The Time Horizon of a Private Investor

The Time Horizon of a Private Investor - StateAidHub blogpost51 scaled

A public authority that claims that it invests for the long term, must still prove that its investment is likely to be profitable.


Public authorities may invest in private companies. However, they need to behave as private investors otherwise they confer an advantage that constitutes State aid.

In their defence, public authorities claiming that they act as private investors, often argue that they invest for the long term. But what is the long term?

The Court of Justice has ruled that a rational private investor is not the same as a speculator. That is, it is not necessary to show that the investment in question will profitable within a week or a month. The time horizon of a private investor, according to the Court, is similar to that of a group of companies which seeks a return in the medium term to longer term.

What is a medium or long term depends on practices in the sector in which the investment takes place, the economic life of the assets concerned, the risk which is assumed and whether the market is stable or in a state of flux.

Bur, regardless of the length of the claimed time horizon of the public authority that claims to act as a private investor, there must be an ex ante study that demonstrates on the basis of credible analysis that the return at the end of the period will be sufficient to compensate for the risk assumed. And, the longer the time period, the higher the risk, ceteris paribus.

In its judgment of 10 December 2020, in case C ‑ 160/19 P, Comune di Milano v Commission, the Court of Justice stressed that a public authority that claims that its investment will be profitable after a 30-year period, must prove that indeed a positive return can be obtained.[1]

The Comune di Milano [city of Milan] sought annulment of the judgment of the General Court of in case T-16/73, Comune di Milano v Commission. The General Court dismissed Milan’s appeal against Commission decision 2015/1225 in which the Commission had found that capital increases carried out by SEA in favour of SEA [Handling] constituted State aid.

SEA is the operator of the airports in the Milan area [Linate and Malpensa]. Until  June 2002, SEA provided itself the ground handling services at the airports of Linate and Malpensa. Following the adoption of EU rules requiring liberalisation of the ground-handling services, SEA a new company, SEA Handling, which was responsible for providing ground-handling services at Linate and Malpensa.

From 2002 to 2009, SEA Handling received grants from SEA in the form of capital contributions totalling EUR 360 million.

Following a complaint, the Commission initiated the formal investigation procedure which concluded in decision 2015/1225. The Commission found the capital injections to constituted aid incompatible with the internal market and ordered its recovery.

The subsequent appeal of the city of Milan against that decision was dismissed by the General Court on 13 December 2018.

Before the Court of Justice, the city of Milan presented several pleas, the first of which concerned the concept of state resources and in particular the claimed independent decisions of SEA.

Existence of state control?

Milan alleged that the General Court erred in law when it considered that the city of Milan’s  majority stake in SEA enabled it to exercise a dominant influence on the board of SEA.

The Court of Justice, first, recalled that according to the case-law, aid must be granted directly or indirectly by means of state resources and be imputable to the state. [paragraph 28 of the judgment]

In the case of public enterprises, such as SEA, the Court of Justice held that the state is in a position, by exercising its dominant influence over such enterprises, to direct the use of their resources to confer specific advantages to other undertakings. An enterprise almost 100% owned by public authorities and whose members of the board of directors are also appointed by those authorities must be considered to be a public enterprise under the control of the state. Similarly, the granting of guarantees by an undertaking wholly owned by a municipality implies the commitment of state resources, since those guarantees involve a sufficiently concrete economic risk liable to entail costs for that undertaking. In addition, when the state is perfectly in a position, by exercising its dominant influence over such undertakings, to direct the use of their resources to finance specific advantages in favour of other undertakings, the fact that the resources concerned are managed by entities separate from the public authority or that the resources are of private origin is irrelevant. [paras 31-34]

In the present case, the Court of Justice concluded that SEA was owned and controlled by the city of Milan and that the financial resources granted by SEA to SEA Handling were classified as state resources. [para 35]

Were the measures imputable to the state?

The city of Milan argued that the various capital injections by SEA could not the attributed to the state, i.e. the city of Milan.

The Court of Justice began its analysis by warning that imputability cannot be deduced from the sole fact that the advantages had been granted by a state-controlled public enterprise. Even if the state is able to control a public enterprise and to exercise a decisive influence on its operations, the actual exercise of this control in a specific case cannot be automatically presumed. It is still necessary to examine whether public authorities were involved in the adoption of the measures in question. [para 46]

Then the Court explained that it cannot be required that it is shown, on the basis of a precise instruction, that the public authorities actually encouraged the public undertaking to take the aid measures concerned. Indeed, the imputability to the state of an aid measure taken by a public undertaking can be deduced from a various indicators depending on the case and the context of the measure. [para 47]

Likewise, the mere fact that a public enterprise has been incorporated in the form of a company with shareholders and that it enjoys autonomy, cannot be considered sufficient to exclude the possibility that an aid measure taken by such a company is imputable to the state. [para 49]

As evidence of the involvement of the city of Milan in the decision of SEA, the Court referred, first, to an agreement with the trade union of SEA Handling by which the city assured that SEA would compensate the losses of SEA Handling. Second, the Court referred to instances of involvement of the city in the decision of the board of SEA. [para 53-55]

Lastly, and perhaps more interestingly, the Court adduce from all that evidence that the Commission could also rely on the improbability of a lack of involvement of the city of Milan in the adoption of the measures in question. [para 56]

On the basis of the above reasoning, the Court rejected the plea.

Application of the private investor principle

The city of Milan argued that the General Court assessed incorrectly the private investor principle.

The Court of Justice, first, recalled that for the purpose of assessing whether the same measure would have been adopted under normal market conditions by a private investor in a situation as close as possible to that of the state, only profits and obligations linked to the latter’s situation as a shareholder must be taken into account on the basis of objective and verifiable elements, to the exclusion of those linked to his status as a public authority. [para 106]

The Court clarified that the verifiable elements must clearly show that the Member State concerned took, prior to the granting of the economic advantage, the decision to proceed to the investment in question. It must be shown that that decision is based on economic evaluations comparable to those which a rational private investor in a situation as close as possible to that of that Member State would have carried out before proceeding with that investment, for the purposes of determining the future profitability of such an investment. [para 107]

The Court noted that the applicability of the private investor principle was not contested by the city of Milan.

With respect to the application of the private investor principle, the Commission bears the burden of proving, taking into account the information provided by the Member State concerned, that the state intervention contains an advantage within the meaning of Article 107 (1) TFEU. [para 110]

The Court of Justice warned that, in this regard, the Commission may not assume that an undertaking has benefited from an advantage constituting State aid simply on the basis of a negative presumption, based on the absence of information leading to the opposite conclusion. [para 111]

However, the only relevant factors for the purposes of the application of the private investor principle are the elements available and the developments foreseeable at the time when the decision to proceed with the investment was taken. Moreover, since the Commission does not have direct knowledge of the circumstances in which an investment decision was taken, it must rely, for the purposes of applying this criterion, to a large extent on the objective factors and verifiable products submitted by the Member State in question for the purposes of establishing that the measure qualifies as a shareholder intervention. [para 112]

Consequently, the absence of a prior evaluation of prospective profitability, although not decisive in itself, may constitute a relevant element that the Commission considers in its assessment. [para 113] Furthermore, the Commission must verify not only the material accuracy of the evidence, its reliability and consistency, but also check whether these elements constitute all the relevant data to be taken into account. [para 115]

When the capital contributions of a public investor ignore any prospect of profitability, even in the long term, they cannot be considered as complying with the private investor criterion and must be considered as aid in the meaning of Article 107(1) TFEU. [para 114]

Then the Court of Justice confirmed the findings of the General Court that that, in the context of its agreement with the trade union of SEA Handling, SEA undertook to compensate, for a period of at least five years, any losses of SEA Handling liable to affect the continuity of its economic activity. However, a private investor would not have made such a commitment without having first carried out an appropriate assessment of the profitability and economic rationality of its commitment. The absence of any appropriate prior assessment of the profitability or economic rationality of such investments may constitute an essential element tending to establish that a private investor would not have contributed, under similar conditions, an amount equal to that contributed by the public investor. [para 117] Consequently, the General Court did not err in law by finding that the Commission had not committed in manifest error in reaching the same conclusion.

The Court rejected an argument of the city of Milan that an economic study demonstrated the rationality of the investment. That economic study was carried out after the investment took place and it contained certain contradictions. [paras 124-125]

The city of Milan also argued that the General Court failed to consider that the investment of SEA was for the very long term.

The Court of Justice rejected that argument as well. Even if the prospects for profitability were to be extended, as the city of Milan claims, until the year 2041, it would also have been necessary for the latter to establish a prospect of return on investment of these measurements before that date. [para 128]

Since none of the pleas of the city of Milan were successful, the Court of Justice dismissed the appeal in its entirety.

[1] The text of the judgment, in languages other than English, can be accessed at:

[Photo by Ken Yam on Unsplash]



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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