The Concept of Services of General Economic Interest

1
The Concept of Services of General Economic
Interest
Scope, principles, Altmark-decision and
secondary legislation in the field of SGEI
Jürgen Fritzenkötter
2
Overview

• Scope of SGEI
• Legal basis
• Meaning and principles
• Decisions of the European Court of Justice
• Secondary legislation
• Conclusion
• Activities on local and regional level

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1. Scope of SGEI

• The term services of general economic interest
  is used in Articles 16 and 86(2) of the Treaty.
• It is not defined in the Treaty or in secondary
  legislation.
• However, in Community practice there is broad
  agreement that the term refers to services of an
  economic nature which the Member States or the
  Community subject to specific public service
  obligations by virtue of a general interest
  criterion.

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Scope of SGEI (part 2)

• The concept of services of general economic
  interest covers in particular certain services
  provided by the big network industries such as
  transport, postal services, energy and
  communications.
• However, the term also extends to any other
  economic activity being subject to public service
  obligations.

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Scope of SGEI (part 3)

• In principle, Member States have a wide margin to
  decide, how to organise services of general
  interest.
• In the absence of Community harmonisation,
• the relevant public authorities in the Member
  States are in principle free to decide whether to
  provide a service of general interest themselves
  or whether to entrust its provision to another
  (public or private) entity.

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Legal Basis Article 86 para2 EC-Treaty

• Undertakings entrusted with the operation of
  services of general economic interest (... ...)
  shall be subject to the rules contained in this
  Treaty, in particular to the rules on
  competition, insofar as the application of such
  rules does not obstruct the performance, in law
  or in fact, of the particular tasks assigned to
  them. The development of trade must not be
  affected to such an extent as would be contrary
  to the interests of the Community.

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Relationship between Article 86 (2) and Article
87 (1)

• Article 86 para 2 does accept other behavior than
  ordered by State aid rules.
• It allows to support undertakings, being
  entrusted with the operation of services of
  general economic interest,
• as far as this operation is necessary.

• Article 87 para 1 contains a general
  prohibitation of State aids

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2. Meaning of Article 86 (2) EC-Treaty (General
Rule)

• Principally, State aid rules also have to be
  applied in the field of SGEI.
• But, these rules should not hinder activities in
  the field of SGEI.
• At the same time, this privilege for SGEI has not
  to affect trade to such an extent as it would be
  contrary to the interests of the Community.
• --gt Principle of proportionality!

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Meaning of Article 86 (2) EC-Treaty (part 2)

• Article 86 para 2 implicitly recognises the right
  of the MS to assign specific public service
  obligations to economic operators.
• It sets out a fundamental principle ensuring that
  services of general economic interest can
  continue to be provided and developed in the
  common market.
• Providers of services of general interest are
  exempted from application of the Treaty rules
  only to the extent that this is strictly
  necessary to allow them to fulfil their general
  interest mission.
• Therefore, in the event of conflict, the
  fulfilment of a public service mission can
  effectively prevail over the application of
  Community rules, including internal market and
  competition rules, subject to the conditions
  foreseen in Article 86 (2)
• Thus, the Treaty protects the effective
  performance of general interest task but not
  necessarily the provider as such.

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Object of SGEI

• MS are responsible to define, what are SGEI.
• MS have a wide margin to decide, how to organise
  services of general interest.
• In the absence of Community harmonisation,
• the relevant public authorities are in principle
  free to decide whether to provide a service of
  general interest themselves or whether to entrust
  its provision to another (public or private)
  entity.

• Services
• on the market,
• defined by the Member States,
• of general interest,
• being subject of special obligations by the
  performance of these measures.

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Objectives of SGEI

• Users (consumers and enterprises) may expect
  high quality services at affordable prices.
• Competitors may expect guard against
  cross-subsidies for non-public service
  activities.
• Tax payer may expect lower costs for the public
  budgets.

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Fundamental principles for SGEI based on
Commissions Communication on SGEI from 2001
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Neutrality

• Neutrality as regards the public or private
  ownership of companies is guaranteed by Article
  295 of the EC Treaty.
• On the one hand, the Commission does not question
  whether undertakings responsible for providing
  general interest services should be public or
  private. Therefore, it does not require
  privatisation of public undertakings.
• On the other hand, the rules of the Treaty and in
  particular competition and internal market rules
  apply regardless of the ownership of an
  undertaking (public or private).

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Member States freedom to define SGEI

• MS are primarily responsible for defining what
  they regard as SGEI on the basis of the specific
  features of the activities.
• This definition can only be subject to control
  for manifest error.
• They may grant special or exclusive rights that
  are necessary to the undertakings entrusted with
  their operation, regulate their activities and,
  where appropriate, fund them.
• In areas that are not specifically covered by
  Community regulation MS enjoy a wide margin.
• The public service mission needs to be clearly
  defined and must be explicitly entrusted through
  an act of public authority (including contracts).

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Proportionality under Article 86 (2)

• The means used to fulfil the general interest
  mission shall not create unnecessary distortions
  of trade.
• Specifically, it has to be ensured that any
  restrictions to the rules of the EC Treaty, and
  in particular, restrictions of competition and
  limitations of the freedoms of the internal
  market do not exceed what is necessary to
  guarantee effective fulfilment of the mission.
• The performance of the service of general
  economic interest must be ensured and
• the entrusted undertakings must be able to carry
  the specific burden and the net extra costs of
  the particular task assigned to them. The
  Commission exercises this control of
  proportionality, subject to the judicial review
  of the Court of Justice, in a way that is
  reasonable and realistic.

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Principles for SGEI based on Green Paper for SGEI

• SGEI in the European Union are complex and
  constantly evolving, covering
• a broad range of different types of activities,
  from the big network industries (energy, postal
  services, transport and telecommunications) to
  health, education and social services
• the level at which these services are provided is
  also highly diverse, from European or even global
  to purely local
• the services are varied in nature, some market
  and some non-market
• the organisation of these services varies
  according to historical, geographical and
  cultural traditions and the characteristics of
  the activity concerned.
• Commission raised the issue of whether a general
  legal framework should be established at
  Community level for services of general interest.

17
Principles for SGEI based on White Paper for SGEI

• White Paper presents the Commission's conclusions
  following a broad public consultation launched on
  the basis of the Green Paper,
• but it does not intend to close the debate.
• It presents the main elements of a strategy aimed
  at ensuring that all citizens and enterprises in
  the Union have access to high-quality and
  affordable services of general interest.

• Need to ensure the harmonious combination of
  market mechanisms and public service missions.
• SGI are one of the pillars of the European model
  of society.
• SGI remain essential for ensuring social and
  territorial cohesion and for the competitiveness
  of the European economy.

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Principles for SGEI based on White Paper for SGEI
(part 2)

• An open and competitive internal market, on the
  one hand, and the development of high-quality,
  accessible and affordable services of general
  interest, on the other, are compatible
  objectives.
• The Commission concludes that it would be best
  not to present a proposal of a framework
  directive for the time being.

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3. Decisions of the European Court of Justice in
the field of SGEI

• Different decisions related to the State aid
  quality of the compensation granted to
  undertakings performing SGEI
• before Ferring
• after Ferring
• after Altmark-Trans.

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Decisions of the European Court of Justice in the
field of SGEI before Ferring

• All compensations, granted to undertakings,
  related to their performance of SGEI, are State
  aids.
• Based on article 86 para 2 they are normally in
  line with the Common Market.

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Ferring-Decision of the European Court of
Justice

• Financial support in favour of an undertaking,
  which is entrusted in the performance of SGEI, is
  a compensation.
• As far as this compensation is not exceeding the
  additional net costs, created by fulfilling a
  task of general interest
• -gt No State aid!
• But Overcompensation is not backed by Article 86
  para 2. -gt State aid!

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Results of Ferring-Decision

• If the (appropriate) compensation is no State
  aid
• No notification to the European Commission by
  MSs. (Only State aids have to be (prior)
  notified.
• Article 86 para 2 is loosing its function in
  practice.

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Preparation of the Altmark-Decision

• Adv. General Jacobs recommends a compromise
  solution
• Ferring is only applicable, if the compensation
  is related to clearly defined obligations of
  SGEI.
• All other payments, also in the field of SGEI,
  are State aids.

• Adv. General Léger (in Altmark-case)
• Ferring is the opposite position of the former
  jurisdiction of the Court.
• Sharp criticism related to Ferring
• Recommends to return to the jurisdiction before
  Ferring.

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Altmark-Trans-Decision

• All compensations in favour of undertakings
  performing tasks of SGEI are no State aids, if
  all following 4 conditions are fulfilled

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4 Conditions of the Altmark-Decision

• First, the recipient undertaking 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,
  to avoid it conferring an economic advantage
  which may favour the recipient undertaking over
  competing undertakings.

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4 Conditions of the Altmark-Decision (part 2)

• Third, the compensation cannot exceed what is
  necessary to cover all or part of the costs
  incurred in the discharge of public service
  obligations, taking into account the relevant
  receipts and a reasonable profit.
• Fourth, where the undertaking which is to
  discharge public service obligations, in a
  specific case, is not chosen pursuant to a public
  procurement procedure which would allow for the
  selection of the tenderer capable of providing
  those services at the least cost to the
  community, the level of compensation needed must
  be determined on the basis of an analysis of the
  costs which a typical undertaking, well run and
  adequately provided with means of transport so as
  to be able to meet the necessary public service
  requirements, would have incurred in discharging
  those obligations, taking into account the
  relevant receipts and a reasonable profit for
  discharging the obligations.

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Summary of the results of the Altmark-Decision

• Results of the Altmark-Decision are
• public financial support,
• granted to an undertaking which has been
  entrusted expressively with tasks of general
  interest,
• in order to compensate additional costs, which
  have been created by the performance of these
  tasks,
• fulfilling all 4 conditions of the
  Altmark-Decision
• -gt The compensation is not regarded as State aid!

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Results of an open and non-discrimination tender
procedure

• Such a procedure
• creates lower costs for the public budgets and
• the amount given as a compensation for additional
  duties of performing SGEI is regarded to be in
  line with Article 86 para 2 EC-Treaty.

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4. Secondary Legislation based on the
Altmark-Decision (Decision)

• Compensation granted to hospitals and social
  housing for services of general economic
  interest, or
• compensation for air and sea transport to islands
  as well as airports and ports below specific
  thresholds defined in passenger volumes.
• -gt Exemption from notification!

• Exemption Decision of the Commission
• Content Compensation for the
  performance of SGEI by undertakings
• Decision is applicable to compensation of less
  than 30 million per year provided its
  beneficiaries have an annual turnover of less
  than 100 million, or

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Exemption Decision in detail

• The Commission Decision is based on Article 86(3)
  of the EC Treaty.
• It specifies the conditions under which
  compensation to companies for the provision of
  public services is compatible with State aid
  rules (a clearly defined public service mandate
  and no over-compensation) and
• does not have to be notified to the Commission
  in advance .
• The Decision is applicable to compensation of
  less than 30 million per year provided its
  beneficiaries have an annual turnover of less
  than 100 million in a period of 2 years.
• Compensation granted to hospitals and social
  housing for services of general economic interest
  also benefits from the Decision irrespective of
  the amounts involved,
• as does compensation for air and sea transport to
  islands lt300 000 as well as airports lt1 000 000
  and ports lt300 000 passenger volumes within 2
  years before the transfer of SGEI.
• The decision
• is applicable as far as there are no
  sector-specific European rules, and
• it is not applicable for transport services on
  land.

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Secondary Legislation based on the
Altmark-Decision (Framework)

• Commissions Framework
• Content Compensation for the performance of
  SGEI by undertakings,
• which are not involved in the exemption decision.
• Legal results
• 1. Notification obligation
• 2. Criteria for authorization of such
  compensations.

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Commission Framework (additional background)

• The Commission Framework specifies the conditions
  under which compensation - not covered by the
  Decision - is compatible with state aid rules.
• Such compensation will have to be notified to the
  Commission due to the higher risk of distortion
  of competition.
• Compensation that exceeds the costs of the public
  service, or is used by companies on other markets
  open to competition, is not justified, and is
  incompatible with the Treatys state aid rules.

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4-Step-Theory
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Amendment to the Commission Transparency
Directive

• The amendment to the Commission Transparency
  Directive (80/723/EEC) clarifies
• that companies
• receiving compensation and
• operating on both public service and other
  markets
• must have separate accounts for their different
  activities,
• so that the absence of over-compensation can be
  checked.

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5. Conclusion

• MS are primarily responsible for defining what
  they regard as SGEI on the basis of the specific
  features of the activities.
• This definition can only be subject to control
  for manifest error.
• Transparency, proportionality and legal certainty
  are important principles for SGEI.
• Compensations which fulfil all Altmark-Condition
  s are no State aids.
• Exemption Decision exempts from notification
  obligation, if its criteria are fulfilled.
• Commission framework is - after a notification -
  a bases for auhorization of aids, related to
  SGEI, which do not fulfil the Altmark-conditions
  as well as the criteria of the Exemption
  Decision.

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Guiding Principles for SGEI

• Ensuring consumer and user rights.
• Monitoring and evaluating the performance of
  SGEI.
• Respecting diversity of services and situations.
• Increasing transparency.
• Providing legal certainty.

• Enabling public authorities to operate close to
  citizens.
• Achieving public service objectives within
  competitive open markets.
• Ensuring cohesion and universal access.
• Maintaining a high level of quality, security and
  safety.

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6. Activities on Local and Regional Level

• To-Do-List
• 1. Definition of SGEI by the responsible
  authority (municipal council, e.g.)
• 2. Transfer of SGEI fulfills criteria of Art. 4
  of the exemption decision
• 3. Checking the criteria of art. 2 and 3
• 4. Amount of compensation in line with art. 5
• 5. Ex post control based on art. 6, 7 and 8.

• Analyze
• 1. Analyze of out- sourced activities,
• 2. Activity in the field of SGEI ?
• 3. Activity of an undertaking?
• 4. Compensation (Advantage, granted by a public
  authority?)

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Clarification by Examples

• Guarantee, favoring a social housing company
  creating better conditions for a credit in order
  to reorganize the buildings.
• Selling a water company below market price,
  taking into account disadvantages by delivering
  houses far away.
• Privatization of a spa, being (actually) a part
  of the city administration.

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Finish

• Thank you very much for your patience.