Introduction
State aid is not supposed to be granted to a project after work has already started because it lacks incentive effect. But when the project incurs unexpected costs, it is socially important so that it cannot be abandoned and without the aid it becomes commercially unviable, then the Commission may authorise additional aid.
In March 2022, the Commission approved aid for the development of multifunctional health, education, culture and business support complex in Vilnius, Lithuania [SA.62831]. However, as a result of the Russian invasion of Ukraine, energy costs and the costs of raw materials skyrocketed. As a result, the complex became unviable and in January 2025, the Lithuanian authorities had to notify to the Commission additional aid that was approved in decision SA.113357.[1]
The Vilnius complex consists of a kindergarten, a national sports museum, a cultural education centre and library, a stadium, sports infrastructure for informal education and some shared infrastructure required for the operation and use of the complex [e.g. parking]. The Vilnius complex can be used for both economic and non-economic activities.
The “(6) project is implemented through a public-private partnership based on a Concession Agreement (‘CA’). The contracting parties are, on the one hand, the Vilnius City Municipality (‘VCM’) and the Ministry of Education, Science and Sports of the Republic of Lithuania (‘MESS’) (collectively the ‘granting authorities’), and on the other hand, a concessionaire, which is a consortium consisting of [several companies] […] and a special purpose vehicle, UAB Vilniaus daugiafunkcis kompleksas, established by the Concessionaire for the implementation of the Vilnius complex project (the ‘Project Company’). The Project Company and the Concessionaire are jointly and severally liable for the obligations established in the CA.” The concessionaire was selected after a competitive procedure.
According to the 2022 decision, the complex was intended to be shared by two public authorities – the Ministry of Education, Science and Sport and the Vilnius Municipality. In that decision the Commission considered that “(38) public education organised within the national education system, funded and supervised by the State may be considered as a non-economic activity3. The non-economic nature of public education is, in principle, not affected by the fact that pupils or their parents may pay tuition or enrolment fees that contribute to the operating expenses of the system, where financial contributions cover only a fraction of the true costs of the service and cannot be considered as remuneration for the service provided.”
“(39) Certain activities related to culture and heritage may also be non-economic in nature, where the cultural institution is accessible to the general public free of charge, and fulfils a purely social and cultural purpose. The fact that visitors of a cultural institution, or participants in a cultural or heritage conservation activity, open to the general public, are required to pay a monetary contribution that covers a limited fraction of the true costs does not alter the non-economic nature of that activity, as it cannot be considered to be genuine remuneration for the service provided.”
The Ministry and the Municipality “(40) will operate the Kindergarten, Cultural Education Centre and Library, and Sports Museum in the context of the exercise of their public functions, and that those facilities will be used only for cultural and educational purposes of a non-commercial nature [[…]] The Lithuanian authorities note that [the Ministry and the Municipality] will receive only a small financial contribution from the users of the Kindergarten, Cultural Education Centre and Library, and Sports Museum, which will only cover a limited fraction of the true costs of the service [[…]] They also confirmed that access to those facilities will be open to the general public”.
Therefore, the Commission concluded in 2022 that the Kindergarten, Cultural Education Centre, Library, and Sports Museum would be operated on a non-commercial basis.
In the 2025 decision it is specified that “(11) the Stadium will mainly be used for commercial events (such as football matches and concerts). The Project Company must reserve 15 days per year in the Stadium to host national State events, for which it will not receive any remuneration but will be compensated for the ancillary expenses, such as security, supervision, organisation and other services costs [[…]] In the Sports Facilities, more than half of the available capacity must be allocated to informal education while the remaining capacity can be used by the Project Company at its own discretion [[…]] The Project Company must not grant any exclusive right to any end-user for using the Stadium or the Sports Facilities (particularly professional users) and must grant access on transparent and non-discriminatory basis”.
Existing aid
The 2022 decision approved the following amounts of aid:
- Direct grant of EUR 146.2 million in nominal terms.
- Annual operating grants of a total annual value of EUR 0.371 million (nominal) over 22 years.
- Exemption from real estate fees of EUR 0.250 million (nominal).
Additional aid
Lithuania considered that “(14) additional support is needed to compensate for (1) increased construction cost and (2) the cost of additional works relating to the granting authorities’ request to increase the number of seats in the Stadium and to change the layout of the Sports Facilities [[…]] In addition, there is a need for an extension of the construction period, also having an impact on the required support.”
The project company requested an upward adjustment of the aid to compensated for the cost inflation. “(20) the Project Company explains that the estimation of the construction cost for the Vilnius complex increased by 40.35 %”.
Modification of the terms of a concession after the contract is awarded is normally contrary to both public procurement and State aid rules. However, “(25) the Lithuanian authorities have explained that, according to Lithuanian case law and administrative practice, for public contracts concluded before its occurrence, the Russian aggression against Ukraine can qualify as an ‘unforeseeable circumstance’, as at the time those contracts were concluded, none of the parties could foresee that the Russian Federation would start a military invasion of the Republic of Ukraine on 24 February 2022 and that the war would disrupt the movement of goods and would have other negative consequences in the construction sector in Lithuania. On that basis, the Lithuanian authorities considered that clause 36.2.3.1. of the CA, referring to contractual modifications the need of which was brought about by ‘unforeseeable circumstances’ could apply to the price recalculation to re-balance the economic equilibrium of the contractual parties to the CA that was negatively affected by the Russian aggression against Ukraine.”
In addition, the extra costs are shared between the concessionaire and the state according to a pre-defined risk index.
The cost of the extra required seats – 3000 – and the costs arising from the longer construction period were also included in the additional aid that was notified to the Commission.
Lithuania considered that it could not be abandoned. “(55) According to the Lithuanian authorities, the Vilnius Complex is of strategic importance to increase Vilnius’ attractiveness for commercial activities and investments and for creating jobs. It is crucial to provide citizens with important and long-awaited services and opportunities, e.g. access to kindergarten and a suitable facility to organise cultural and international events [[…]] The increase in the number of seats in the Stadium will allow high-level international football events and the organisation of bigger cultural events and the arena conversion at the Sports Facilities will provide the required medium-capacity space [[…]] Furthermore, although the old structures and the former construction site are now dismantled, and certain land works required for the preparation of the construction site are completed, the realisation of the Vilnius complex is still crucial for the wider transformation of the area”.
The estimated funding gap was EUR [75 – 85 million], with the net present value of the aid amounting to EUR [70 – 80 million]. That is, the aid was slightly less than the funding gap.
Commission assessment
Since the project was largely the same as that that was notified in 2022, the decisive issues addressed by the 2025 decision were whether the additional aid had an incentive effect and whether it was proportional.
With respect to existence of an incentive effect, the Commission, first, recalled that “(86) the aid does not present an incentive effect for a beneficiary where work on a project had already started prior to the aid application by the beneficiary to the national authorities. The Project Company informed the Lithuanian authorities in May 2023 of its need for additional aid to realise the Vilnius complex [[…]] Based upon the discussions between the Project Company and the Lithuanian authorities, the Project Company then submitted its Formal indexation request of October 2023 [[…]] Although works on the Vilnius complex had started after the entry into force of the CA and before the letters of May and October 2023, their performance did not progress further and since 2024 the works were stopped [[…]] The Lithuanian authorities demonstrated that the estimated construction cost of the Vilnius complex has significantly increased because of a changed economic environment due to the Covid-19 pandemic and the Russian aggression against Ukraine [[…]] In addition, the Lithuanian authorities demonstrated that the realisation of the Vilnius complex has become unviable in the absence of additional support [[…]] Such circumstances prove that without the aid the project will not continue [[…]] Neither the beneficiary nor any other market investor would finance a non-viable project.”
“(87) The Commission acknowledges that the specific risks that have materialised in this case and that have created the expected construction cost overruns do not constitute business risks that the State or the beneficiary should have anticipated in view of their ordinary risk assessment.”
“(88) Regarding the additional works, the beneficiary would not undertake such works without State aid, since the additional revenues alone [[…]], without even considering the additional operating costs, are not sufficient to cover the construction cost of additional works [[…]] As it was the case for the existing aid measure, the granting authorities fully finance the construction cost of such additional works.”
“(89) The Commission therefore finds that, in the absence of the notified measure, works for the realisation of the Vilnius complex would not continue, and thus the development of the economic areas/activities would not have been facilitated. Therefore, the notified measure has incentive effect.”
It is not apparent in the decision that the Commission had considered whether the concessionaire could have been compelled to bear the additional costs. Afterall, the concession agreement did provide for some indexation of unexpected costs. Perhaps, the fact that the project was realised through a special purpose vehicle also meant that the assumption of additional costs by that vehicle would have led to its bankruptcy.
With respect to the proportionality of the aid, the Commission noted the following in paragraphs 100- of the decision:
“(100) The updated funding gap calculation is based upon reliable parameters. In line with the funding gap calculation for the existing aid measure, the updated funding gap calculation includes all revenues the Vilnius complex will generate from the commercial activities, including from the additional facilities put in place as a result of the additional works, and includes operational costs for all infrastructure given that the Project Company is not obliged to keep separate accounts for infrastructure used for economic activities operated by the Project Company and infrastructure used for non-economic activities.”
“(102) The determination of the part to be compensated by the granting authorities is based upon a methodology proposed by the [Public Procurement Office] PPO [[…]] The methodology allocates the risks of the price increase to the parties in each of the respective periods since the initial offer until October 2023, i.e. the time of the Formal indexation request [[…]] That risk allocation only considers a price increase in line with [the construction input price index] CIPI. Any cost increase beyond the CIPI increase is undertaken by the beneficiary. Such methodology was developed by the PPO in line with the initially agreed risk sharing and considering the need to restore the economic balance of the CA, which was disturbed due to the unforeseen circumstances of Covid-19 pandemic and the Russian aggression against Ukraine. The Commission considers that the Lithuanian authorities submitted reliable evidence that the construction cost increased beyond what could be expected based upon the CIPI. Furthermore, the Commission finds that the Lithuanian authorities applied a reasonable risk sharing methodology. The methodology was proposed by the PPO and attributes the risks in line with the risk attribution resulting from the CA. Any price increase beyond the CIPI is to be borne by the Project Company.”
Conclusion
Given that the extra aid was found to be necessary and proportional, the Commission authorised the new aid measure.
[1] The full text of the Commission decision can be accessed at:
https://ec.europa.eu/competition/state_aid/cases1/202526/SA_113357_90.pdf
