Services of General Economic Interest

Services of general interest are not the ordinary services provided in the market, but services which exhibit special characteristics. These services are usually carried out by the state, regions or municipalities in the public interest and the specific characteristic of these services is the fact that they would not be supplied in the market or they would be supplied in lower quality or scope if there was no financial compensation provided by public authorities. Legitimacy of such financial aid for services of general interest works on the assumption that the market fails in the supply of such services.

Services of general economic interest (“SGEI”) are the subgroup of services of general interest. The name indicates their economic character.

It is important to emphasize that the economic character of SGEI refers to the economic nature of their activities, not to their interest, objective. With reference to this definition also some of the social services can be included in SGEI. Competition rules and therefore also the public aid rules are applied to services that are economic in nature.

Examples of areas in which services of general interest can be identified:

  • Public transport
  • Postal services
  • Energy sector
  • Water and waste management
  • Financial services
  • Public broadcasting
  • Broadband infrastructure
  • Health care
  • Social services

EU member states (municipalities) have the considerable discretion when it comes to defining what they regard as SGEI. The only limits are those imposed by EU law (in sectors which have been harmonised at Union level, the member states’ discretion cannot contradict the rules governing such harmonisation) and manifest error of assessment checked by the European Commission (“Commission”) and the Union’s courts.

 

The Commission’s decision-making practice illustrates certain limited examples of manifest error:

  • Port operations, i.e. the loading, unloading, transhipment, storage and movement in general of goods or any equipment[1]
  • Activities consisting in advertising, e-commerce, teleshopping, the use of premium-rate telephone numbers in prize games, sponsoring or merchandising in terms of public broadcasting services[2]

 

[1] Judgement of the European Court of Justice on 10th December 1991, Merci convenzionali porto di Genova, Case C-179/90

[2] Communication from the Commission on the application of State aid rules to public service

broadcasting, OJ C 257, 27.10.2009, p. 1.

LEGISLATION

Judgement of the European Court of Justice in case Altmark (C-280/00)   Judgement of the European Court of Justice in case Altmark (C-280/00)  74 KB

On 20 December 2011, the Commission adopted new legal rules regulating the provision of public service compensation that replace original legal rules (the so-called “Altmark package”) from 2005:

Commission Decision of 20 December 2011 on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest (“SGEI Decision”)

European Union framework for State aid in the form of public service compensation  (“SGEI Framework”)

Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest (“SGEI Communication”)

The objective of SGEI Communication is to explain basic concept of application of state aid rules to public service compensation. This regulation serves as basic information guide for beneficiary undertakings and providers of state aid.

On 25 April 2012, the Commission adopted Regulation on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aidgranted to undertakings providing services of general economic interest. The regulation stipulates that the total amount of aid granted for the provision of services of general economic interest received by the beneficiary undertaking shall not exceed EUR 500 000 over any period of three fiscal years. By this regulation the general financial threshold of de minimis aid is significantly increased for the undertakings providing services of general economic interest.

 

RELATIONSHIP BETWEEN SGEI AND STATE AID

Services of general economic interest are dependent on public subsidies which usually finance the operation of service providers. These compensations may constitute state aid.

In principle, three possible situations may occur in case of compensation granted for the provision of services of general economic interest:

1. The compensation does not constitute state aid

2. The compensation constitutes state aid compatible with the internal market

a. State aid is compatible, the notification to Commission is not required

b. State aid is compatible after the prior notification to Commission

3. The compensation constitutes state aid not compatible with the internal market – it is not possible to provide it legally!

 

The crucial for the determination whether the funding of SGEI constitutes state aid or not is the judgement of the European Court of Justice in case Altmark (C-208/00). In this judgement the Court held that public service compensation does not represent any advantage for the provider of SGEI when four cumulative conditions are met. Therefore, one of the defining characteristics of state aid is excluded, which means that the compensation granted for the provision of SGEI does not constitute state aid.

The conditions stipulated in Altmark judgement are as follows:

  1. the recipient undertaking must have public service obligations and the obligations must be clearly defined;
  2. the parameters for calculating the compensation must be objective and established in advance;
  3. 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; and
  4.  

a) the undertaking which is to discharge public service obligations is 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;

b) the level of compensation needed must be determined on the basis of an analysis of the costs of a typical well-run company that has appropriate technical resources to provision of the public service

Even if not all of the conditions are fulfilled, the compensation may be found as state aid compatible with the internal market (thus legally granted). The decisive regulations are SGEI Decision and SGEI Framework.

The difference between those two regulations resides in the fact that if the conditions of SGEI Decision are met, the compensation is considered automatically as state aid compatible with the internal market, with no need of Commission’s notification. If the compensation does not fulfil the thresholds set in SGEI Decision, it is possible to use SGEI Framework. In this case, it is necessary to notify Commission that will assess the compatibility with the internal market in respect of conditions stipulated in SGEI Framework.

Another option of SGEI financing is funding through general regulation of de minimis aid or Commission Regulation no. 360/2012 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aidgranted to undertakings providing services of general economic interest (see above).

More details about entrustment of the operation of public services can be found here   entrustment of the operation of public services can be found here  16 KB

For better clarity, the scheme for determination of state aid and its compatibility with the internal market is presented here the scheme for determination of state aid and its compatibility with the internal market is presented here 32 KB

The Office for the Protection of Competition prepared the document summarizing the basic changes in new legal regulation in comparison with the original rules of Atmark package from 2005 the document summarizing the basic changes in new legal regulation in comparison with the original rules of Atmark package from 2005 57 KB (only in the Czech version)

On the basis of Commission Decision of 28 November 2005 on the application of Article 86(2) of the EC Treaty to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest, specifically its Article 8, every member state was obliged to submit to the Commission the periodic report on the implementation of the Decision every three years. This report should comprise a detailed description of the conditions of application in all sectors, including the social housing and the hospital sectors. The first report was submitted to the Commission in December 2008. The report for the years 2009 – 2011 was submitted on 19 December 2011 (only in Czech version).

 

In case of any doubts about funding of SGEI, please contact the State Aid Department, the Office for the Protection of Competition posta@uohs.cz.

 

 

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+420 542 167 111 · posta@uohs.cz

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