State aid and public services, July 2003

In a judgement issued on 24 July 2003, the European Court of Justice ruled 'that financial support which merely represents compensation for public service obligations imposed by the Member States does not have the characteristics of state aid.'

In 1990 Altmark Trans was granted licences to operate bus services in the Stendal district of Germany. The company was also given subsidies to run the services. Four years later, Altmark's licences were renewed, but an application for licences by a rival company, Nahverkehrsgesellschaft Altmark, was rejected. In the German courts, Nahverkehrsgesellschaft Altmark complained that the licences granted to Altmark Trans were illegal as, without the public subsidies, the company was not financially viable.

Germany's Federal Administrative Court referred the case to the European Court of Justice, asking the ECJ to decide:

• whether the subsidies granted to Altmark Trans were a form of State aid and prohibited by the EC Treaty
• whether the German authorities are entitled to provide that regional transport services operated commercially are not subject to Regulation 1191/69 'concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway'

In response to the first question, the ECJ said that 'for a State measure to be classifiable as State aid within the meaning of the EC Treaty, it must be capable of being regarded as an 'advantage' conferred on the recipient undertaking which that undertaking would not have obtained under normal market conditions.'

No such 'advantage' exists 'where a State financial measure must be regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations.'

The Court pointed out, however, that for a specific case of compensation to escape classification as State aid within the meaning of the EC Treaty, four conditions must be met:

• the recipient undertaking must actually have clearly defined public service obligations to discharge
• the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner
• 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
• where the undertaking is not chosen in a public procurement procedure, the level of compensation must be determined by a comparison with an analysis of the costs which a typical transport undertaking would incur (taking into account the receipts and a reasonable profit from discharging the obligations).

Responding to the second question - whether the German authorities are entitled to provide that regional transport services operated commercially are not subject to Regulation 1191/69 - the ECJ ruled that if the Regulation applies in the Altmark case, then the general State aid provisions would not apply - something which the German court must decide.

In a report prepared for the December 2002 Copenhagen European Council, the European Commission stated that services of general economic interest (SGEIs) 'perform a fundamental function in all Member States, which, in the absence of Community rules in the matter, have wide discretionary powers when it comes to defining the nature and extent of the services they wish to introduce in the light of their political choices. It is for each Member State to decide what is the most appropriate level at which to define the services that the general public needs: the central, regional or local level.'

Links:

European Court of Justice:
	24.07.03:	Judgment of the Court of Justice in Case C-280/00 (Press release No 64/03)
	24.07.03:	Judgment of the Court in Case C-280/00 [full text]
	14.01.03:	Opinion of Advocate General Léger in Case C-280/00 (Press release No 01/03)
European Sources Online: Financial Times:
	25.07.03:	EU ruling on public service subsidies
European Commission:
	Report from the Commission on the state of play in the work on the guidelines for state aid and services of general economic interest (SGEIs)
	Services of general interest
	Regulation (EEC) No 1191/69 of the Council of 26 June 1969 on action by Member States concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway

Eric Davies
Researcher
Compiled: Monday, 28 July 2003

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