Helsinki Busses, Loans, Article 93 and Indemnification

Helsinki Busses, Loans, Article 93 and Indemnification - StateAidHub blogpost5 Helsinki bus

Bus transportation provided by public authorities constitutes economic activity. Loans given by a public authority to its transport unit have to be priced at market rates. The market value of public assets sold to third parties has to reflect any state indemnities.

Temporary Framework

The European Commission announced on 28 January 2021 a fifth amendment to the Temporary Framework. [1] The Temporary Framework was adopted on 19 March 2020 and was amended four times in 2020: 3 April, 8 May, 29 June, and 13 October.

The purpose of the fifth amendment is to:

  1. Prolong the Temporary Framework from 30 June to 31 December 2021.
  2. Raise the aid ceilings of certain measures. For grants, the ceiling is raised to EUR 1.8 million [EUR 0.270 million for fisheries, EUR 0.225 million for primary agricultural production].
  3. Amend the conditions for certain measures. In particular, the Commission will allow Member States to convert repayable forms of aid [e.g. repayable advances, guarantees and loans] into grants on condition that the conversion takes place before 31 December 2022.
  4. Clarify the conditions for measures in section 1.3, section 3.1, section 3.2, section 3.3, section 3.10, section 3.12 and section 4.
  5. Revise the list of marketable risk countries and conditions for export-credit insurance.


The risk of infringing State aid rules is very high in transactions between public authorities and their business units. Commission decision 2020/1814 concerning the Helsinki bus company, Helsingin Bussiliikenne, demonstrates the many things that can go wrong: from the valuation of loans, to the pricing of assets sold, to the impact and legality of state indemnities.[2]

Helsingin Bussiliikenne [HelB] was established on 1 January 2005 through the acquisition of assets and liabilities of HKL Bussiliikenne which was a separate business unit of the City of Helsinki [City]. HKL Bussiliikenne was created in 1995 as a spin-off from the City’s department of transport services.

HelB provided bus services in the area of Helsinki and, in addition, it offered charter transport and bus leasing services. HelB was 100% owned by the City until December 2015.

On 14 December 2015 HelB was sold to a private bus operator Viikin Linja, the largest bus operator in Finland.

Alleged aid measures

The alleged aid was in the form of four public loans granted at different points in time:

Equipment loan (2002): The City granted to HKL Bussiliikenne a loan of EUR 14.5 million to finance the purchase buses.

Capital loan (2005): Upon its establishment, HelB took over a public loan from HKL Bussiliikenne.

Capital loan (2011): The City granted HelB a second capital loan of EUR 5.8 million on the same terms as the 2005 loan.

Capital loan (2012): The City granted HelB a third capital loan of EUR 8 million on the same terms as the 2005 and 2011 capital loans.

Sale of HelB after the opening of the Commission’s formal investigation

HelB was sold on 14 December 2015 to Viikin Linja. The sale took effect on 31 December 2015. No public tender was organised. The agreed sale price was EUR 24,210,193. The sale documents also included a provision fully indemnifying the buyer in case it would have to repay incompatible State aid.

HelB’s business name “Helsingin Bussiliikenne” was taken over by Viikin Linja, which then changed its name [the new HelB]. The old HelB, owned by the City, had its name changed to “Helsingin kaupungin Linja-autotoiminta” [the old HelB].

The sale did not cover the shares of the old HelB but its entire business operations and included old HelB’s service contracts, staff, fixed assets and inventories, and intangible rights. All the 918 employees of the old HelB were transferred to the new HelB.

However, the equipment loan and the capital loans obtained by the old HelB from its owner, the City of Helsinki, were not transferred to the new HelB. Instead, the City exempted the old HelB from the obligation to repay the outstanding principal amount of the equipment loan and converted the outstanding amounts of the capital loans into equity of the old HelB.

In other words, the new HelB took over all the assets, but not all liabilities of the old HelB.

Existence of State aid?


The Commission began its assessment by examining whether HKL Bussiliikenne was an undertaking.

“(82) Finland argues that when the equipment loan was granted, HKL Bussiliikenne was neither a company nor a separate legal entity under the Finnish law, but a profit centre within the internal business unit of the City. Thus, the equipment loan should be understood as an internal arrangement within the City. This seems to imply that the measure should not be subject to State aid rules.”

Business units which are embedded in the structure of public administration and can be classified as “internal operators” fall outside the scope of public procurement rules, but not the State aid rules. An entity can be an undertaking regardless of its legal status under national law.

Not surprisingly, “(83) the Commission does not share this view. Even if HKL Bussiliikenne was formally part of the City, it was an economic operator […] engaged in providing bus transport services on the competitive market and not a public authority exercising essential functions of the State. As such, HKL Bussiliikenne clearly carried out economic activities and therefore, regardless of its formal legal status, it must be considered to be an undertaking within the meaning of Article 107(1) TFEU. Consequently, State aid rules apply to HKL Bussiliikenne. Needless to say, they also apply to HelB, which was a separate legal entity from the City and performed the same type of economic activities as its predecessor.”

State resources, selectivity, affectation of trade and distortion of competition?

It was not disputed that the loans were granted from state resources and it was clear that the measures in question were selective and that they were capable of affecting trade and distorting competition. The decisive question was whether they conferred an economic advantage.

The reasoning of the Commission is largely the same for all four measures. Therefore, I review the Commission’s analysis only with respect to the equipment loan.


The Commission explained that “(89) any prudent private creditor, before granting a loan, would have first conducted a credit assessment of a prospective debtor to decide whether to grant a loan and on what terms and conditions. To prove market- conformity, a Member State must provide evidence showing that its decision to carry out the transaction was taken on the basis of such ex ante assessment.”

“(90) Finland explicitly acknowledged that no such assessment, internal or external, had ever been carried out.”

“(91) Finland claims that the loan was nevertheless market-conform on the grounds that (i) the interest rate was tied to the market interest rate, i.e. the 12-month EURIBOR; and (ii) HKL Bussiliikenne would have likely been able to obtain a loan with a similar margin from a private financing institution because, as an internal business unit, it had the same (good) creditworthiness as the City itself.”

“(92) When it comes to the first argument, the Commission observes that a variable interest rate, such as the one applied to the equipment loan, consists of two elements: a base rate and a margin. […] It is therefore not the base rate but the margin which is relevant for the assessment whether a loan is market-conform or not. Consequently, the fact that the interest rate on the equipment loan was tied to the 12-month EURIBOR is in itself not sufficient to prove that the loan was market-conform. What must be assessed is whether the margin properly reflected the risk profile of HKL Bussiliikenne at the time when the equipment loan was granted. In view of that, the first argument must be rejected.”

“(93) Concerning the second argument brought forward by Finland, the Commission first notes that Finland has not provided any factual evidence to substantiate its claim that HKL Bussiliikenne would have been able to obtain a loan with a similar margin from a private financing institution, such as for example offers from commercial banks or examples of comparable market transactions. Finland merely claims that HKL Bussiliikenne would have been able to obtain such a loan on the grounds that it had the same creditworthiness as the City itself and the City presumably obtained loans with the same margin as the equipment loan.”

“(94) The Commission does not share this view. Firstly, the Commission considers that, despite their organisational link, HKL Bussiliikenne and the City did not have the same creditworthiness. From a market creditor’s perspective, a loan granted to the City as a public authority would have always entailed a lower risk than a loan granted to HKL Bussiliikenne, a bus operator acting on the competitive market, even if the latter was organisationally part of the City.”

“(95) Secondly and more importantly, the high creditworthiness of the City is inextricably linked to the fact that its public debts are ultimately guaranteed by the State. A loan granted to the City cannot be considered as an appropriate market benchmark, because its terms take into account this ultimate State’s backing, from which a market debtor does not benefit. Consequently, in order to assess market-conformity of the equipment loan, HKL Bussiliikenne’s creditworthiness must be established on a stand-alone basis and the terms of the loan must be compared to a proper market rate or proxy.”

At this point the Commission recalled that in the past it did not accept that loans granted by a public shareholder to its subsidiary on the same terms as available to the public shareholder were free of State aid.

But is the case of HKL Bussiliikenne the same as that of a public shareholder and its subsidiary? It seems to me that the relevant question here is whether, under Finnish law, an “internal business unit” is in the same position as a subsidiary. Perhaps the public authority that has an internal business unit is fully liable for the debts of that unit, especially if borrowing by that unit from external sources [e.g. a commercial bank] would require a decision or approval by the public authority itself.

Then the Commission pointed that it had “(100) not found any other suitable market benchmarks. Nevertheless, the Commission notes that the margin of 0.05%, charged on the equipment loan, implies virtually no credit risk.”

Given that no transaction-specific market data were available and that appropriate market benchmarks could not be established, the Commission determined a proxy rate on the basis of the reference rates in the 1997 & 2008 Reference Rate Communications.

“(102) The Commission observes that the equipment loan was not backed by any security.”

Given the rather precarious situation of HelB, following the methodology of the 1997 Communication, the “(110) Commission considers that the floor rate should be increased by a premium of at least 400 basis points.”

“(113) The methodology for setting the reference rates was revised under the 2008 Reference Rate Communication. […] at least since 2009 HelB qualified as a firm in difficulty. Based on the 2008 Reference Rate Communication, a market-conform loan margin for a firm in difficulty without collateral amounts to 1,000 basis points.”

“(114) On the basis of the above, the market rate for the equipment loan amounts to (i) the 12-month EURIBOR plus 400 basis points between 24 May 2002 and 23 May 2012; and (ii) the 12-month EURIBOR plus 1,000 basis points between 24 May 2012 and 13 January 2016, when the City waived the loan. The actual interest rate was the 12-month EURIBOR plus 5 basis points and thus was 395 basis points and 995 basis points, respectively, below the market level.”

Furthermore, “(115) on 13 January 2016, the City exempted HelB from the obligation to repay the outstanding principal amount of the equipment loan in the amount of EUR 10.7 million. Thus, in addition to the below market-level interest rate, HelB benefited from not having to repay the principal.”

Total amount of aid

“(198) The Commission concludes that Measures 1, 2, 3, 4 (equipment loan and capital loans) constitute State aid within the meaning of Article 107(1) TFEU, which amounts to a total of EUR 54,231,850.”


The Commission considered whether the aid was compatible with any of the available legal bases or guidelines. It concluded that the aid did not satisfy the conditions of any legal basis.

Article 93 TFEU

Below is the reasoning of the Commission with respect to Article 93, which is elaborated in relatively more detail.

“(203) The Commission has […] assessed whether Article 93 TFEU is a suitable basis for compatibility. Article 93 TFEU contains rules for the compatibility of State aid in the area of coordination of transport and public service obligations in the field of transport and constitutes a lex specialis with respect to Articles 106(2) and 107(3) TFEU. The Court of Justice has ruled that this Article ‘acknowledges that aid to transport is compatible with the internal market only in well-defined cases which do not jeopardise the general interests of the [Union]’.”

“(204) The Commission observes that for aid to be compatible it must meet the needs of coordination of transport. For a given measure to be considered to meet the needs of transport coordination, it has to be necessary and proportionate to the intended objective. In its constant decisional practice, the Commission considered that aid for the coordination of transport is compatible with the internal market on the basis of Article 93 if the following cumulative conditions are met: (i) the aid contributes to an objective of common interest; (ii) the aid is necessary and has an incentive effect; (iii) the aid is proportionate; (iv) the aid or the aided activity is open to all users on a non-discriminatory basis. Thus, first of all aid must be necessary to achieve an objective of common interest, and it must have an incentive effect, i.e. the aid must change the behaviour of the beneficiary in such a way that it engages in additional activity, which it would not carry out without the aid or that it would carry out in a restricted or different manner, so that the objective of common interest would not be achieved. The Commission considers that the 2002 equipment loan and the 2005, 2011 and 2012 capital loans did not have any incentive effect, since those measures did not change the behaviour of HelB (neither that of its predecessor) in such a way that it engaged in additional activity that it would have not carried out without the aid. Given that the conditions outlined above are cumulative, this is sufficient to conclude that the measures under assessment cannot be declared compatible under Article 93 TFEU.”

The sale to Viikin Linja was not on market terms

HelB was sold without tender to Viikin Linja. The Commission found that the sale price did not reflect the market value of HelB. Moreover, the sale contract also included an “indemnification clause” against recovery of incompatible State aid.

“(240) In addition, the sale transaction documents provided for a full indemnification of the new HelB by the old HelB from any State aid recovery claims […]. From an economic perspective such indemnification reduces business risk for the buyer as it effectively constitutes insurance against contingent liability. As such, it gives the buyer additional benefit and thus should be accounted for in the sale price. Yet, the valuation by Inspira Oy does not take the indemnification into account in determining the sale price.”


The Commission ordered Finland to recover the incompatible aid from both the old and new HelB because of the economic continuity between the old and new HelB. [The new HelB took over all the assets, contracts and staff of the old HelB.]

Indemnity clause

The Commission also commented on the indemnity clause and warned against its activation.

“(269) The Commission observes that the provisions in the old HelB sales agreement and escrow account agreement which fully indemnify the new HelB from any State aid recovery claims […] fall outside of the scope of the Opening Decision, and, thus, were not assessed by the Commission in the present decision. However, the Commission recalls that it is settled case-law that such clauses may be qualified as separate State aid measures per se, and the exercise of similar indemnity clauses may be qualified as a circumvention of the recovery of unlawful and incompatible State aid.”

“(270) Therefore, the Commission wishes to emphasise, that in case these full indemnity provisions are honoured in part or in full at any point in time after this Decision, the Commission may have to investigate not only whether the exercise of these indemnity provisions constitute circumvention of the recovery of unlawful and incompatible State aid as found by the present Decision, but also whether such clauses constitute separate State aid measures per se.”

[1] The full text of the fifth amendment can be accessed at:

The consolidated version of the Temporary Framework can be accessed at:

[2] The full text of the decision is published in OJ L 404, 2 December 2020, and can be accessed at:

Photo by Free-Photos on Pixabay



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 is professor at the University of Maastricht and the University of Nicosia. 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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