Provision of services of general economic interest and state aid

Table of Contents:

  1. What is state aid?
  2. What are services of general economic interest (SGEI)?
  3. Principles of granting state aid to entities providing SGEIs
  4. When do we not consider it state aid for SGEIs?
  5. State aid for entities providing services of general economic interest

What is state aid?

State aid is support provided in various forms (often financial) by the state to enterprises, which can distort competition in the market. Generally, granting state aid by Member States is prohibited unless the aid meets certain criteria that allow for supporting the economy without risking competition within the EU’s internal market. Therefore, state aid must comply with the rules established by the European Commission to avoid market distortions. Examples of state aid include subsidies, tax reliefs, or compensations, though this list is not exhaustive. Any state support to enterprises that meets specific criteria may be considered state aid.

What are services of general economic interest (SGEI)?

Services of general economic interest (SGEI) are services that EU Member States consider crucial for society and the economy, hence they are provided even when they are not profitable for private enterprises. Examples of SGEIs include public transport, postal services, education, healthcare, energy, and municipal infrastructure. These services are typically provided by public entities and are financed in a way that compensates for the increased costs associated with providing SGEIs, even if they are not financially viable. Therefore, will compensations granted to entities providing SGEIs constitute state aid?

Principles of granting state aid to entities providing SGEIs

The legal framework for granting state aid to entities providing services of general economic interest is defined by the European 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 compensation for the provision of services of general economic interest by companies entrusted with such services. Based on this decision, several principles can be distinguished:

Transparency principle: Member States must clearly define the obligations of public services and the financing of these services. They should be documented in official documents such as contracts, laws, or regulations.

Proportionality: State aid should be proportional to the costs of fulfilling public service obligations. Enterprises should receive support only to the extent necessary to cover the costs of the services provided.

Avoidance of excessive compensation: States must ensure that support does not exceed the actual costs of providing the services plus a reasonable profit. Excessive compensation could distort competition.

Non-distortion of competition: State aid should not lead to unjustified distortion of competition in the EU internal market. The support must comply with market principles and serve the public interest.

pomoc publiczna

When do we not consider it state aid for SGEIs?

The absence of state aid in the context of providing services of general economic interest requires meeting four conditions, as derived from the ECJ judgment of 24 July 2003 in Case C-280/00 Altmark:

The enterprise receiving compensation must be clearly obligated to provide public services, and these obligations must be clearly defined (e.g., through an act of assignment). This obligation may be imposed on the enterprise by law, contract, articles of association, etc.

Parameters used to calculate compensation must be objectively and transparently defined in advance.

The compensation must not exceed the amount necessary to cover all or part of the costs of fulfilling public service obligations, taking into account related revenues and a reasonable profit from fulfilling these obligations.

If the selection of the enterprise obligated to provide public services was not made through a public procurement procedure allowing for the selection of the candidate offering the lowest cost to the community, the level of compensation must be determined based on the analysis of costs that would be incurred by an average, well-managed enterprise with the means necessary to fulfill such obligations, taking into account revenues and a reasonable profit.

Failure to meet any of the above conditions set out in the Altmark judgment results in the compensation being considered state aid and subject to this specific legal regime.

State aid for entities providing services of general economic interest

Providing services of general economic interest is crucial for sustainable social and economic development. However, granting state aid to these entities must comply with EU-established principles to ensure transparency, proportionality, avoidance of excessive compensation, and prevention of competition distortions in the internal market. Compensations granted to entities providing services of general economic interest deserve particular scrutiny in this regard because if they do not meet the criteria outlined in the Altmark judgment, they will constitute state aid. Granting state aid requires verification for compliance with the internal market.