EU seeks clearer state aid rules for public service utilities

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A European Commission communication on state aid rules for public service utilities – ranging from water supply to energy provision – was welcomed yesterday (23 March), though proposals to clarify such rules may prove thornier when further details emerge later this year.

State aid affecting utilities with public services obligations – including the provision of water, energy, health, telecoms and transport – is currently dealt with on an ad hoc basis known as the 2005 Altmark package of legislation (see 'Background').

Since the rules are due to be changed in a new package for the utilities to be published later this year, the Commission has launched a communication to trigger debate on which aspects should be clarified.

On issuing the communication in Brussels, Competition Commissioner Joaquín Almunia said that although existing rules were necessary and appropriate, "there is scope for improvement and a particular need for clearer, simpler and more proportionate instruments".

The communication makes clear that the Commission is likely to simplify the application of the rules for certain types of small-scale public services of a local nature with a limited impact on trade between member states.

Andreas Bartosch, a German lawyer and co-founder of the European State Aid Law Institute, a Brussels and Berlin-based think-tank, said: "At the moment a butcher's shop in Strasbourg, receiving a subsidy of €20,000 and trading with citizens from Germany, France and Luxembourg. could be caught by the regulations". 

He said that simplifying the rules affecting such businesses would be broadly welcomed.

Clarifying key concepts

However, the consultation also indicates that the Commission will seek to clarify a number of key concepts, related for instance to the distinctions between economic and non-economic activities and to the limits member states have when defining an activity as a public service utility.

These issues are more complicated and controversial, according to Bartosch, affecting the extent to which public service suppliers – such as railway networks – need to tender out to private contractors for the provisions of certain services.

The Commission's move to clarify the rules was welcomed by the French Europe Minister Laurent Wauquiez.

Wauquiez met with Commissioner Almunia on 21 March in Brussels and in response to the communication he called for simpler rules to be put in place "for the better defence of European public services".

A British diplomat in Brussels told EURACTIV that the general desire expressed by the Commission to clarify the existing rules was something that "we would see as broadly positive". But he added that, as far as the more detailed provisions for changing the rules go, "we will have to wait to see what the proposals say when they are issued later in the year".

Today's communication is designed to launch dialogue on these ideas before draft texts that will be published, and discussed with member states and stakeholders, by July.

Joaquín Almunia, European Commission vice-president in charge of competition policy, said: "Public services are key, even more so during difficult economic times when people come to rely on them more than usual. The 2005 Altmark package can be improved to become even clearer and further simplified for member states' authorities." 

"I also believe that especially in these times of constrained public finances greater account must be taken of both efficiency and quality when assessing the state aid going into the services," Almunia said.

French Europe Minister Laurent Wauquiez said that France wanted the Commission to focus on those cases where there was a real risk at European level that competition rules might be breached and to simplify the rules, particularly for social services and smaller more local businesses.

MEP Sophie Auconie (European People's Party; France) welcomed the adoption of the communication by the Commission. She said that her report on the future of public service utilities – adopted last week by the economic and monetary affairs committee of the Parliament – had called for similar reforms.

She said: "European controls should guarantee transparency and proportionality in the designation of public funds. European rules should guarantee transparency and proportionality in the use of public funds, but they should not – through their inflexibility and complexity – act as a brake on the provision of services essential to our citizens."

Belgian Social Affairs Minister Laurette Onkelinx welcomed the "encouraging direction" suggested by Commissioner Almunia's communication.

She added: "I believe that we should recognise the specific role played by public utilities within the politics of competition, and that do so would better take account of their local nature and their fundamental role of operating in the public interest. This development is an encouraging sign and it should remain in focus. It is a small clearing in the dark skies of European economic politics."

EU member states are largely free to decide which services are to be considered as services of general interest - typically water, energy, health, telecoms, transport and postal services.

However, the European Commission has to ensure that public funding granted for the provision of services of general economic interest (SGEI) does not affect competition and trade within the EU single market.

Payment by a government to a company for providing a service of general economic interest constitutes state aid unless it is strictly limited to the amount needed to compensate for the public service obligation, the European Court of Justice confirmed in the Altmark ruling of 2003.

The ruling gave rise to the post-Altmark package of 2005 that comprises the criteria that must be fulfilled so that the compensation does not need to be notified to the Commission.

The SGEI Framework expires in November 2011.

  • By end 2011: Commission to issue draft ideas for clarifying Services of General Economic Interest (SGEI).

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