A Rare Case of Altmark-compliant SGEI (Part II)

For a service to be in the general economic interest, it must be shown to fill a gap in the market or to offer what the market fails to provide adequately.

[In case you have missed part I, you can access it here.]

Introduction

Services of general economic interest [SGEI] are important for the functioning of European societies. However, the granting of compensation to an undertaking for the provision of SGEI must comply with State aid rules regardless of the fact that the State obliges that undertaking to provide the SGEI and that the undertaking incurs extra costs in doing so.

Any overcompensation is automatically incompatible with the internal market and has to be paid back to the State with interest.

Commission decision 2020/1411 on State aid granted by Italy to the Adriatica, Caremar, Siremar, Saremar and Toremar shipping companies of the Tirrenia Group examined compliance with the relevant rules on State aid for SGEI.[1]

On the same day, Commission decision 2020/1412 was also published.[2] This decision also concerned State aid in the form of compensation that had been granted to Tirrenia di Navigazione [TN]. In this case, however, the Commission also examined possible aid to the acquirer of TN. Compagnia Italiana di Navigazione [CIN] purchased TN when it was privatised through a competitive sale. The problem here was that the contract to provide SGEI was bundled with the sale of the company. In other words, by buying TN, CIN also acquired the contract to provide the services, and the concomitant right to compensation. In the end, the Commission concluded that the sale of the company with the contract complied with the four Altmark conditions; a rare feat for any Member State!

The two decisions come to a total of 150 pages [or 850 paragraphs]. Therefore, this article is in two parts. Part I deals with the first decision and part II with the second. In this way, common elements do not have to be repeated and differences can be more explicitly highlighted.


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Part II: Aid to Tirrenia di Navigazione

Unlike the case of aid to Adriatica and Saremar, which was a straightforward PSC, the aid to Tirrenia involved several different measures: PSC, prolongation of rescue aid, berthing priority in relation to the public service routes, funds for purchasing of ships and tax exemptions in relation the privatisation of the business branch of Tirrenia.

With respect to the rescue aid that Tirrenia had received prior to its sale, the Commission had already found it in a different decision to be compatible with the internal market. However, the Italian authorities prolonged that rescue aid beyond the time period approved by the Commission. For this reason, the Commission concluded in this decision that Tirrenia had received new aid which eventually was assessed to be incompatible with the internal market. Incompatible was also considered to be the aid for new ship purchases and tax exemptions. These measures are not reviewed here because they do not present any novel issues. Nor does this part review the Commission’s assessment of the compatibility of the PSC because it follows the same lines of analysis as for the PSC in part I. The novel issues here are the berthing priority and the bundling of the new PSO contract [called “convention”] in the business branch of the company that was privatised.

Berthing priority

Even though it appeared at first glance to be a regulatory measure, the Commission found it resulted in transfer of State resources. “(297) The Commission takes note that, according to Italy, all ferry operators pay regular fees to the relevant port authorities for berthing but that Tirrenia did not pay any additional fee for the berthing priority. […] [Italy] has foregone State revenues. Furthermore, since the berthing priority is granted by law […] it is imputable to the State.”

Then the Commission established that the berthing priority conferred an economic advantage to Tirrenia. “(309) The Italian competition authority AGCM has at least on two occasions considered that this measure has economic value […] Nevertheless, Tirrenia does not pay any fee for the berthing priority […] Furthermore, the Commission observes that the berthing priority has at least in theory the potential to lower the operator’s costs (e.g. because the guaranteed berthing could reduce waiting times in ports and hence result in lower fuel costs) or increase its revenues (e.g., because some timings possibly attract more demand from passengers). Indeed, to the extent the berthing priority allows for a faster docking procedure, users of the ferry service may prefer the ferry operator that benefits from this measure. Even if these effects would only materialise in limited circumstances or would be relatively small, the berthing priority could nevertheless constitute an economic advantage for Tirrenia.”

Given that the berthing priority was selective, trade was affected and competition distorted, the Commission concluded that the berthing priority for the public service routes constituted State aid to Tirrenia.

New operating rights in a new contract bundled in the business branch of Tirrenia

The Commission had to assess whether new operating rights in a new contract awarded to Tirrenia and then bundled in its sale involved an economic advantage to CIN. For this reason, it examined whether the four Altmark conditions were applicable.

Altmark 1

The Commission first recalled that “(325) there is no uniform and precise definition of a service that may constitute an SGEI under Union law, either within the meaning of the first Altmark criterion or within the meaning of Article 106(2) TFEU. Paragraph 46 of the SGEI Communication is worded as follows: ‘In the absence of specific Union rules defining the scope for the existence of an SGEI, Member States have a wide margin of discretion in defining a given service as an SGEI and in granting compensation to the service provider. The Commission’s competence in this respect is limited to checking whether the Member State has made a manifest error when defining the service as an SGEI and to assessing any State aid involved in the compensation. Where specific Union rules exist, the Member States’ discretion is further bound by those rules, without prejudice to the Commission’s duty to carry out an assessment of whether the SGEI has been correctly defined for the purpose of State aid control.’”

“(326) National authorities are therefore entitled to take the view that certain services are in the general interest and must be operated by means of public service obligations to ensure that the public interest is protected when market forces do not suffice to guarantee that they are provided at the level or conditions required.”

In paragraphs 327 – 331 the Commission reviewed the relevant sectoral rules for designating SGEI in the maritime sector [this is possible for Member States only in relation to cabotage and links between mainland and islands].

In this context, the Commission observed that the case law indicates that “(331) that public service obligations may only be imposed if justified by the need to ensure adequate regular maritime transport services which cannot be ensured by market forces alone. […] ‘it is for the Member States […] and not the shipowners to determine which routes require public service obligations. […]’ Moreover, […] public service obligations [are] obligations which the ‘shipowner in question, if he were considering his own commercial interest, would not assume or would not assume to the same extent or under the same conditions’.”

In para 332, the Commission defined the criteria for verifying “whether there is a real public service need and whether it was necessary and proportional, and hence also whether the first Altmark criterion is met”:

  1. Existence of user demand.
  2. Existence of a market failure [whether market operators could satisfy that demand].
  3. Non-existence of a less distortive approach [whether simple public service obligations without State aid would be insufficient to remedy that shortage].

Existence of user demand?

“(333) The public service obligations imposed on CIN concern the maritime transport links to be operated, the type and capacity of the vessels assigned to the respective maritime routes operated, the availability of a backup ship to ensure continuity of service, the frequency of service, and the maximum fares charged to users (respectively to island residents and to other passengers) of the service on each of the respective routes.”

“(334) Italy has imposed the public service obligations laid down in the new Convention mainly to (i) ensure the territorial continuity between the mainland and the islands and (ii) contribute to the economic development of the islands concerned, through regular and reliable maritime transport services. The Commission considers that these indeed can be legitimate public interest objectives.”

“(335) With respect to the freight-only routes, the Commission recalls that the General Court has already established that in order to be capable of being characterised as a service of general economic interest, the service in question must not necessarily constitute a universal service stricto sensu.”

It would have been easier to understand the meaning of this sentence had the Commission used instead the following words “[…] the service in question need not necessarily constitute […]”.

“(336) The Italian authorities have explained that the maritime freight connections under assessment are necessary to provide all kinds of goods to the islands of Sicily and Sardinia. Furthermore, the regular frequency of these freight services throughout the year ensures that also in the low season, when there is less demand from tourists, the inhabitants and companies of these islands remain adequately supplied. In addition, these services also contribute to the economic development of both islands by transporting goods from and to the mainland. […] For these reasons, the Commission concludes that freight-only services can also fulfil legitimate public interest objectives.”

After considering a large amount of data provided by Italy for each route separately, the Commission agreed that the data “(341) clearly demonstrate that there is a genuine demand for passenger and freight services on each of the twelve public service routes in question. It can therefore be concluded that these services address real public needs and meet a genuine user demand.”

Existence of market failure?

“(342) According to paragraph 48 of the SGEI Communication, ‘it would not be appropriate to attach specific public service obligations to an activity which is 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’. Therefore, the Commission must examine whether the service would be inadequate if its provision were left to the market forces alone in the light of the public service requirements imposed by the Member State by virtue of the new Convention.”

“(343) The Commission notes that during the time period leading up to the signature of the new Convention with CIN, other operators offered ferry services on some routes subject to the new Convention albeit not necessarily throughout the year and with the same frequency. […] the Commission will assess for each of the routes concerned whether the services provided by other operators were equivalent to those that CIN has to provide under the new Convention.”

“(344) Italy has rather claimed that, to the extent other operators provide ferry services on the routes operated by CIN under the public service regime, these competing services would not observe in full the public service obligations laid down by the new Convention. In particular, they would differ in terms of the continuity and frequency throughout the year, would not be equivalent (in terms of ports or type of service, e.g. freight-only instead of mixed) or would not be of the same quality. The Commission will therefore focus on possible differences in terms of continuity, regularity, capacity and quality”.

The investigation of the Commission showed that on certain routes there were no other operators or on routes that other operators were present they did not provide the same services as CIN.

“(348) In light of the above, the Commission concludes that, at the moment of entrustment, market forces alone were insufficient to meet the public service needs.”

Non-existence of a less harmful approach?

“(349) The Commission notes that the Italian authorities have chosen to conclude a public service contract with one operator (CIN) rather than to impose public service obligations on all operators interested in serving the routes at stake. Based on the information provided by Italy, the Commission accepts that the user demand […] could not have been met by imposing public service obligations. In particular, on several routes CIN is the only operator […] and where this is not the case, the offer provided by the other operators does not meet (all) the requirements of regularity, continuity and quality. Furthermore, the operation of most (if not all) routes, especially in the low season, is loss-making so that without public service compensation they would most likely not be operated at all. […] In addition, the Commission takes note of Italy’s argument that the choice for a public service contract was also necessary in view of the privatisation of Tirrenia. More specifically, Italy argues that tendering out Tirrenia’s assets together with a new public service contract allowed to (i) ensure continuity of the maritime public service, (ii) maximise value for the State, and (iii) safeguard employment.”

“(350) On the basis of the above assessment, the Commission concludes that Italy has not made a manifest error when defining the services entrusted to CIN as SGEI.”

Clearly defined obligations?

“(351) In order to conclude that Altmark 1 is complied with, the Commission must still check whether CIN was entrusted with public service obligations which were clearly defined. In this regard, the Commission notes that the public service obligations are clearly described in the new Convention and its annexes (which include for instance ship specifications for each route). Likewise, the rules regulating the compensation are detailed in the Convention, the 2009 Law and the CIPE Directive. The new Convention also has a clear duration (eight years), identifies CIN as the public service operator and contains the arrangements for avoiding and recovering any overcompensation […] Therefore, the Commission concludes that the first Altmark criterion is observed.”

Was the berthing priority part of the PSO definition in Altmark 1?

With respect to the berthing priority’s compliance with Altmark 1, the Commission observed that “(352) if there were no priority berthing for companies entrusted with public service obligations, these may (sometimes) have to wait their turn before docking and thereby incur delays, which would defeat the purpose of ensuring reliable and convenient connectivity to the citizens. A regular timetable is indeed necessary to satisfy mobility needs of the islands’ population and to contribute to the economic development of the islands concerned. […] the Commission considers that this measure is awarded to enable CIN to perform their public service obligations which constitute genuine SGEI […] Therefore, the berthing priority also complies with the first condition of the Altmark judgment.”

Altmark 2

The Commission first noted that “(354) the parameters at the basis of the calculation of the compensation have been established in advance and observe the transparency requirements in line with the second Altmark criterion.”

“(355) More specifically, the parameters on the basis of which the compensation was calculated are explained in detail in the CIPE Directive and have been applied in the new Convention (and annexes thereto) while the maximum compensation amounts are laid down in the 2009 Law. The method of calculation of the compensation, including for instance the cost elements taken into account, are detailed in the CIPE Directive. Since the berthing priority does not entail financial compensation for CIN, the Commission considers that this measure complies with Altmark 2.”

“(356) Therefore the Commission concludes that the second condition of the Altmark judgment is observed.”

Altmark 3

“(357) According to the third Altmark criterion, the compensation received for the discharge of the SGEI cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations.”

“(358) However, the Altmark ruling does not provide a precise definition of the reasonable profit. According to the SGEI Communication, reasonable profit should be taken to mean the rate of return on capital that would be required by a typical company considering whether or not to provide the service of general economic interest for the whole duration of the period of entrustment, taking into account the level of risk. The level of risk depends on the sector concerned, the type of service and the characteristics of the compensation mechanism.”

The compensation granted to CIN included a rate of profit of 6.5%.

“(360) The Commission notes that certain aspects of the compensation method as laid down in the new Convention, indeed seem to reduce the commercial risk incurred by CIN. In particular, the maximum fares that CIN can charge are adjusted annually to take into account inflation and reflect variations in fuel costs. Moreover, the new Convention contains certain clauses […] that aim at maintaining the economic-financial equilibrium of the public service. In particular, in case the public service compensation would be insufficient to cover the cost of the services entrusted by the new Convention, these clauses allow to revise (i) the scope of these services, (ii) the way the services are delivered (e.g. type of ships), or (iii) the maximum fares.”

“(361) However, the abovementioned clauses are subject to a number of restrictions. In particular, under Article 8 of the new Convention, the economic-financial equilibrium of the public service is only reviewed every three years. If this review shows that the compensation is insufficient to cover the public service cost, then CIN and the Italian authorities can only agree to make changes for the next three-year period. In case the revenues or costs of the public service show unforeseeable structural differences more than 3% higher or lower than the values laid down in the new Convention, its Article 9 allows the parties to request (subject to a number of conditions) a revision of the economic-financial equilibrium. Under both Articles, such changes (if any) are the outcome of a negotiation procedure and until an agreement is reached, CIN must continue to operate the public service unaltered. As a result, CIN remains partially exposed to the risk that the compensation is insufficient to cover the costs of running the service. While Articles 8 and 9 of the new Convention can be used to restore the economic-financial equilibrium, this is only done on a forward-looking basis and there is no retroactive correction possible.”

I do not find this explanation fully convincing. Any accumulated losses incurred by CIN may not be compensated ex post, but losses can be carried forward and if they endanger the future viability of CIN, ex ante compensation must necessarily take them into account.

“(362) As explained above […], the CIPE Directive foresees that the risk premium of 6,5 % would be used to determine the return on capital using the WACC formula. However, in the course of the formal investigation […], Italy has clarified that, because the amount of compensation is capped by the 2009 Law, the decision was taken to simplify the calculation by applying the 6,5 % as a flat rate return on capital. The Italian authorities also demonstrated that applying the full methodology as laid down in the CIPE Directive might have resulted, at least in some years, in a return on capital that exceeds 6,5 %. For this reason, Italy considers that their simplified approach is conservative and does not allow for higher compensation for CIN than what was established under the CIPE Directive.”

“(363) Against the above background, the Commission has compared the return on capital employed of 6,5% that has been applied to CIN with the median return on capital employed generated by a benchmark group in 2011 (the year before CIN’s entrustment). The benchmark group consists of selected ferry operators that offered maritime connections within Italy or between Italy and other Member States. The analysis shows that the return on capital employed applied to CIN is just below the median return generated by the benchmark group. This comparison illustrates that in the year before CIN’s entrustment a 6,5% return on capital was not unreasonable.”

“(364) Most importantly, the Commission notes that regardless of the amount that CIN would be entitled to on the basis of the abovementioned methodology (including the return on capital), CIN can never receive more than the maximum amount set by the 2009 Law (i.e. EUR 72 685 642). This amount, which was set in 2009 and never adjusted for inflation, was most likely conservative as it was almost 10% lower of what Tirrenia needed to operate the service in that same year. The actual figures for the period 2012-2018 in Table 6 show that in all but one year (2015), the public service compensation was insufficient to cover the net cost of the service including the 6,5% return on capital. In line with paragraph 47 of the 2011 SGEI Framework, the Commission assesses whether there was overcompensation over the whole duration of the contract. For the period 2012-2018, CIN received approximately EUR 47 million less than the amount as calculated using the methodology including the 6,5% return. This figure confirms that the review clauses of the new Convention do not protect CIN from all the risks related to the operation of the public service.”

But this line of reasoning suggests that the ex ante calculations of CIN were very wrong. It cannot be that CIN made such losses and at the same time it was happy to continue with the same contract without negotiating significant changes, given that the contract allowed for adjustment of services and fares. This cannot be the whole picture.

The formula for compensation, as presented in the decision, is as follows:

  • Total revenue – [Total costs + Amortisation] = Net cost of public service
  • Net cost of public service + Return on capital (6.5%) = Needed compensation
  • Actual compensation – Needed compensation = (+)Overcompensation or (–)under-compensation

 

“(366) In light of the above, the Commission concludes that the public service compensation granted to CIN does not exceed what is necessary to cover the costs incurred in the discharge its public service obligations, taking into account the relevant receipts and a reasonable profit.”

“(367) With respect to the berthing priority and any possible overcompensation that might result from it, the Commission notes the following. Italy has argued that any possible monetary advantage from the berthing priority would be limited […] As a result, also the risk of overcompensation stemming from this measure would be limited. In addition, to the extent that this measure would reduce the operating costs or increase the revenues of the public service operator, these effects would be fully reflected in the operator’s internal accounts. The Commission’s analysis above […] confirmed that in the period 2012-2018 CIN did not receive overcompensation. Therefore, the Commission concludes that also the berthing priority complies with the third Altmark criterion.”

Altmark 4

“(368) The fourth Altmark criterion is fulfilled if the recipient of the compensation for the operation of an SGEI has been chosen following a tender procedure which allows for the selection of the tenderer capable of providing the SGEI at the least cost to the community or, failing that, the compensation has been calculated by reference to the costs of an efficient undertaking.”

“(369) According to paragraph 63 of the SGEI Communication, the simplest way for public authorities to meet the fourth Altmark criterion is to conduct an open, transparent and non-discriminatory public procurement procedure”.

“(370) Furthermore, paragraph 65 of the SGEI Communication notes that […], a public procurement procedure only excludes the existence of State aid where it allows for the selection of the tenderer capable of providing the service at ‘the least cost to the community’.”

Competitive and transparent tender

“(375) Paragraph 90 of the Notion of Aid Communication specifies that a tender procedure has to be competitive to allow all interested and qualified bidders to participate in the process. Furthermore, according to paragraph 91 of that Communication, the procedure has to be transparent to allow all interested tenderers to be equally and duly informed at each stage of the tender procedure. That paragraph also emphasises that accessibility of information, sufficient time for interested tenderers, and the clarity of the selection and award criteria are all crucial elements for a transparent selection procedure and indicates that a tender has to be sufficiently well-publicised, so that all potential bidders can take note of it.”

The Commission found that

  • An open tender was used to select CIN [para 376].
  • No private negotiations took place for the privatisation of the Tirrenia business branch [para 376].
  • There was publication of a call for expressions of interest and potential interested parties were given sufficient time to express their interest [para 377].
  • It was made clear that the duration of the service contract was eight years and that the maximum amount of compensation for Tirrenia was EUR 72.7 million per year for the entire duration of the contract [para 378].
  • The tender process as a whole was transparent and competitive [paras 379-383].

Non-discriminatory nature of the tender and highest price as criterion

“(386) Paragraph 92 of the Notion of Aid Communication highlights that non-discriminatory treatment of all bidders at all stages of the procedure and objective selection and award criteria specified in advance of the process are indispensable conditions for ensuring that the resulting transaction is in line with market conditions. Furthermore, that paragraph specifies that to guarantee equal treatment, the criteria for the award of the contract should enable tenders to be compared and assessed objectively. Finally, according to paragraph 95 of the Notion of Aid Communication, when public bodies sell assets, the only relevant criterion for selecting the buyer should be the highest price, also taking into account the requested contractual arrangements (e.g. the vendor’s sales guarantee).”

“(387) The call for expressions of interest only contained one selection condition namely that bidders needed to be able to ‘guarantee the continuity of the maritime transport service’. […] The Commission considers that the only applicable selection criterion was objective and had been made sufficiently clear to all interested parties in the call for expressions of interest […] All bidders hence received the same information and were treated equally at all times.”

“(389) Italy has confirmed that in case more than one eligible bid was received, the only award criterion would be the highest price.”

Are the services provided at the least cost to the community?

In this case, the new contract was bundled with the sale of the Tirrenia business branch. Although it was sold through a competitive process to the highest bidder, there was a problem. Because when it was sold, Tirrenia was a large company in administration, Italian law required its acquirer to maintain the same staff level needed to perform the public service obligations as laid down in Tirrenia’s business plans for a period of two years. This condition could have depressed the price at which Tirrenia was sold.

However, the Commission considered that “(396) given that employment costs would be covered by the compensation paid under the new Convention to CIN, […] the obligation to maintain employment levels is in practice not onerous on CIN. Therefore, this obligation is unlikely to have depressed the sale price of the business branch and cannot have conferred an advantage to CIN in this way.”

“(397) By having bundled the assets of the Tirrenia business branch with a new public service contract, the acquirer automatically becomes subject to the requirement to ensure the continuity of the public service and is awarded the berthing priority. The Commission first observes that only the assets necessary to fulfill the public service obligations were bundled with the public service contract. All other assets (including e.g. real estate, six ships, an art collection) were sold via separate tender procedures. Second, the Commission considers that bundling the assets of the Tirrenia business branch with the new public service contract does not result in a lower price than if the assets and this contract had been sold separately”.

The Commission reached that conclusion on the following grounds:

  • The administrator organised separate tender procedures to sell six ships that were only operated on routes not subject to public service obligations.
  • It was unlikely that potential bidders could have had the same resources as those of Tirrenia readily available for (re-)deployment to meet the public service obligations laid down in the new Convention.
  • The Tirrenia business branch could not profitably continue its operations without public service compensation. The liquidation value was lower than the value that resulted from the tender and indicated that therefore immediate liquidation (in essence a sale of the ships) was not a viable alternative for a market economy operator.
  • Tirrenia’s staff number and personnel cost structure were not dissimilar from comparable companies, with reference to the labour cost’s share of total revenues and the labour cost/staff ratio.

 

“(398) The Commission therefore concludes that the bundling of the new Convention with the Tirrenia business branch and the workforce condition could neither depress the sale price of the business branch nor have conferred an advantage to CIN in this way.”

Single bid?

Although the Commission found the tender procedure to be open, transparent and non-discriminatory, it still had concerns about the number of bids that were eventually submitted. This is because para 68 of the SGEI Communication notes that “in the case of procedures where only one bid is submitted, the tender cannot be deemed sufficient to ensure that the procedure leads to the least cost for the community”.

“(401) Accordingly, given that only CIN submitted a bid in the tender procedure for the Tirrenia business branch (which included the new Convention), such tender would normally not be sufficient to ensure the absence of an advantage to the winner.”

“(402) The Commission has however nuanced the position expressed in paragraph 68 of the SGEI Communication in its SGEI Guide by stating that ‘it does not mean that there cannot be cases where, due to particularly strong safeguards in the design of the procedure, also a procedure where one bid is submitted can be sufficient to ensure the provision of the service at “the least cost to the community”’.”

“(403) The Commission considers that in the case under assessment, such safeguards were present. More specifically:

  • The tender procedure was organised in such a way as to maximise interest from potential bidders. […]
  • Genuine competition was possible until the end of the tender procedure. […]
  • A minimum price was set upfront on the basis of the valuation performed by the independent expert appointed by Italy and made available to all potential bidders. […]
  • The binding offer submitted by CIN […] was made available into the data room, and […] all tenderers [were invited] […] to submit a better offer than the one submitted by CIN.”

 

Then the Commission did something very interesting and very educational. It explained the differences between the CIN case and other cases where its assessment was negative [i.e. where it rejected the result of tenders with one bid].

“(404) The Commission notes that the case at hand differs from the following cases where only one bid was submitted:

  • In the tender procedure for the operation of a fast passenger maritime connection between Messina and Reggio Calabria, only Ustica Lines submitted a bid. However, this company was also the only one who expressed an interest so there was never genuine competition possible.
  • In the tender procedure for the attribution of the press distribution concessions in Belgium, only bpost (the incumbent provider of this SGEI) submitted a bid. While initially three companies had expressed an interest to participate in the tender, one company withdrew before the deadline to submit an offer expired and another company announced that it no longer wished to submit an offer (albeit three days after bpost had submitted its offer). […] The Commission […] found that in that case the safeguards were insufficient and therefore concluded that the Altmark 4 condition was not met and that the public service compensation constituted State aid. While the Italian authorities used an open tender procedure, the Belgian authorities organised a negotiated procedure which according to paragraph 66 of the SGEI Communication ‘can only be deemed sufficient to satisfy the fourth Altmark criterion in exceptional cases’. The Commission notes that apart from this important difference, also the safeguards in the bpost case were entirely different from those applicable in the case at hand. Finally, it has to be noted that in the bpost case, the incumbent SGEI provider won the tender after having made the only bid with only one possible competing bidder present. In the case under assessment, the tender was won by a bidder that had no connection to the incumbent SGEI provider with several credible possible competing bidders present and with the abovementioned safeguards.”

 

“(405) Furthermore, the Commission notes that the tender procedure used for the sale of the Tirrenia business branch differs significantly from the procedure used to select the operator of shipping services between the French mainland and Corsica (‘the SNCM case’) in the following ways:

  • The French authorities awarded the public service delegations on the basis of a negotiated procedure with prior publication. According to paragraph 66 of the SGEI Communication such a procedure ‘can only be deemed sufficient to satisfy the fourth Altmark criterion in exceptional cases’. On the contrary, the Italian authorities used an open tender procedure.
  • While in the SNCM case two bids were submitted, one bid was rejected on the basis of one selection criterion. The two bids were therefore not even compared on their merits in order to retain the economically most advantageous one. So even if two bids were actually submitted, this was not sufficient to guarantee effective competition. In the Tirrenia tender procedure however, eleven parties participated in the final phase and the Commission considers that genuine competition was possible until the end of the procedure (see recital 403) even if ultimately only CIN submitted a bid.
  • In the SNCM case, the incumbent operator SNCM/CMN group was also bidding and had a significant competitive advantage since it already had ships that met the technical requirements laid down in the public service delegation contract. […] In the case under assessment, the incumbent operator Tirrenia in EA did not and could not bid and the winning bidder had no connection to the incumbent. Since the tender included the ships that met the technical requirements to operate the public service, none of the possible bidders had a competitive advantage over the other.
  • Furthermore, in the SNCM case the Commission considered that the very short time (i.e. less than one month) set between the date of awarding the public service delegation contract and the date of commencement of services was likely to prove a significant barrier to entry for new entrants.”

 

“(406) On the basis of the above, the Commission concludes that the fourth Altmark criterion is complied with in the present case.”

A concluding thought

Given the rarity of Altmark-compatible cases, this is a remarkable achievement of the Italian authorities. But the many unusual and unique features of this case prevent it from being a model or template for others.

One may reasonably ask whether the compensation was larger than what it would have been, had it been classified as State aid. The answer is no.

But if the compensation had been classified as State aid, then there was a possibility that it would not conform with all of the criteria of the 2012 SGEI Framework and, therefore, the aid would have been incompatible with the internal market.


[1] The Commission decision, published in Official Journal L 332, 12 October 2020, can be accessed at:

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2020.332.01.0001.01.ENG&toc=OJ:L:2020:332:TOC

[2] The Commission decision, published in the same issue of the OJ, can be accessed at:

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2020.332.01.0045.01.ENG&toc=OJ:L:2020:332:TOC


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About

Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He presently holds positions at the College of Europe and the University of Maastricht. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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State Aid Uncovered by Phedon Nicolaides

The Impossibility of Proving the Absolute Impossibility to Recover Incompatible State Aid

It is not sufficient to claim that is it absolutely impossible to recover incompatible State aid. It must be shown that alternative methods have been actually tried without success. Introduction It is rather impossible for Member States to prove that it is absolutely impossible to recover State aid that has been found by the Commission, and confirmed by EU courts, […]
23. Mar 2021
State Aid Uncovered by Phedon Nicolaides

Exclusive Rights and State Aid

Exclusive rights may constitute State aid if they mandate payments with resources over which the state can exercise control. Compensation for the cost of public service obligations may be granted only if the obligations are clear and define a service that is different from market services. Introduction Article 106(1) TFEU requires Member States not to distort competition when they grant […]
15. Dec 2020
State Aid Uncovered by Phedon Nicolaides

The Law, Economics and Art of Compensation for Public Service Obligations

State aid in the form of compensation for public service obligations must exclude any intangible benefits from the obligation, but may include reasonable profit. The Commission guidelines for State aid in agriculture and forestry, the block exemption regulations covering agriculture, forestry, fishery and aquaculture, and the Regulation on de minimis aid for fishery and aquaculture have been prolonged to 31 […]
01. Dec 2020
State Aid Uncovered by Phedon Nicolaides

A Rare Case of Altmark-compliant SGEI (Part I)

For a service to be in the general economic interest, it must be shown to fill a gap in the market or to offer what the market fails to provide adequately. Introduction Services of general economic interest [SGEI] are important for the functioning of European societies. However, the granting of compensation to an undertaking for the provision of SGEI must […]
15. Sep 2020
State Aid Uncovered by Phedon Nicolaides

Non-economic Activities and Services of General Economic Interest

Non-economic tasks and economic activities which are inseparable from those non-economic tasks are together, as a bundle, non-economic in nature. Public compensation for the extra costs of services of general economic interest [SGEI] may not cross-subsidise activities that fall outside the scope of the SGEI. Update on Temporary Framework: Number of approved and published covid-19 measures, as of 11 September […]
14. Jul 2020
State Aid Uncovered by Phedon Nicolaides
report

2019 Competition Report

The Annual Competition Report is a useful document, but it should provide more information on the results of the ex post evaluations and ex post monitoring. Update on Temporary Framework: Number of approved and published COVID-19 measures, as of 10 July 2020: 202* Legal basis: Article 107(2)(b): 20; Article 107(3)(b): 171; Article 107(3)(c): 17 Six Member States have implemented 11 […]
02. Jun 2020
State Aid Uncovered by Phedon Nicolaides
Euromünzen

i) Investor-State Arbitration ii) Recovery of Incompatible State Aid iii) State Aid Scoreboard 2019

Member States abolish bilateral investment treaties between themselves. When the Commission orders recovery of incompatible State aid, interest has to be added to the recoverable amount for the whole period of illegality regardless of any national limitation rules. In 2018, Member States granted EUR 121 billion to industry and services, EUR 6.3 billion to agriculture and EUR 50 billion to […]
12. May 2020
State Aid Uncovered by Phedon Nicolaides
Road sign "Wrong Way"

Advantage Must be Proven, Not Assumed

The European Commission has to consider whether the private investor principle is applicable in cases of state investments. It is for Member States to prove that their investments conform with the private investor principle. Temporary Framework As of 9 May 2020, the European Commission had approved 113 State aid measures to combat covid-19. Their legal basis was: Article 107(2)(b): 10; […]
07. Apr 2020
State Aid Uncovered by Phedon Nicolaides

EU Decisions Override National Decisions on Compensation for Public Service Obligations

The principle of res judicata cannot be used to avoid recovery of incompatible State aid.   An update on State aid measures to counter the impact of COVID-19 As of 3 April 2020, the Commission has approved 29 measures submitted by 16 Member States. Article 107(3)(b) is the legal basis for 26 of those measures, while Article 107(2)(b) is the […]