Local authorities to win exemption from EU state aid rules

Almunia April 2011_Picnik.jpg

European regions and cities will no longer face EU state aid scrutiny when subsidising small-scale public services such as swimming pools and crèches, according to new rules being drawn up in Brussels.

The European Commission wants to lower the threshold on public procurement rules in order to relieve local authorities from having to file public tenders for small-scale public services.

"Our state aid rules currently apply also to local services organised by very small municipalities," said EU Competition Commissioner Joaquin Almunia, citing swimming pools, local cultural centres and crèches as examples.

"It seems quite obvious to me that among these services, there are some that will have little impact on trade between member states and little potential to distort competition," the Spaniard told a conference on public services hosted by the European Policy Centre earlier this month.

"I think that we need to adjust our scrutiny here and focus it on the cases that have a clear impact on the single market."

For such small-scale public services, Almunia said one possibility would be to reduce the degree of state aid scrutiny "to the absolute minimum".

According to people close to Almunia, this is a new direction for the European Commission's most powerful department, DG Competition, which oversees large mergers and state aid to major public-listed companies.

'Pain in the ass'

"Most people [in DG Competition], they are not happy having to deal with a state aid complaint against a Dresden swimming pool," said an EU official, speaking on condition of anonymity.

"To be honest, it's more a pain in the ass than anything else, because they know very well that these matters should not be dealt with in Brussels."

The official cited the city of Utrecht in the Netherlands as an example. The mayor there decided to use a public bus service to bring schoolchildren to a swimming pool during off-peak hours when both the pool and the drivers were not busy. The decision was challenged by a German transporter because the city had not issued a public tender for the bus service.

Under the new rules being prepared, such small public services will no longer require public tenders.

"We are not talking about the RATP," the EU official explained, referring to the Paris metro. Large network industries that have international activities will continue to be covered by state aid and public tender obligations, he said.

According to people familiar with the matter, the Commission is also trying to find a practical way of dealing with the growing number of state aid complaints it is receiving on a daily basis. With limited staff, it wants to focus on the cases that really make a difference.

"The Commission receives hundreds or thousands of complaints which are not always relevant," said an EU insider. "Pubic authorities know that the Commission cannot look at all these cases and so the perception is that they would not necessarily be terrified by the idea that it might declare what they're doing as illegal."

Large-scale commercial services to focus attention

With less time spent on the small cases, staff should be able to concentrate on the large companies receiving undue state aid.

For large-scale commercial services with a clear impact on the single market, the Commission's scrutiny will continue, Alumnia emphasised. "In principle, the tender procedure is the best way to ensure that the most efficient provider is selected," he said.

A Commission communication is expected in November to amend the so-called 'post-Altmark' regime, which currently regulates public procurement.

"This will be a communication because the Commission has exclusive jurisdiction when it comes to state aid," the EU official explained. "So we do not intend to go and ask other institutions for their opinion."

Frédéric Simon

Danuta Hübner MEP (European People's Party; Poland), chair of the European Parliament's committee on regional development, hailed the Commission's move. "The measures announced by Commissioner Almunia are very good news," she told EURACTIV.

"They can help to reduce the burden on public budgets in times of budget consolidation, they can help to tap private sector potential to generate growth and jobs, and consumers will benefit through the improved quality and timeliness of services," she added.

Guido Lobrano, senior legal adviser at BusinessEurope, the EU employers' association, cautioned against going too far in relaxing state aid rules for public services. "In BusinessEurope, we currently see insufficient opening to competition for the provision of public services," Lobrano told EURACTIV.

"This is not only detrimental to possible private providers of these services but also to the businesses and the citizens who could benefit from this opening to competition," he said.

"The reform will need to focus state aid control to cases that clearly have relevance for the single market. At the same time, we must be aware that even small subsidies to local services in a large number can actually have a negative effect. And here rules must be enforced firmly," Lobrano concluded.

Klaus Klipp, secretary-general of the Assembly of European Regions (AER), welcomed the Commission's move to lower the so-called "de minimis" rules, saying it was a "positive" step.

But he cautioned the European Commission about temptation to deregulate public services. "Why focus on public services? Why not focus on energy and telecoms for example?" Klipp told EURACTIV. "If you speak about the internal market, there are a lot of things that remain to be done," he said, citing as an example difficulties in contracting a mobile phone service in another member state.

Following publication of the article, Amelia Torres, spokesperson on competition issues at the European Commission, wrote in a letter to EURACTIV:

"Unfortunately, some elements of your article are incorrect and/or confuse different areas of EU law in a misleading manner.

"The Commission is looking at improvements to the Single Market's public procurement rules. The Commission is also examining the, wholly separate, state aid rules for Services of General Economic Interest contained in the so-called Altmark or SGEI Package of 2005. Finally, the Commission is beginning a reflection on the state aid rules in general, and the relative importance of different state aid cases in particular.

"Your article confuses these different initiatives. For example, the Altmark Package does not impose tendering obligations on small authorities – these are primarily contained in the EU Public Procurement Directives. Any reform of the Altmark Package would in no way alter the application of the EU public procurement rules. Similarly, any reform of the Altmark Package will not affect the way the Commission handles complaints in the State aid field.

"Our reform of the Altmark Package will focus on offering a more diversified and proportionate response to the different types of SGEI. These principles have already been announced in the Commission's SGEI Communication of 23 March 2011 (COM(2011) 146).

"This is consistent with the more general principle that competition scrutiny of any case should be proportionate to the competition distortions that are likely to result, hence the broader reflection on the State aid rules. No decision has yet been taken on the practical implementation of this broader reflection."

 

Under current rules, the European Commission has a duty to scrutinise all state aid, no matter whether applied to large or small-scale public services.

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.

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

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

  • Nov. 2011: Commission expected to issue draft ideas for clarifying Services of General Economic Interest (SGEI) and issue communication on state aid reform.
  • By 1 Dec. 2011: New rules expected to come into force.

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