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State Aids & Utilities
Throughout Europe utilities are being opened to competition by a
process of deregulation and liberalisation. Some countries, such
as the UK, are more advanced than others. The state aid rules operate
to prevent distortion of competition by government intervention,
in the form of state aid.
What is State Aid?
State aid is any gratuitous advantage or benefit provided by a state
body or using state resources to any business undertaking.
"State aid" includes:
- Subsidies
- Grants
- Cash injections
- Guarantees
- Deferral of tax, social security and other payments to the
state
- Sales of land/property at discounted rates
- Writing off of operating losses
In order to assess whether illegal state aid has been
given, the European Commission has to determine whether or not aid
given
by the state is
compatible with the private market investor principle - ie has
the state behaved as a private operator would have done in the
same circumstances, guided by objectives of long-term profitability? If aid is unlawfully given by a state it is required to recover
the unlawful state aid plus interest from the recipient
utility company.
When is State Aid Permitted?
Normally, state aids should be notified to the Commission and authorised
in advance (that is they should not be implemented until the Commission
has issued a clearance decision). The
failure of a state to comply with this basic requirement automatically
renders the aid "unlawful". However, there are
exclusions and exemptions from the requirement on a state to notify
financial assistance to the Commission. There
are exclusions and exemptions for certain types of regional aid and,
in relation to the utilities sector, there are also special rules
relating to aid to the transport sector. There are also block exemptions
- the block exemptions most likely to be of relevance to utilities
are the training aid block exemption, the employment block exemption
and the de minimis block exemption.
Third Party Challenges
Third parties can challenge in the national courts any aid that was
granted before approval by the Commission. A Commission decision
to approve state aid can be challenged by a Member State or a third
party with a legitimate interest (such as a competitor of the company
being granted financial assistance) in the European Courts.
Utilities Cases Considered
Electricity
In the first British Energy case, a loan from the UK government (the
Department of Trade & Industry) to British Energy was found
to fall within the scope of permitted rescue aid and was approved
by the Commission. The rescue aid was permitted as it had been
given with a view to keeping British Energy afloat in the short-term
until a longer-term solution to its difficulties could be found.
In the EDF case, the Commission found that EDF has benefited from
large amounts of illegal state aid (tax breaks and state guarantees)
and therefore this decision represents an attempt by the Commission
to strip EDF of its unfair competitive advantage vis-à-vis
other electricity undertakings in the EC. Generally, the Commission
appears to be moving towards a more active and aggressive enforcement
of the state aid rules in the electricity sector, using the state
aid rules to complete the liberalisation of the electricity industry
in Europe. Gas
In the Gasunie case, the Commission found that the Dutch state gas
company charging preferential rates to a group of companies in
the Netherlands did not breach the EC state aid rules. The Commission
found that the Dutch state gas company behaved as a private operator
would have done in the same circumstances, guided by objectives
of long-term profitability.
Airports and State Airlines
In the Ryanair case, the Irish airline was found to have unfairly
benefited from illegal state aid given by the Walloon government
and Charleroi Airport and was ordered to repay around £3
million. The Commission ruled that certain forms of aid could not
be authorised, in particular discounts on landing fees and reduced
ground handling charges. For financial assistance to be legal for
new routes, the Commission stated that it must be of limited duration,
be public and transparent, the airport must have control over the
costs and similar assistance must be available in the future to
any other airline, setting up new routes at the airport.
A number of European airlines are currently expressing concern
about Alitalia, the struggling Italian airline, receiving state
aid from
the Italian government and have made a complaint to the Commission. Post
The Commission approved the UK government's restructuring aid proposals
for payments to post offices which remain open following its decision
to close a number of rural post offices. The Commission concluded
that measures to ensure the continuity of the postal service did
not constitute state aid and also found that, even if they had,
they would still have been compatible with EC rules on state aid
which allow undertakings entrusted with a public service to receive
financial assistance from the state in certain limited circumstances.
In the Deutsche Post case, the Commission found that the German postal
operator was using monopoly profits from its general letter services
to subsidise its commercial activities, notably its parcels delivery
services. This pricing strategy was also being financed by money
received from the German state for performing its general letter
activities and so Deutsche Post was receiving illegal state aid too.
Conclusion
The Commission is becoming
increasingly vigilant in applying the EC state aid rules. In
the EDF case, the Ryanair case and the Deutsche post cases,
the Commission
was quick to rule against the use of taxpayers' money to unfairly
improve the position of
businesses. When utilities receive monies from government bodies,
they will need to satisfy themselves that the EC state aid rules
are being complied with or, otherwise, as the recipient of financial
assistance, they will need to press for a state aid notification
to be made to the Commission.
Further details....
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