European Commission Adopts New State Aid Rules on Services of General Economic Interest

By on December 28, 2011
Posted In EC Developments

by Martina Maier and Philipp Werner

On December 20, 2011, the European Commission adopted a new legislative package on the application of State aid rules on services to public services – known as Services of General Economic Interest (SGEI).  EU Member States spend billions of euros each year on SGEI, so any rules concerning the assessment of these compensations under EU State aid rules have a huge political and economic impact in Europe.

Background

The principle of EU State aid law is that it prohibits the granting of State aid by EU member states to specific companies or industry sectors.  This concerns direct grants as well as other economic advantages such as state guarantees, favorable interest rates or tax breaks.  State aid may under certain circumstances be approved by the European Commission after notification of the aid measure by the member state.

The new package replaces the 2005 package and sends mixed signals.  On one hand, it exempts any compensation for certain social services, regardless of the amount of compensation.  It also provides for a simplified treatment of a wider range of SGEI including, for example, health care services, and de minimis regulation for SGEI, expected to be adopted early next year, may further ease the burden for member states and service providers.  On the other hand, it lowers the compensation threshold for a more in-depth analysis of compensations for such services under EU State aid rules.

The new SGEI package contains rules for aid granted by member states to companies that provide certain social or other services in the public interest.  If these services are (also) provided on the market, they are referred to as SGEI.  As a general rule, compensation for SGEI may be granted if the company has been entrusted with the provision of such services, if the compensation is calculated on the basis of objective and transparent parameters, and if the compensation does not exceed the costs related to the provision of the service.

The New SGEI Package

The new package is comprised of four instruments: a communication explaining the basic concepts of State aid that are of relevance for SGEI, a decision that exempts compensation for certain SGEI from the notification requirement and summarily approves the compensation under EU State aid rules (such as the Block Exemption Regulations in the field of EU competition law), and a framework for the analysis of SGEI compensation that is not exempted under the decision.  It also contains a proposal for a de minimis regulation. The latter could not be finalised in time due to substantial criticism from the member states and is expected to come into force next year. 

The decision sets out the conditions under which State aid in the form of public service compensation granted to companies entrusted with SGEI is exempt from the notification requirement.  This exemption has been extended from hospitals and social housing to a broader spectrum of social services.  It now covers activities such as health and long term care, childcare, access to and reintegration into the labor market, care and social inclusion of vulnerable groups, and less-frequented air or maritime transport links to islands.

Although the range of exempted services has extended, the threshold for exemption has lowered from €30 million to €15 million of compensation per year. This means that compensation for SGEI will be exempted if it is under €15 million but will have to be analysed in detail under EU State aid rules if it exceeds this threshold. This is bad news for many member states and SGEI because many measures that had been exempted will now have to be notified to the European Commission.

According to the latest proposal, under the new SGEI de minimis regulation, which is expected to be adopted in early 2012, the threshold for compensation that will be exempt from State aid rules will be set at €500,000 over three years

The new framework specifies the conditions under which SGEI compensation that is not exempt under the decision can still be compatible with EU State aid rules.  The new rules aim at a more detailed and more economic-based analysis of these measures, in particular concerning distortions of competition.  It also provides for additional requirements, including the possibility of commitments from member states.

The new SGEI package overhauls the rules for compensation for services of general economic interests. It extends the simplified procedure of automatic exemption to a larger number of services but at the same time introduces a lower threshold.  The impact of the new package is likely to differ from one member state to another.  It is important for member states and public and private undertakings active in these sectors to know the rules because this will allow them to take advantage of the available exemptions and to ensure that they can keep the compensation they receive from member states.

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