Monti to cut red-tape for public authorities

By Peter Chapman

Date: 12/02/04

MARIO Monti, the competition commissioner, will next week unveil radical rules detailing how and when governments and local authorities can spend money on public services, ranging from railways and bridges to swimming pools.

The guidelines, which follow the recent "Altmark" judgement of the European Court of Justice concerning bus services in Germany, will put the public sector under pressure to ensure taxpayers' money is spent more efficiently.

The new system, which covers funding that the private sector would be unlikely to deliver alone, will make the vast majority of aid notifications to DG Competition obsolete.

This will cut costs and increase legal certainty for public authorities and their suppliers, freeing competition watchdogs to concentrate on tackling priority areas such as hard-core cartels.

At present, public authorities flood Brussels with details of their projects in the hope that they will get the green light from Monti's directorate.

In future, say officials, small amounts of spending, for projects such as swimming pools or libraries, would escape the state-aid net.

The exemption is aimed at firms with a turnover of less than €40 million and compensation for provision of a service of below €15 million.

Crucially, swathes of bigger contracts would also avoid the notification paper chase, provided they meet strict efficiency criteria designed to ensure that suppliers, such as telecom operators or road builders, are not handed a blank cheque by governments or regional authorities.

This would cover contracts "with a clearly defined public service mission, whose reimbursement has been established ex-ante [in advance] according to transparent parameters, and where selection has been by public tender", one of Monti's officials explained.

If a public tender is not carried out, "authorities must ensure firms do not pocket more cash than an efficient operator would have claimed for a similar service". State aid lawyers say that could be tricky to calculate, if a comparable service does not exist in a particular sector or region.

But officials insist that a fair price, including a reasonable profit, can be estimated by totting up value added along the supply chain in a comparable efficiently operating sector.

Tilman Lüder, Monti's spokesman, told European Voice that deals falling outside these efficiency parameters must still be notified to Brussels.

But he warned that notifications risk being treated as "self-incrimination" because the need to notify would flag potential efficiency concerns.

"It would be a strange exercise to approve inefficient systems," he added.

However, Christian Ahlborn, a London-based partner at Linklaters, said a notification should not be tantamount to an admission of guilt.

"If you notify, it doesn't mean that there is something fishy going on," he said.

He believes the Altmark judgement, which prompted the Commission's new policy, failed to answer a number of key questions - and that doubts will remain until the court delivers further rulings in a number of pending cases.

For example, authorities are in the dark about how far they must apply the efficiency drive if they do not hold a public tender, but have knowledge of several would-be suppliers.

Ahlborn says the Altmark ruling does not clarify whether an authority is allowed to favour one company, roughly in line with market prices, "even if I know there is someone that is more competitive".

"The problem is, if you get it wrong, then there is a risk that it [the contractor] might have to repay the aid."

The European Commissioner for Competition, Mario Monti, is expected to announce at the end of February 2004 changes to the rules regulating how and when local authorities and governments can spend money on public services.