Introduction
It is now well established that the Commission may not authorise a state aid measure that infringes other provisions of EU law. However, those aspects or modalities of the measure that infringe other EU law must be indissolubly or inextricably linked to the object of the aid. On 11 September 2025, in case C-59/23 P, Austria v Commission, the Court of Justice of the EU [CJEU] interpreted the notion of indissoluble or inextricable link.[1]
The case reached the CJEU as a result of an appeal by Austria against the judgment of the General Court in case T-101/18, Austria v Commission, by which the General Court dismissed Austria’s action for annulment of Commission decision 2017/2112 on state aid measure SA.38454 concerning the development of two new nuclear reactors at Paks II nuclear power station in Hungary.
Nuclear power is very controversial. This article examines only the state aid issues raised by Austria.
Background
Hungary notified the aid measure in May 2015. The beneficiary is MVM Paks II Nuclear Power Plant Development Company [the Paks II company]. The company is wholly state owned.
The construction was to be undertaken by the Russian Nizhny Novgorod Engineering Company Atomenergoproekt [JSC NIAEP]. For that purpose, JSC NIAEP and the Paks II company signed an agreement in December 2014 concerning the engineering and construction of the reactors. Once the construction of the two reactors would be completed, they would be turned over to the Paks II company for free.
Russia, through an intergovernmental agreement, undertook to provide to Hungary a revolving credit facility of EUR 10 billion to finance the development of the two nuclear reactors. In addition, Hungary undertook to grant an additional amount of EUR 2.5 billion from its own budget.
After the conclusion of a formal investigation the Commission found that the notified measure amounted to state aid which was compatible with the internal market. With respect to the direct award of the construction work for the two new nuclear reactors to JSC NIAEP, the Commission considered that it was not required to ascertain whether that award complied with EU public procurement rules. The Commission stated, that, in any event, a separate procedure had been conducted on the basis of Article 258 TFEU and had concluded that Hungary had not infringed EU public procurement rules.
Indissoluble infringement
Austria claimed that the General Court erred in law, first, by excluding the construction of the two new nuclear reactors from the definition of the object of the aid measure at issue and, second, by endorsing the Commission’s finding that the direct award of the contract for that construction work did not constitute an aspect that was inextricably linked to the object of the aid.
The CJEU, first, explained that “(52) the procedure under Article 108 TFEU must never produce a result which is contrary to the specific provisions of the Treaty. Accordingly, State aid which, as such or by reason of some modalities thereof, contravenes provisions or general principles of EU law cannot be declared compatible with the internal market”.
“(53) The Commission must take into account infringements of provisions of EU law other than those relating to State aid where such an infringement arises from the economic activity financed, from the aid or from its object as such or from aspects inextricably linked to the object of the aid”.
“(54) Thus, where the modalities of an aid measure are so indissolubly linked to its object that it is impossible to evaluate them separately, their effect on the compatibility or incompatibility of that aid viewed as a whole must therefore of necessity be determined in the framework of the procedure prescribed in Article 108 TFEU … Such modalities are therefore among the factors which the Commission is required to examine and, as the case may be, to approve, with the result that, if they lead to an infringement of provisions or general principles of EU law, a decision adopted by the Commission authorising that aid would necessarily be rendered unlawful”.
The CJEU also classified that “(55) in that regard, the General Court was entitled to hold, …, that it cannot be inferred from the judgment of 22 September 2020, Austria v Commission (C‑594/18 P, EU:C:2020:742), that the Court of Justice intended to abandon its case-law under which a distinction must be drawn between aspects that are inextricably linked to the object of the aid and aspects that are not, and that, accordingly, the arguments of the Republic of Austria in that regard had to be rejected. It is true that the Court of Justice did not refer, in the judgment of 22 September 2020, Austria v Commission (C‑594/18 P, EU:C:2020:742), to its case-law on the aspects that are inextricably linked to an aid measure or the object thereof. Nevertheless, that was due to the fact that, in the case that give rise to that judgment, the only issue was an alleged infringement of EU law arising from the very economic activity itself that the aid in question in that case was intended to finance and that, as a result, could not be separated from the object of that aid”.
The object of the aid
Next, the CJEU examined the object of the aid in order to determine whether the General Court was right to define the object of the aid as consisting solely of “the provision free of charge of two new nuclear reactors to the Paks II company for the purpose of their operation” without their construction being part of that object.
According to the General Court the contract for the construction of the two reactors preceded the aid measure itself. Hence, it was not an aspect of the aid measure and, therefore, the Commission was not required the examine in the context of the compatibility assessment whether the contract should have been subject to a public procurement procedure.
First, the CJEU noted that “(60) a process the essential aspects of which are apparent from the notification of the aid measure at issue and which forms an integral part of that measure cannot be excluded from the object of that measure, since it amounts to a factor that is necessary for the implementation of that measure and, therefore, for the attainment of its objective.”
“(61) In the present case, …, the objective of the aid … is to support the activity of nuclear energy production, an objective which is pursued by means of a project aimed, according to the very title of the notification of the aid measure at issue, at the ‘development of two new nuclear reactors’. It is clear … that, according to the intergovernmental agreement, the development of those two new nuclear reactors includes their design and construction, a process whose essential aspects, namely, in particular, the identity of the constructor and the technical specifications of those two new nuclear reactors, were apparent from the notification of the aid measure at issue.”
“(63 As regards the amount of the aid at issue, …, that aid ‘includes a revolving credit facility of EUR 10 billion and an additional amount of up to EU 2.5 billion paid by the Hungarian State’. … that credit facility was, according to the intergovernmental agreement, provided by means of the loan granted to Hungary by the Russian Federation and is limited to the sole use of the design, construction and commissioning of the two new nuclear reactors. Lastly, … the Commission confirmed that the amount invested by Hungary in the framework of the project at issue corresponds, inter alia, to the cost of the construction of those two new nuclear reactors.”
The CJEU held that, “(64) since the construction of those reactors is, first, a factor that is necessary for the attainment of the objective pursued by the notified measure at issue and, second, a process financed, at least indirectly, with Hungary’s resources, that construction forms an integral part of the aid measure notified by that Member State and could not, therefore, validly be excluded by the General Court from the object of that measure.”
Therefore, the General Court’s findings were “(65) based on an incorrect legal characterisation of the relevant facts.”
The existence of an indissociable aspect
Then, the CJEU proceeded to ascertain whether the award of the construction contract to JSC NIAEP without a public procurement procedure, constituted an aspect that was inextricably linked to the object of that aid.
The CJEU held that “(68) the direct award of the [construction] contract … necessarily amounts to an aspect that is linked to the object of the aid at issue, since, …, that construction forms an integral part of the measure at issue …, aimed at the provision free of charge of the two new reactors to the Paks II company.”
“(69) Nevertheless, …, it is still necessary to examine whether that aspect may be regarded as being so inextricably linked to the object of the aid at issue that the Commission was required to include an assessment of whether that aspect complies with EU public procurement rules in its examination of the compatibility of that aid with the internal market.”
The CJEU reiterated that “(70) the Commission must assess, in the procedure prescribed by Article 108 TFEU, the indissociable aspects of the object of aid, that is to say, the modalities which are so indissolubly linked to its object that it is impossible to evaluate them separately, with the result that their effect on the compatibility or incompatibility with the internal market of that aid viewed as a whole must therefore of necessity be determined in the framework of that procedure.”
“(71) By contrast, aspects which, although forming part of the aid measure at issue, are not specifically necessary for the attainment of its objective or for its functioning are not aspects that are inextricably linked to the object of the aid … Thus, the Court has held that measures adopted by the Member State concerned that are linked de facto but are legally distinct do not constitute indissociable aspects of an aid measure”.
“(72) In the present case, …, the direct award of the contract for the construction of the two new nuclear reactors is an aspect that is inextricably linked to the object of the aid measure …, which is aimed at developing those reactors with a view to their provision, free of charge, to the Paks II company. … the aspect consisting in that award is indispensable for the attainment of the objective of the aid defined in that manner.”
The financing arrangement between Russia and Hungary together with the commitment of an additional EUR 2.5 billion by Hungary, “(74) confirm that the direct award of the contract for the construction of those reactors to JSC NIAEP is inextricably linked to that provision free of charge.”
“(75) It follows that, …, a potential infringement, by that indissociable aspect of the aid measure at issue, of provisions or general principles of EU law, such as the EU public procurement rules, could preclude that measure from being declared compatible with the internal market, in a procedure under Article 108 TFEU.”
“(76) An analysis of the conformity of the direct award of the contract for the construction of the two new nuclear reactors with those rules was all the more necessary since the organisation of an open, impartial and unconditional tender procedure for the award of a contract for the construction of infrastructure is, …, likely to have an impact, inter alia, on the cost of the investment required for that construction and on the properties of that infrastructure and, accordingly, on the extent of any advantage granted to an undertaking or group of undertakings by that means”.
“(77) It is true that … it is not for the Commission, on its own initiative and in the absence of any evidence to that effect, to seek all information which might be connected with the case before it, even where such information is in the public domain … Nevertheless, in the present case, …, the question of the compatibility of the direct award of the contract for the construction of the two new nuclear reactors with EU public procurement rules had been raised by numerous interested parties during the procedure which led to the decision at issue.”
The CJEU went on to state that “(79) the General Court’s finding, …, that ‘an infringement of the rules on public procurement would produce effects solely on the market for the construction of nuclear power stations and would have no consequences for the market covered by the object of the aid measure at issue’ is also vitiated by an error. … it is clear from the case-law of the Court that, when the Commission assesses whether proposed aid satisfies the condition laid down in Article 107(3)(c) TFEU of not adversely affecting trading conditions to an extent contrary to the common interest, it must take into account the negative effects that that aid may have on competition and trade between Member States in general”.
“(80) Accordingly, it cannot be ruled out that an infringement of a provision of EU law which is liable to produce a distortion of competition on a market that is different from but linked to the market covered by the notified aid measure must be taken into consideration by the Commission in its examination of the compatibility of that measure with the internal market. That is true, in the present case, of any distortion of competition which might have resulted, on the market for the construction of nuclear power stations, from the award of the contract for the construction of the two new nuclear reactors at the Paks site in breach of EU public procurement rules, since that award is an aspect that is inextricably linked to the object of the aid measure at issue.”
The CJEU concluded that “(81) in the light of the Commission’s primary conclusion reached in the decision at issue, according to which it was not required to examine whether the direct award of the contract for the construction of the two new nuclear reactors was consistent with EU public procurement rules, the General Court erred in law inasmuch as it held, first, …, that the object of the aid measure at issue does not include the construction of those two new reactors and, second, …, that the Commission was fully entitled to take the view that the award of the contract for the construction of those two new nuclear reactors does not constitute an aspect of that aid that is inextricably linked to it.”
Did the direct award infringe Directive 2014/25?
Next, the CJEU examined whether Directive 2014/25 was infringed. The Commission maintained that, even if it were required to examine the compatibility of the direct award of the construction work for the two new nuclear reactors with the EU public procurement rules, there was no infringement of Directive 2014/25, since that direct award came within the scope of the exception in Article 50(c) thereof.
First, the CJEU explained that “(101) the obligation to state reasons laid down in Article 296 TFEU is an essential procedural requirement that must be distinguished from the question whether the reasoning is well founded, which goes to the substantive legality of the act at issue.”
“(103) It should be borne in mind that, …, the Commission merely stated that ‘Hungary’s compliance with [Directive 2014/25 had] been assessed in a separate procedure by the Commission where the preliminary conclusion on the basis of available information [had been] that the procedures laid down in [that directive] would be inapplicable to the entrustment of construction works of two reactors on the basis of its Article 50(c).’”
Nevertheless, the CJEU held that “(105) the Commission does not have the power to determine conclusively, in the context of infringement proceedings, the rights and obligations of a Member State or to afford that State guarantees concerning the compatibility of a given line of conduct with EU law, given that, under Article 260(1) TFEU, the Court alone has jurisdiction to find that a Member State has failed to fulfil an obligation under the Treaties. Accordingly, the closure by the Commission of infringement proceedings against a Member State, which amounts to the exercise of a discretion it enjoys, which, moreover, the Court cannot review, cannot be decisive for the purpose of determining whether the national legislation or the national measure that was the subject of those proceedings is consistent with EU law”.
I find the statement in paragraph 105 very problematic. One the one hand the CJEU tells us that the Commission may not decide that there is no infringement. On the other, the Commission may not approve state aid that infringes other EU law. But how is it possible that the Commission can decide on the existence of infringement when it cannot decide on the absence of infringement?
“(106) Thus, …, it is true that there was nothing to prevent the Commission from referring, in the decision at issue, to the 2015 infringement proceedings and, in particular, to the conclusions which it had drawn from the assessments it had carried out on that occasion, taking account, as the case may be, of information or evidence that it might have received after the closure of those proceedings and prior to the adoption of the decision at issue.”
“(107) By contrast, …, a mere reference to such infringement proceedings and to the provision which, according to the Commission, is applicable in the present case, without any indication of the other specific factors taken into consideration by that institution or of the methodology pursuant to which it reached its conclusion, cannot satisfy the requirements of Article 296 TFEU.”
“(108) The reasons set out by the Commission in … the decision at issue do not contain any information capable of showing in a clear and unequivocal fashion the reasoning of that institution that enabled it to reach the conclusion that the direct award of the contract for the construction of the two new reactors at the Paks site complied with Directive 2014/25.”
“(109) Nor can it be inferred therefrom why the Commission relied on that directive in the decision at issue, even though, in accordance with Article 106(1) and the first paragraph of Article 107 of that directive, the time limit for its transposition had been set at 18 April 2016 and Directive 2004/17 was repealed only with effect from that date. That is all the more so since, when answering a question in that regard put to it by the Court of Justice at the hearing, the Commission stated that it is Directive 2004/17 that applies, ratione temporis, to the case at hand.”
Consequently, the CJEU found that “(112) the General Court erred in law in holding, …, that, in the present case, the Commission was entitled to rely, for the sake of completeness, on the outcome of the 2015 infringement proceedings.”
Overall, the CJEU concluded that, “(119) first, that the General Court erred in law in finding that, …, the Commission … was not required, …, to examine the compatibility of the direct award of the construction work for the two new nuclear reactors with EU public procurement rules. Second, the General Court also erred in law in finding that the Commission had provided, to the requisite legal standard, reasons for its conclusion”.
Final judgment
The CJEU proceeded to render itself a final judgment without returning the case to the General Court.
“(124) It is necessary (i) to uphold, first, the first plea in law in the action brought before the General Court, alleging, in essence, that the Commission had failed to examine, in the decision at issue, whether the direct award of the contract for the construction of the two new nuclear reactors entailed an infringement of the EU public procurement rules and that it had failed to state reasons for the conclusion it had reached in that regard for the sake of completeness and, second, the first part of the tenth plea in law in that action, alleging a failure to comply with the obligation to state reasons under Article 296(2) TFEU, and, accordingly, (ii) to annul the decision at issue in its entirety, without it being necessary to examine the other complaints raised in the context of that tenth plea in law, or the other pleas in that action.”
Concluding comment
he CJEU annulled the Commission decision on the ground that its reasoning on the absence of infringement of public procurement law was inadequate and therefore contrary to Article 296 TFEU – a non-compliance with a non-state aid rule. The judgment has interpreted the meaning indissoluble link but at the same time has created uncertainty about the powers of the Commission to approve rather than prohibit state aid measures. Supposing that the Commission’s explanation would have been found sufficient and therefore compliant with Article 296 TFEU, would the CJEU have still stated that the Commission did not have powers to rule decisively on the absence of infringement of other EU law?
[1] The full text of the judgment can be accessed at:
https://curia.europa.eu/juris/document/document.jsf?text=&docid=304240&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=12581242
