Introduction
State aid rules are often perceived as straightjacket on Member State policies. Yet, the fundamental logic of the criteria used by the Commission and endorsed by EU courts to determine the compatibility of state aid force Member States to ask, at minimum, why they intervene, what is the most appropriate method of intervention and how much money is required to achieve whatever they want to achieve. Even in the absence of state aid rules, they would have to ask these questions. The case reviewed in this article shows that much legal trouble could have been avoided had the relevant authorities decided to impose a public service obligation on the aid recipient and determine the compensation they provided according to the rules on services of general economic interest. Had they done so, they would have been able to implement their policy on the basis of a well-understood and state-aid compatible methodology. Compliance with SGEI rules would not have prevented them from granting as much aid as was necessary.
On 20 November 2025, the Court of Justice of the EU [CJEU] delivered an interesting judgment on the concept of undertaking in case C-401/24, Staten Genom Sjöfartsverket v Stockholms Hamn.1 A Swedish court asked the CJEU for a preliminary ruling on whether Stockholms Hamn’s operation of the Hammarby canal lock constituted an non-economic activity.
Staten Genom Sjöfartsverket [the National Maritime Navigation Administration of Sweden] is a public authority. It requested Stockholms Hamn [a company wholly-owned by the municipality of Stockholm] to repay money that had been given to it by the Maritime Administration to compensate it for the abolition of passage fees for the lock.
Two waterways, one via the Södertälje Canal and the other passing through Stockholm and the lock in Hammarby, link the Baltic Sea to Lake Mälar in Sweden. The Maritime Administration manages the lock at Södertälje Canal. The lock fees for Södertälje and Hammarby used to be coordinated in order to ensure a balanced distribution of traffic between the two connections between the Baltic Sea and Lake Mälar.
However, in 1978, the Swedish authorities decided to abolish certain fees at the Södertälje Canal and Hammarby Lock. Consequently, the Maritime Administration and the Stockholm municipality concluded an agreement under which the municipality would not collect fees Hammarby Lock from non-recreational vessels. Instead, the Maritime Administration undertook to provide annual compensation. The compensation was initially paid to Stockholm municipality and then, from the 1990s, to Stockholms Hamn. From 2014, its amount fluctuated between SEK 3 and 4 million (approximately EUR 260,000 and EUR 360,000) annually.
Under the terms of the agreement, the compensation was to be adjusted annually on the basis of the consumer price index. The agreement had to be renewed for a period of five years, unless notice of termination was given at least six months before its expiry. A new annual sum of compensation had to be fixed for each new five-year period based on the evolution of the volume of traffic passing through Hammarby Lock during the preceding agreement period. The Maritime Administration terminated the agreement at the end of 2021.
In May 2023, the Maritime Administration brought an action against Stockholms Hamn before the referring national court. It claimed reimbursement, together with interest, of the sum of SEK 38,086,436 (approximately EUR 3,378,242) because the Maritime Administration considered the compensation to constitute unlawful state aid. By contrast, Stockholms Hamn was of the view that the operation of the lock was not an economic activity.
The referring national court submitted to the CJEU two main questions: First, did the compensation constitute state aid? And, second, if the compensation was state aid, was it new or existing aid, given that the agreement was concluded before Sweden acceded to the EU in 1995.
The concept of undertaking
The CJEU, first, recalled that “(21) an undertaking is any entity engaged in an economic activity, irrespective of its legal status and the way in which it is financed. … any activity consisting in offering goods and services on a given market is an economic activity”.
“(23) In that regard, it should be emphasised, in the first place, that the public or private status of the entity engaged in the activity in question has no bearing on the question as to whether or not that entity is an ‘undertaking’. The State itself or a State entity may act as an undertaking. In addition, a legal entity, and inter alia a public entity, may be regarded as an undertaking in relation to only part of its activities, if the activities which form that part must be classified as economic activities … Therefore, the status of the entity under national law is not decisive.”
“(24) The fact that the lock service at issue in the main proceedings is provided by Stockholms Hamn, a company wholly owned by Stockholm Municipality, does not preclude a finding as to the existence of an undertaking engaged in an economic activity.”
Then the CJEU clarified that “(25) activities which fall within the exercise of public powers are not of an economic nature justifying the application of the FEU Treaty rules of competition …, in particular where the operation of infrastructure is inextricably linked to the exercise of functions which fall within the public task entrusted to the entity that operates it and where that entity acts in the exercise of public powers”.
In the specific case of Hammar Lock, the CJEU observed that “(26) it does not appear that the economic nature of the lock service at issue … may be excluded in so far as it involves the exercise of public powers. It is not apparent either from the request for a preliminary ruling or from the file before the Court that the lock service at issue … involves or is inextricably linked to the exercise by Stockholms Hamn of such powers, such as waterway traffic control and safety, waterway policing and anti-pollution surveillance.”
The CJEU added that since “(27) the classification of an entity as an undertaking is always relative to a specific activity”, “(28) the lock service at issue …, consists in carrying out all the operations required to ensure the passage of vessels other than recreational vessels through Hammarby Lock. Unless it is considered that that service cannot, particularly in view of the conditions under which it is provided, be dissociated from the service consisting in providing the lock service to recreational vessels, which it will be for the referring court to examine, the verification of the existence of an economic activity must relate only to the service provided to vessels other than recreational vessels.”
Next, the CJEU recalled that “(29) in order to be classified as an economic activity, the lock service concerned must consist in offering goods and services on a given market.” Moreover, “(30) the fact that the offer of goods or services is made on a not-for-profit basis does not prevent the entity which carries on those operations on the market from being considered an undertaking, since that offer exists in competition with that of other operators which do seek to make a profit. Furthermore, services normally provided for remuneration are services that may be classified as ‘economic activities’. The essential characteristic of remuneration lies in the fact that it constitutes consideration for the service in question”.
Simply, when an entity operates on the market, it must be able to cover all its costs, even if it is not-for-profit, otherwise it will inevitably go bankrupt.
In this connection, the CJEU examined the fact that the lock service at issue was provided free of charge and, interestingly, it pointed out that “(32) an activity cannot, in principle, be regarded as economic if it does not generate, at least in the long term, revenue capable of turning a profit or at least covers costs.”
This statement needs to be qualified. It is true for autonomous activities that are not cross-subsidised, or are not aided by the state. Since no activity in this world, economic or not, can be carried out without sufficient funding to cover its costs, it follows that non-economic activities which, by definition, are not provided for consideration [i.e. they are for free or for a nominal price] must be mostly funded not by their users/consumers but by third parties such as donors or carried out by volunteers who in essence donate their time.
At any rate, the CJEU went on to observe that “(33) the fact that the lock service … is provided free of charge may constitute an indication that there is no economic activity.” Indeed, the provisions of a service or good for free is only an indication that it is non-economic in nature. The decisive element is how the service or good covers its costs. In this case, it was probably a subsidy from the municipality of Stockholm.
Because the CJEU did not have sufficient information before it, it left it for the referring court “(34) to verify whether the lock service at issue in the main proceedings is operated on a market, that is to say, in competition with other economic operators.”
The CJEU also left it for the referring court to verify the presence of any other competitor given that the “(35) service enables the connection between the Baltic Sea and Lake Mälar and that the only other waterway enabling that connection is the Södertälje Canal, navigation of which is managed by the Swedish State and was also provided free of charge during the term of the agreement. It thus appears that there is no substitutability with another operator seeking to make a profit, …, and, that being so, no competitive relationship between the lock services on the two waterways concerned, which it will be for the referring court to verify.”
But the CJEU did not guide the referring court to examine the conditions under which the lock at Södertälje Canal was operated.
The existence of an advantage
Next the CJEU examined whether Stockholms Hamn derived an advantage in the meaning of Article 107(1) TFEU.
First, it recalled that “(38) any State measure which, whatever its form or objectives, is likely to favour one or more undertakings directly or indirectly, or which confers an advantage on them which they would not have been able to obtain under normal market conditions must be regarded as satisfying that condition”.
“(40) In the present case, … the agreement was concluded following the decision of the Swedish authorities to abolish, at regional level, certain fees imposed on passage through certain inland waterways, with the aim of maintaining a balanced distribution of traffic between the waterways concerned. … it seems that the evidence before the Court on the reasons for the payment of the compensation … to Stockholms Hamn instead has to be interpreted as meaning that the Swedish State intervened in its capacity as a public authority and not as a private operator.”
Then the CJEU considered whether the four Altmark conditions would apply to the compensation in question. “(43) The free-of-charge nature of the lock operations provided by Stockholms Hamn during the relevant period for commercial vessels appeared to constitute an obligation imposed by law and subsequently formalised in an agreement concluded with the administrative authority delegated for that purpose, by which the Swedish authorities pursued the objective of ensuring an optimal distribution of commercial maritime traffic in the general interest. …, it cannot therefore be ruled out that, during that period, Stockholms Hamn was entrusted with a public service obligation within the meaning of the Altmark criteria, which it will however be for the referring court to assess, in the light of all the relevant factors.”
However, with respect to the third Altmark condition that prohibits overcompensation, the CJEU observed that “(44) athough the amount of the compensation at issue … is based primarily on that of the fees which were collected before their abolition, it is not apparent from the file before the Court that those fees are linked to the costs incurred by the lock service concerned.”
Again, it left it for the referring court to assess whether the four Altmark conditions were all satisfied.
Affectation of trade
The CJEU noted that “(47) it is not necessary that the beneficiary undertakings are themselves involved in intra-Community trade. Where a Member State grants aid to undertakings, internal activity may be maintained or increased as a result, so that the opportunities for undertakings established in other Member States to penetrate the market in that Member State are thereby reduced. Moreover, there is no threshold or percentage below which it may be considered that trade between Member States is not affected. The relatively small amount of aid or the relatively small size of the undertaking which receives it does not as such exclude the possibility that trade between Member States might be affected. Consequently, the condition that the aid at issue must be capable of affecting trade between Member States does not depend on the local or regional character of the transport services supplied or on the scale of the field of activity concerned”.
It was for the referring court to determine whether trade was affected.
Existing aid?
The CJEU also was asked whether the compensation, if it were state aid, was existing or new aid. The agreement on the compensation was concluded before Sweden’s accession to the EU.
First, the CJEU recalled that “(51) the classification of State aid as existing or new aid has different procedural consequences. Existing aid may, in accordance with Article 108(1) TFEU, be lawfully implemented as long as the Commission has not found it to be incompatible with the internal market … On the other hand, Article 108(3) TFEU provides that plans to grant or alter existing aid must be notified, in sufficient time, to the Commission and may not be implemented until the examination procedure has resulted in a final decision”.
“(52) According to Article 1(b)(i) of Regulation 2015/1589, the concept of ‘existing aid’ includes, ‘without prejudice to Articles 144 and 172 of the Act of Accession … all aid which existed prior to the entry into force of the [FEU Treaty] in the respective Member States, that is to say, aid schemes and individual aid which were put into effect before, and are still applicable after, the entry into force of the [FEU Treaty] in the respective Member States’.”
“(56) Although the compensation … was not notified to the Commission, it must be classified as existing aid, since it satisfies the conditions to which Article 1(b)(i) of Regulation 2015/1589 subjects such a classification.”
However, the CJEU also added that “(57) it is necessary … to determine whether that classification may be called into question by the extensions and adjustments which the compensation at issue in the main proceedings underwent. It is apparent … that the referring court questions whether the alterations relating to the duration and amount of the compensation … occurring after the expiry of the agreement, initially concluded in 1979 for a period of five years, may be regarded as ‘alterations to existing aid’, with the result that that compensation must, ultimately, be classified as ‘new aid’ within the meaning of Article 1(c) of Regulation 2015/1589.”
In this connection, the CJEU noted that “(58) according to the first sentence of Article 4(1) of Regulation No 794/2004, ‘any change, other than modifications of a purely formal or administrative nature which cannot affect the evaluation of the compatibility of the aid measure with the [internal] market’ constitutes an alteration to existing aid. Furthermore, according to settled case-law, only a substantial alteration – of a subjective, objective or temporal nature – affecting the constituent elements of aid and liable to alter the assessment of its compatibility with the internal market gives rise to new aid”.
Then the CJEU made an important statement. “(59) In the present case, … the validity of the agreement was automatically extended every five years until its termination in 2021. That automatic five-year extension of the agreement, unless terminated, and the adjustment of the amounts of the compensation at issue in the main proceedings, both annually on the basis of the consumer price index and every five years on the basis of the evolution of traffic, were provided for in that agreement and could, in so doing, be taken into account from the conclusion of the agreement for the purposes of a compatibility assessment.”
This is important because it clarifies that changes to an aid measure that are provided for in the initial decision of the granting authority do not result in new aid even if the subsequent amount of aid is increased, as long as it is in accordance with the terms or formula initially laid down.
“(60) Only extensions introduced by acts adopted subsequent to the one which provided for the aid concerned, possibly after that aid has been authorised by the Commission …, or extensions going beyond the time limits laid down in the contract which instituted that aid, to the exclusion of the normal operation of that contract …, entail alterations to existing aid.”
“(61) As regards the adjustment of the amounts of the compensation …, first, the annual adjustment of the amount of the compensation at issue in the main proceedings on the basis of the consumer price index falls under automatic variations in the amounts of pecuniary aid in a situation of inflation and not under a substantial alteration in the amount of that compensation. Second, as regards the redefinition of the basic amount of the compensation … on the expiry of each five-year period, it will be for the referring court to assess whether that redefinition, although occurring on the basis of a formula which remained unchanged over time, in fact led to a series of renegotiations which could be classified as ‘alterations’. That could be the case, in particular, if that redefinition required the parties to agree on the volume of traffic to be taken into consideration.”
“(62) If that is indeed the case, the referring court will be required to examine whether those alterations may be classified as ‘substantial’, bearing in mind that the 20% threshold above which an alteration to the original budget is considered an alteration to existing aid applies only, in accordance with Article 4(1) of Regulation No 794/2004, to aid schemes and not to individual aid, such as that at issue in the main proceedings.”
Conclusions
On the basis of the above analysis, the CJEU ruled as follows:
With respect to whether the compensation constituted state aid: “An annual compensation paid under an agreement using State resources by a public authority to a municipal joint stock company as compensation for that company’s undertaking to provide free of charge a lock service on a waterway, which had been subject to a fee before the conclusion of that agreement, constitutes State aid if that company can be regarded as an undertaking and if that compensation confers on it an advantage which it would not have obtained under normal market conditions.”
With respect to whether the compensation was existing or new aid: “Assuming that [the compensation] constitutes aid, within the meaning of Article 107(1) TFEU, compensation, the payment of which, in accordance with the original terms of the agreement which instituted it, has been extended for five-year periods in the absence of termination of that agreement and the amount of which has been altered, first, annually, on the basis of the consumer price index and, second, on the expiry of each five-year period, according to the volume of the traffic concerned, pursuant to a formula set out in the original agreement and remaining unchanged over time, constitutes existing aid.”
