First Case of a “Private Debtor” Test?

First Case of a “Private Debtor” Test? - Blog 51 KV

A public authority acting as a “private debtor” tries to minimise the amount that it has to pay.


In assessing whether commercial transactions between public authorities and undertakings are free of State aid, the European Commission and EU courts apply the market economy investor principle [MEIP]. In essence, this principle tests whether a public investor behaves like a private investor in a similar situation. In practice, the MEIP is applied in different forms and under different names, depending on the nature of the transaction in question. So far, we have had the tests of private investor, private operator, private vendor and private creditor. Now we also have the test of “private debtor” which is applied to situations where the state owes money to an undertaking.

On 11 November 2021, in case C-933/19 P, Autostrada Wielkopolska v European Commission, the Court of Justice explained that unlike the situations where investors, operators, vendors or creditors seek to maximise the return, fees, sale revenue or recovered assets, respectively, a private debtor seeks to minimise the money it has to pay.

Autostrada Wielkopolska [AW] appealed against the judgment of the General Court of in case T-778/17, Autostrada Wielkopolska v European Commission, which upheld Commission decision 2018/556. In that decision, the Commission ordered Poland to recover close to EUR 65 million of incompatible State aid from AW.


In 1997, following a public tender, AW won a concession for the construction and operation of a section of the A2 motorway between Nowy Tomyśl and Konin in Poland, for a period of 40 years.

AW committed to obtain, at its own cost and risk, external funding for the construction and operation of the motorway and, in exchange, had the right to collect tolls from the users of the motorway. That agreement also allowed it to increase the toll rates to maximise revenue, provided that they did not exceed certain maximum rates.

Under EU law, users of toll roads may not pay twice for the use of the same road. In particular, lorries may pay either through tolls or vignettes. Consequently, in 2005, after its accession to the EU, Poland adjusted its legislation to exempt heavy goods vehicles [HGVs] holding a vignette [toll card] from tolls on motorways covered by concession agreements.

Under the relevant national law of 2005, concession holders had to be compensated by the National Road Fund for the loss of revenue due to the exemption from tolls. That law entitled concession holders to a reimbursement equivalent to 70% of the amount obtained by multiplying the actual number of journeys by HGVs bearing a vignette by the so-called “shadow-toll” rate negotiated with the concession holders for each category of HGV. The reduction to 70% set by that law was intended to offset the expected increase in HGV traffic on toll motorways, following the exemption of HGVs from tolls.

The method of compensation laid down in the 2005 law ensured that the financial benefits of concessionaires did not increase as a result of the changes. For this reason, the maximum shadow-toll rates were to be determined in such a way so that the expected internal rate of return [IRR] on AW’s investment in the relevant section of the A2 motorway would stay at the same level as it would have been if there had been no legislative change, that is without the loss of revenue resulting from the 2005 law.

In order to fix shadow-toll rates the following financial calculations were carried out:

  • A “base” model showed the financial situation of AW on financial closure in 2000 and assumed that real-toll collection would take place from the beginning until the end of the concession. The IRR was 10.62%.
  • A “real-toll” model described the financial situation of AW that would have prevailed as of December 2004 if HGVs were not exempted from tolls. The IRR was 10.77%.
  • A “vignette” model described AW’s financial situation that would have prevailed as of June 2005 if HGVs were exempted from tolls. In that model, the revenue consisted of shadow-toll compensation for HGVs, and real-toll collection for other vehicles. The shadow-toll rates were set at the maximum levels allowed by the Concession Agreement. The IRR was 8.20%.

On the basis of those financial models, AW demonstrated that, even applying the maximum shadow-toll rates, the real-toll model’s IRR, of 10.77%, would not be reached. For that reason, the shadow-toll rates were set at the maximum levels allowed by the concession agreement.

In addition, AW received monthly compensation calculated on the basis of the number of relevant HGVs using the motorway and the agreed shadow-toll rates. Furthermore, Poland checked how HGV traffic changed as a result of the exemption from tolls and requested AW to adjust the shadow-toll rates accordingly in order to prevent the overpayment or underpayment of compensation. If the obtainable IRR exceeded the real-toll model’s IRR, the shadow-toll rates were required to be lowered in order to eliminate the excess rate of return. On the other hand, if the obtainable IRR was lower than the real-toll model’s IRR, the rates were increased.

However, the Polish Ministry of Infrastructure disputed AW’s data because it considered that AW exaggerated the real-toll model’s IRR by using out-of-date traffic and revenue forecasts. AW was ordered to pay back a certain amount that was deemed by that authority to have resulted in overcompensation.

AW contested the order from the Ministry before an arbitration tribunal which found in its favour. Subsequently, in August 2012, of Poland notified the European Commission of a measure consisting of the grant of financial compensation to AW, in the form of shadow tolls, due to the loss of revenue caused by the 2005 law.

After a formal investigation, the Commission adopted, in August 2017, decision 2018/556. In that decision, the Commission considered that AW had a right to be compensated for the changes made by the 2005 law, which had deprived it of the right to charge tolls on HGVs. However, the compensation could not improve its financial situation as it would confer to AW an undue advantage constituting State aid.

More importantly, the Commission also found that outdated data used by AW led to a higher IRR. Its own calculations indicated that the real-toll model’s IRR was only 7.42%, instead of the IRR of 10.77% used by AW. Therefore, it estimated that the overpayment amounted to about EUR 64.7 million and had to be repaid because it constituted incompatible State aid.

The Commission also rejected AW’s argument that the market economy private investor test was met.

AW’s appeal before the General Court was unsuccessful.

Rights of interested parties

Although the General Court had dismissed in its entirety the action brought by AW, it also held that the Commission was wrong not to allow AW a second opportunity to comment on the information provided by Poland. Therefore, the Commission asked the Court of Justice to declare that in that respect the General Court erred in law.

The Court of Justice, first, recalled that “(61) undertakings which may be beneficiaries of State aid are regarded as being interested parties and that the Commission has the duty, at the examination phase referred to in Article 108(2) TFEU, to invite those parties to submit their comments”.

“(62) Although those interested parties cannot rely on the rights of defence, they have, by contrast, the right to be involved in the administrative procedure followed by the Commission, to an extent appropriate to the circumstances of the case”.

“(63) It must be noted, however, that it follows from Article 108(2) TFUE that, where the Commission decides to initiate the formal investigation procedure in respect of proposed aid, it must give interested parties, including the undertaking(s) concerned, an opportunity to submit their comments. This rule is in the nature of an essential procedural requirement”.

“(64) In that regard, the Court has ruled, in proceedings concerning the application of Article 108(2) TFEU, that publication of a notice in the Official Journal of the European Union is an appropriate means of informing all the parties concerned that a procedure has been initiated. That communication is intended to obtain from persons concerned all information required for the guidance of the Commission with regard to its future action. Such a procedure also guarantees to the Member States and the sectors concerned an opportunity to make their views known”.

“(65) In the procedure for reviewing State aid, interested parties other than the Member State concerned have only the role mentioned in preceding paragraph of this judgment and, in that regard, they cannot themselves seek to engage in an adversarial debate with the Commission in the same way as is offered to that Member State”.

“(68) As regards the interested parties’ procedural rights, where there is a change in the legal regime after the Commission has given the interested parties the opportunity to submit their comments and before the Commission has adopted a decision on proposed aid, and where the Commission bases that decision on the new legal regime without inviting those parties to submit their comments on it, the mere existence of differences between the legal regime on which those parties were given the opportunity to submit their comments and that on which that decision is based is not, as such, capable of leading to the annulment of that decision. Even though the legal regimes at issue have changed, the question arises as to whether, in the light of the provisions of those regimes which are relevant to the case, that change was capable of altering the meaning of the Commission decision”.

“(69) It follows in particular from that case-law that the failure by the Commission to invite interested parties to submit their comments on a change in the legal regime, such as the entry into force during an administrative procedure relating to State aid of guidelines which the Commission intends to apply in a decision closing that procedure, does not constitute an infringement of an essential procedural requirement.”

The Court of Justice went on, in paragraphs 70-76 of the judgment, to apply the principles above and conclude that the facts of the current case had not changed so as to merit a second round of contact between the Commission and AW. The General Court had indeed erred in law.

Application of the private investor test

AW alleged that the General Court and the Commission made several errors in the application of the private investor test. In particular, they did not take into account exchange rate risk and inflation risk.

In this connection, the Court of Justice, first, recalled the relevant principles in the case law.

“(105) Having regard to the objective of Article 107(1) TFEU of ensuring undistorted competition, including between public undertakings and private undertakings, the definition of ‘aid’, within the meaning of that provision, cannot cover a measure granted to an undertaking through State resources where it could have obtained the same advantage in circumstances which correspond to normal market conditions. The assessment of the conditions under which such an advantage was granted is made, in principle, by applying the private operator principle.”

“(106) In that regard, where there are doubts as to the applicability of that principle, in particular because of the use by the Member State concerned, at the time the measure at issue was adopted, of its powers of public authority, the Member State must establish unequivocally and on the basis of objective and verifiable evidence that the measure implemented falls to be ascribed to the State acting as a private operator”.

“(107) By contrast, when the private operator principle applies, it is one of the factors that the Commission is required to take into account for the purposes of establishing the existence of aid and is not, therefore, an exception that applies only if a Member State so requests, when it has been found that the constituent elements of ‘State aid’, as laid down in Article 107(1) TFEU, exist”.

“(108) In that case, it is therefore the Commission that has the burden of proving, taking into account, inter alia, the information provided by the Member State concerned, that the conditions for the application of the private operator principle have not been satisfied, so that the State intervention at issue entails an advantage within the meaning of Article 107(1) TFEU”.

“(109) In that regard, it should be borne in mind that, in order to assess whether the same measure would have been adopted in normal market conditions by a private operator, reference should be made to such an operator in a situation as close as possible to that of the State concerned”.

“(110) It is in that context that it is for the Commission to carry out an overall assessment, taking into account all relevant evidence in the case enabling it to determine whether the recipient company would manifestly not have obtained comparable facilities from such a private operator”.

“(111) It follows from this that the assessment which the Commission is required, where appropriate, to carry out cannot be limited to just the options that the competent public authority actually took into consideration, but must necessarily cover all the options that a private operator would reasonably have envisaged in such a situation”.

“(112) In that regard, first, all information liable to have a significant influence on the decision-making process of a normally prudent and diligent private operator, in a situation as close as possible to that of the public operator, must be regarded as being relevant”.

“(113) Second, for the purposes of applying the private operator test, the only relevant information was the information that had been available, and the developments that had been foreseeable, at the time when that decision was taken”.

“(114) In addition, the Commission is required, in the interests of sound administration of the fundamental rules of the FEU Treaty relating to State aid, to conduct a diligent and impartial examination of the contested measures, so that it has at its disposal, when adopting the final decision, the most complete and reliable information possible for that purpose”.

With respect to the judicial review of Commission decisions, the Court of Justice stressed that “(115) the Court of Justice and the General Court cannot, […], under any circumstances, substitute their own reasoning for that of the author of the contested act”.

“(116) Furthermore, it is settled case-law that the examination which it falls to the Commission to carry out, when applying the private operator principle, requires a complex economic assessment and that, in the context of a review by the Courts of the European Union of complex economic assessments made by the Commission in the field of State aid, it is not for those Courts to substitute their own economic assessment for that of the Commission”.

“(117) However, the Courts of the European Union must, inter alia, establish not only whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the relevant information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it”.

“(118) In that connection, the lawfulness of a decision concerning State aid falls to be assessed by the EU judicature in the light of the information available to the Commission at the time when the decision was adopted, which includes that which seemed relevant to the assessment to be carried out in accordance with the case-law […] and which could have been obtained, upon request by the Commission, during the administrative procedure”.

On the basis of the above principles, the Court of Justice went on to examine the pleas put forth by AW.

Because AW alleged that certain important information had been ignored, the Court reiterated that “(120) the examination which the Commission must, where appropriate, carry out cannot be limited solely to the options which the competent public authority actually took into account, but must necessarily cover all the options which a private operator would reasonably have envisaged in such a situation.”

However, it also warned that “(121) that requirement does not mean that the Commission is required to take into account, in addition, options which a private operator would not reasonably have envisaged in such a situation.”

Then the Court made an important observation. “(123) The situation at issue in the present case shows that, in relation to AW, the Republic of Poland was neither in the position of a private creditor nor that of a private investor. Given that that Member State was under an obligation to compensate AW for damage caused to AW in the context of their contractual relations, the criterion to be applied was that of a private debtor who is liable, in the context of a contractual relationship, to pay a sum of money to the other party to the contract on account of damage which it has caused it.”

“(124) It must be stated that it is not in the interest of a private debtor to compensate its creditor for exchange rate and inflation risks which that creditor has not raised with it. Since higher compensation would, in principle, be contrary to the interests of a private debtor, it must be held that such a debtor would not have taken such risks into account unless, at the request of the other party to the contract, it was required to do so or if that were in its interests understood more broadly, having regard to the contractual relationship in question.”

The Court of Justice found that the General Court had not erred in law when it held that a private operator in the same situation as Poland would not, in principle, have agreed to pay an amount higher than that which it had to pay to AW as a result of the harmful event in question, especially given that AW had not requested those risks to be taken into account.

The obligations of a private debtor are defined by its contract

AW submitted that a private investor [or debtor] would not have been constrained by the provisions of the 2005 law when negotiating shadow-toll rates. Moreover, according to AW, the General Court was wrong to consider that Poland had to compensate AW only for the loss of revenue caused by the changes brought about by that law and that no rational private operator would have agreed to pay an amount exceeding that imposed on it by that law and the contract with AW.

The Court of Justice rejected the plea on the grounds that Poland was required under its contractual obligations to compensate AW only for the loss of revenue caused by the 2005 law.

A private debtor ignores undefined or unquantified risk of litigation

AW argued that a hypothetical private investor would have taken into account the risk that ultimately AW would request the termination of the concession agreement or commence litigation. The Commission was therefore required to assess that risk and to take it into account.

The Court of Justice observed that “(154) the litigation risk would not have been taken into account by a private operator in the negotiations in order to calculate the amount of compensation due to AW, since those risks were unrelated to the loss of revenue caused by the legislative change.”

“(156) As regards the misapplication of the private operator principle invoked by AW, first of all, it must be borne in mind that the assessment criterion to be applied in the present case was that of a private debtor which was liable, in the context of a contractual relationship, to pay a sum of money to the other party to the contract on account of damage which it had caused to that other party. As has already been stated several times in this judgment, the finding by the General Court that such a debtor would not, in principle, have compensated AW in excess of the amount due by reason of the harmful event is not vitiated by an error of law.”

“(157) Next, even if it were accepted that that obligation to pay arose from a broader contractual relationship between the Republic of Poland and AW and that a private debtor in the situation of that Member State could thus have taken into account the risks of failure of the negotiations and of litigation, it would still be necessary for those risks to have been real and that they could have generated higher costs for it than those associated with compensating AW for the consequences for AW of the Law of 28 July 2005.”

“(158) Finally, […] the reality of such risks had not been established. The General Court observed, in that regard, that that matter had not been discussed between the contracting parties”.

The relevant data

AW argued that the Commission was wrong to accept the data that Poland used in its calculations.

The Court of Justice confirmed that “(172) it is unequivocally clear from the decision at issue that, […], the Commission carried out its entire analysis of the existence of an economic advantage from the perspective that, under the Concession Agreement, it was for the Republic of Poland to compensate AW for the damage caused by the Law of 28 July 2005 and that compensation in excess of that damage gave rise to an economic advantage within the meaning of Article 107(1) TFEU. It follows that, in substance, that analysis corresponds to the analysis that the Commission was required to carry out in applying the private operator principle.”

Moreover, the Court concurred that a private operator would have used the most relevant data. Those were contained in the “(177) forecast of traffic and revenues that was contemporaneous with the Law of 28 July 2005.”



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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