion of vulnerable groups.
• For all other SGEI activities, the compensation threshold is €15 million per year. Any funding given above this threshold would have to be notified to the Commission under the SGEI framework.
• The period of entrustment with an SGEI provider does not exceed 10 years.
• In the area of transport, compensation can be given:
  • for air and maritime links to islands where the average annual traffic does not exceed 300,000 passengers;
  • to ports where the average annual traffic does not exceed 300,000 passengers; and
  • to airports where the average annual traffic does not exceed 200,000 passengers.

EU framework

The framework:

• gives a more precise methodology for calculating the amount of compensation allowable;
• requires EU countries to introduce efficiency incentives to encourage the service provider to do so in the most efficient manner;
• reinforces transparency requirements;
• introduces the requirement for SGEI to comply with EU public procurement rules;
• introduces a ‘no discrimination’ requirement — when there are multiple organisations providing an SGEI, the compensation must be calculated in the same way to avoid discrimination.

Reporting

EU countries must report to the Commission on the implementation of the decision and on the compliance with the framework every 2 years.

Transparency

EU countries must publish details on funding an SGEI within the scope of the decision (for compensation above €15 million granted to an undertaking that also has activities outside the scope of the SGEI) or the framework on an annual basis:

• on the Commission’s State aid transparency website; or
• on their national or regional transparency website.

Guidelines

The Commission has prepared guidelines on the application of State aid rules to SGEIs.