Introduction
On 3 September 2025, the General Court, in its judgment in case T‑784/22, Zásilkovna v Commission, provided useful guidance on the calculation of the compensation for the extra costs incurred by providers of Services of General Economic Interest [SGEI].[1]
Zásilkovna sought the annulment of Commission decision 2023/232 concerning State aid SA.55208 implemented by the Czech Republic for Czech Post. Zásilkovna is established in the Czech Republic and is active in the parcel delivery sector.
The Czech Post is the designated universal postal service provider and receives compensation for the extra costs of the universal service obligation [USO] imposed on it. In July 2022, the Commission decided that the compensation was State aid compatible with the internal market. The compensation was determined on the basis of the Net Avoided Cost [NAC] methodology. The period of entrustment of the USO was five years.
General principles of compensation of the extra costs of USO
First, the General Court recalled that “(60) Article 106(2) TFEU provides (i) that undertakings entrusted with the operation of SGEIs are to be subject to the rules contained in the Treaties and, in particular, to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them, and (ii) that the development of trade must not be affected to such an extent as would be contrary to the interests of the European Union.”
Then it explained that “(61) in allowing derogations to be made from the general rules of the Treaty in certain circumstances, Article 106(2) TFEU seeks to reconcile the Member States’ interest in using certain undertakings, in particular in the public sector, as an instrument of economic or social policy with the EU’s interest in ensuring compliance with the rules on competition and preserving the unity of the internal market. What Article 106(2) TFEU seeks to prevent, through the assessment of the proportionality of the aid, is that the operator responsible for the public service benefits from funding which exceeds the net costs of the public service”.
“(62) Thus, as part of the review of proportionality inherent in Article 106(2) TFEU, the Commission is required to compare the amount of the planned State aid with the net costs of the public service missions performed by the beneficiary of that aid”.
In addition, the General Court reiterated that “(64) Member States enjoy a broad discretion in determining the conditions for the implementation of an SGEI, including in assessing the additional costs incurred in discharging it, which depends on complex economic facts, with the result that the review carried out by the Commission is limited to determining whether there has been a manifest error”.
In other words, the Commission may not object to a Member State’s designation of a service as SGEI. It may only verify that 1) the market is not able to provide that service on the same terms and quality as determined by the state and that 2) the compensation does not exceed the next extra costs.
Next, the General Court examined which costs came within the scope of the USO and, therefore, were compensable.
The allocation of the costs of Czech Post
The applicant claimed that the Commission was wrong in finding that there was no cross-subsidisation of Czech Post’s commercial activities.
The General Court had to determine “(76) whether the revenue from a lawfully subsidised activity does not serve to cross-finance other competitive activities carried out by the same undertaking”.
“(77) Where the same undertaking is entrusted both with SGEI activities and non-SGEI activities, keeping separate accounts for its various activities makes it possible, in principle, to be satisfied that its economic activities are not cross-subsidised by means of public funds from which it benefits by virtue of its SGEI activities”.
Indeed, the Commission’s 2012 SGEI Framework requires that undertakings entrusted with an SGEI or a public service obligation [PSO] keep separate accounts and correctly allocate costs and revenues on the basis of consistent and objectively justified cost accounting principles. If an SGEI provider carries out activities falling both inside and outside the scope of the SGEI, the accounts must show separately the costs and revenues associated with the SGEI and those of the other services. The same rules apply to undertakings operating under USO.
In the present case, the General Court noted that the Commission found that Czech Post complied with the requirement for account separation between the USO and non-USO activities and that the method for allocating costs and revenues was appropriate. The Commission concluded that there was no cross-subsidisation of commercial activities.
Then, the General Court explained that the applicant criticised Czech Post for having used the same assets to carry out both USO activities and non-USO commercial activities, and for having allocated the entire amount of the common costs to the USO.
The General Court observed that “(84) the fact that the same assets are used by Czech Post both to provide the USO and to carry out non-USO commercial activities is not in itself an indication of there being cross-subsidisation by one of the other.”
The General Court outlined, in paragraph 88, how the Commission assessed the Czech methodology for cost allocation. [The cost allocation was based on a causal link between activities and audited annually; common costs were allocated in proportion to the allocation of direct costs.]
The applicant also claimed that Czech Post priced below cost certain activities outside the USO, i.e. in competitive markets [e.g. parcel delivery at pick-up points].
The General Court held that “(90) as regards activities falling outside the scope of the USO, it is sufficient to note that their prices are set freely and are subject to the law of supply and demand, so that any tariff differentiation can logically emerge from them”.
“(91) Consequently, the prices charged by Czech post on competitive non-USO markets, even if they are below cost, do not result in it being established that a cross-subsidy on account of incorrect accounting allocation of costs took place.”
The Court went on to state that “(92) the applicant’s allegations that Czech Post engaged in predatory pricing could be examined under Articles 101 and 102 TFEU, but they are not relevant for examining whether the compensation at issue is compliant in the light of the State aid control regime”.
Then, the General Court clarified that “(96) there is, in fact, nothing in the FEU Treaty, in Directive 97/67 or in the SGEI Framework to prevent, from an accounting point of view, the proceeds of public compensation for the discharge of an SGEI from being allocated to items other than the discharge of the USO itself”.
“(97) What matters is that the undertaking entrusted with an SGEI faces a net cost which it would not have incurred if it had not been entrusted with such SGEI, in which case it is entitled to receive public compensation, provided that the amount of such compensation does not exceed that net cost, taking into account a reasonable profit”.
What the General Court stated in paragraphs 92-97 of the judgment is consistent with the case law. But if an SGEI provider needs to receive compensation for the extra costs of the SGEI and at the same time runs loss-making operations outside the scope of the SGEI, the question is how it can remain financially viable. It must necessarily receive funding from outside the company perhaps in the form of commercial loans. Was it not incumbent on the Commission or the General Court or both to examine how the losses for the non-SGEI operations were covered?
Could the services be discharged on a purely commercial basis?
The applicant maintained that there was no market failure to justify the granting of the compensation.
In response the General Court recalled that “(109) the decision to entrust the performance of an SGEI to a particular undertaking in exchange for exclusive rights constitutes a means of organising such a SGEI in respect of which the Member States enjoy a broad discretion.”
“(110) It is in that sense that paragraph 13 of the SGEI Framework provides that ‘Member States cannot attach specific public service obligations to services that are already provided or can be provided satisfactorily and under conditions, such as price, objective quality characteristics, continuity and access to the service, consistent with the public interest, as defined by the State, by undertakings operating under normal market conditions’, and that ‘as for the question of whether a service can be provided by the market, the Commission’s assessment is limited to checking whether the Member State’s definition is vitiated by a manifest error, unless provisions of Union law provide a stricter standard’.”
In the present case, “(112) the Commission assessed whether there was a market failure in relation to the USO”. The applicant still claimed that it had the capacity to deliver letters.
The General Court pointed out that “(115) the USO defined by the Czech authorities is not limited to the delivery of simple letters and parcels in the Czech Republic, but also includes other services, such as non-domestic mail, registered items, insured items, postal money orders or free postal services for blind or partially sighted persons […] The applicant has not put forward any argument regarding its ability to provide such services.”
The USO required the service provider to operate post offices throughout the entire Czech territory. In this respect, the General Court noted that “(116) although the applicant maintains that it is able to fulfil those criteria, relying on the geographic distribution of its collection and pick-up points in that territory, it must be stated that, […], those pick-up points do not constitute post offices as referred to in that provision. […] the collection and pick-up points on which it relies ‘often constitute just […] a computer with a barcode scanner in unrelated shops such as convenience stores, tobacconists or stationery shops’”.
“(119) Member States have, at their level, a broad discretion regarding the conditions for implementing an SGEI. Consequently, even if the USO is provided by the market in Germany, the Netherlands and Sweden, namely in 3 of 27 Member States, such a circumstance is not in itself capable of calling into question the conclusion of the Czech authorities, […], that in the Czech Republic there was a market failure to provide the USO”.
In this connection, the General Court also clarified that the assignment of a PSO or USO in response to market failure is distinct from assessing the proportionality of the compensation.
“(117) Either the USO can actually be provided by the market, with the result that granting compensation in return for discharging that USO is not justified, or the national authorities have established, with no manifest error, that the USO could not be provided by the market alone, with the result that granting compensation is justified. It is only in the latter case that the question then arises whether the examination of the amount of compensation granted is appropriate, in the sense that that amount does not exceed the net costs incurred to guarantee the USO, taking into account a reasonable profit”.
At this point, the General Court could have added that the scope of the PSO/USO must also be proportional to the extent of market failure. So in the context of SGEI, the concept of proportionality has two dimensions: It applies to the extent of the PSO/USO and to the amount of compensation.
The duration of the USO entrustment period and asset depreciation
The applicant criticised the Commission for having confirmed the five-year period of entrustment for the USO period based on an allegedly unsubstantiated list of assets to be depreciated. The rule is that the period of entrustment may not be longer than the economic life of the main assets of the provider.
The General Court recalled that “(127) determining the duration of an SGEI entrustment is a condition of the implementation of that SGEI in respect of which the Member States enjoy a broad discretion”. The Commission may only check for manifest error.
Then, the Court referred to “(128) paragraph 17 of the SGEI Framework [which] states that ‘the duration of the period of entrustment should be justified by reference to objective criteria such as the need to amortise non-transferable fixed assets’ and that ‘in principle, the duration of the period of entrustment should not exceed the period required for the depreciation of the most significant assets required to provide the SGEI’.”
“(129) The Commission concluded that the five-year period used by the Czech authorities fulfilled the requirements of paragraph 17 of the SGEI Framework, on the ground that […] the depreciation period was greater than five years for most of the assets required for the delivery of the USO”.
Next, the General Court made the following interesting comments on the nature of assets that may be depreciated.
“(131) As regards the assets listed in that depreciation table, […], first, the applicant maintains that Česká pošta leases its vehicles and that those vehicles do not therefore give rise to any depreciation. However, […] the switch to leasing concerned only ‘light commercial vehicles’ and that Czech Post ‘continues to purchase large trucks into personal ownership, with an expected period for usage of seven years’, which therefore entails depreciation in the accounts. Second, the applicant submits that Czech Post operates ‘in very old historical buildings whose depreciation periods lapsed a long time ago’. However, that assertion alone does not preclude Czech Post also owning and using other buildings which have not yet been depreciated”.
Also “(135) it is necessary, […], to distinguish between, on the one hand, the accounting depreciation of assets necessary to determine the duration for discharging the USO and, on the other hand, the taking into account of such depreciation in the calculation of the NAC.”
“(136) According to the second sentence of paragraph 17 of the SGEI Framework, which relates solely to the duration of the entrustment period, that duration should not ‘exceed the period required for the depreciation of the most significant assets required to provide the SGEI’. Accordingly, for the purposes of determining that period, it is necessary to take into account the depreciation period of the most significant assets from an accounting point of view, which should, in principle, correspond to the duration of their use. That duration therefore constitutes an ‘objective criterion’, as referred to in the first sentence of paragraph 17 of the SGEI Framework, which may, in principle, justify the duration of the entrustment period.”
“(137) By contrast, it is not required that the most significant assets required to provide the SGEI are found in the investments covered by the compensation granted to the provider of that service. […], depreciation of assets constitutes an accounting burden which entails a cost to be taken into account in determining the NAC, but that question is different from the question of determining the duration of the USO entrustment period.”
I find the first sentence of paragraph 137 difficult to understand. It is true that the rules on the calculation of the NAC do not require listing of the most significant assets. However, the calculation of the NAC must necessarily take into account the costs of those assets which are used by the company to provide the service in question.
The application of the NAC method
The applicant criticised the Commission for having accepted the Czech authorities’ use of the NAC methodology for the purpose of determining the amount of compensation.
The NAC methodology is prescribed in the SGEI Framework for the calculation of the amount of compensation and takes into account the hypothetical costs of the provider in the counterfactual scenario of operating without a USO or PSO. In other words, in the counterfactual scenario the company stops loss-making operations.
In response to a claim by the applicant that Czech Post’s costs used to determine the amount of the compensation were not the costs of a well-run undertaking, the General Court held that that was the fourth Altmark condition. “(158) However, […] the fourth [Altmark] criterion […] is not taken into account in assessing the compatibility of aid measures with the internal market under Article 106(2) TFEU, since the conditions for that compatibility are distinct from the criteria resulting from that judgment and which were laid down in order to assess the existence of State aid”.
Then, the General Court examined the credibility of the counterfactual scenario.
“(161) The examination of the counterfactual scenario involves assessing a fictitious situation in which the costs and revenues of the universal service provider are determined in the hypothetical situation that it is no longer entrusted with the USO. It must therefore be held that such an examination requires complex economic assessments to be carried out”.
The General Court proceeded to assess the following:
- The envisaged reduction in the number of post offices in urban and rural areas and the amount of revenue and costs for postal services and non-postal services for each post office with and without USO.
- The reduction in delivery frequency of letters from five days a week to five days every two weeks and the time limit for deliveries [from next-day delivery to a longer period].
The General Court found the counterfactual scenario to be credible.
Were competitive services cross-subsidised?
The applicant alleged that Czech Post cross-subsidised different services and that the Commission did not examine the cross-subsidisation, contrary to its past practice.
The General Court replied that “(194) such a complaint is ineffective since, in support of that complaint, the applicant submits only that the Commission acted contrary to its previous decision-making practice. It follows from the case-law that the question whether a measure constitutes State aid and whether it is compatible with the internal market must be assessed solely in the context of the relevant provisions of the FEU Treaty and the measures taken to implement it, and not in the light of any earlier decision-making practice of the Commission”.
Conclusion
The General Court rejected all the pleas and, therefore, dismissed the action in its entirety. This is an instructive judgment, although there were certain aspects would have benefitted from more detailed elaboration.
[1] The full text of the judgment can be accessed at:
