Chillin'Competition

[Note by Nicolas and Alfonso: Since we learnt the news that the Commission was preparing a reform of the State aid rules applying to services of general economic interest we have been trying to have our friend (also Alfonso’s boss) José Luis Buendía to give us his views on the reform. Apart from a  being a top-notch State aid lawyer and the author of the seminal (and perhaps only) book on Article 106 (a new edition is in the pipeline), he was heavily involved in the drafting of the original “Altmark package” at the time when he was working for the European Commission. In fact, a few months ago a member of the European Commission said at a conference that whereas some people call this package the “Monti package”, many Commission officials refer to it as the “Buendía package”. We are very thankful for him for having taken the time to write this insightful piece that we believe will be a “must” for anyone dealing with this subject. It’s a privilege for us. Enjoy!]

The editors of this blog have kindly invited me to comment the recently adopted ‘Almunia package’, in which the EC has revisited the State aid rules applicable as regards the financing of Services of General Economic Interest (SGEI).[1]

I have chosen the expression “a turn of the screw” to introduce this short comment for two reasons. The first and most obvious reason is that the new rules would – at least at first sight – increase the pressure and make life more difficult for the big operators of SGEI. The second relates to a Henry James novel, “The Turn of the Screw” (1898), subsequently adapted to cinema by Jack Clayton under the title “The innocents” (1961). The reference to the story seems pertinent to me because it has had very differing interpretations, often mutually exclusive.  The ambiguity of the story makes difficult to conclude whether the governess has actually seen the ghosts or whether she simply dreamed. “The Turn of the Screw” definitively looks like a ghost story but… is it really a ghost story? In any case it is a great story I can recommend.

As I will try to explain, when comparing it with the previous post-Altmark (or Monti-Kroes) Package, the Almunia package definitively looks as a turn of the screw as regards the rules applicable to the financing of SGEI.

In my opinion, and given the current political context, the most remarkable feature is the mere adoption of the package by the Commission.  One has to remember that some Member States wanted that the rules on SGEI were adopted, not by the Commission but by the Council and the Parliament, under the new legal basis introduced in Article 14 TFEU by the Lisbon Treaty. Despite this political pressure the Commission chose not to make a proposal under this new basis (probably for the same reason that turkeys do not vote for Thanksgiving). Instead, it revisited the package under its own powers under Articles 106 and 107 TFEU. This decision seems wise and legally well founded, in particular given the limits of Article 14, but is still quite courageous in this time of centrifugal tendencies at the EU level.

Obviously this small comment cannot cover all the interesting issues raised by the package. It is however fair to say that the content of the reviewed package does not look as particularly conciliatory with those who wanted more flexibility for SGEI. It is true that there are some changes going in that direction. This is the case for the small operators in charge of SGEI that are exempted from notification (in particular, there is a new exemption of some social services and a new draft de minimis specially conceived for SGEIs), but the story seems quite different for the bigger operators that remain subject to individual notification.  Under the Almunia package – and contrary to the previous Monti-Kroes package – the rules applicable to the big operators are going to be different and stricter from the rules applied to the smaller.

The most visible symptom of this asymmetry is the reinforced link between State aid and Public procurement rules, in particular those applicable to the choice by the State of the undertaking which is going to operate a SGEI. This is a very delicate point. Until now there was not a clear obligation for Member States to choose SGEI operators trough competitive tenders.  The Altmark judgment simply provided an incentive to use this mechanism by stating that a competitive tender may exclude the presence of aid. However, according with the previous Monti-Kroes package, the absence of such a tender did not prevented the compatibility of the aid received by the SGEI.

This has apparently changed with the Almunia package, which seems now to require a competitive tender for the attribution of the bigger SGEI as a condition to approve the aid. In other words: if a SGEI has been entrusted without a tender, the EC should in principle not authorize any State aid for its financing.

This requirement seems in line with the need to achieve a more efficient use of public money and, in this regard, it looks as logical and positive. However, in my opinion it seems extraordinary ambitious, perhaps too ambitious, if one looks at the real word. Indeed, in the real word a large majority of SGEI has been entrusted by the authorities without any tender and the situation is unlikely to have changed overnight as a consequence of the entry into force of the package. Does that mean that a large number of SGEI in Europe is becoming incompatible as a consequence of the new package?

I am afraid that the normative force of facts would probably lead to a more flexible reading of the package. Indeed, despite its prescriptive and detailed language in many areas, the package contains a number of ambiguous statements in some key points, including that of tenders. For instance, the use of social or environmental criteria for the ‘attribution’ of the tenders fulfilling the Altmark test is surprisingly allowed, despite the fact that the tender is supposed to look for the ‘lowest cost’ for the society. More reasonably, the language of the package suggests that, instead of having already used a tender, the Member State may simply promise to use it in the future. This prudent wording seems hardly compatible with a strict application of the principle.

The new package contains another element that reinforces this impression of flexibility in the interpretation of the rules. Indeed, the package makes first the point that granting an exclusive right without tender may amount to giving a State aid. After that, the EC suggest that some State aid that would normally be incompatible (for instance, because of the absence of a tender) may nevertheless be authorized if the Member State offers ‘commitments’ in terms of removal of certain exclusive or special rights. The EC seems therefore to relativize here the traditional borderline between Articles 106(1) and 107(1) TFEU and to announce his intention to use in the future State aid to SGEI as an instrument of liberalization. This is in line with a general tendency by DG Comp to use certain policy instruments (i.e. merger control) to achieve goals in other areas (i.e., liberalization). The obvious risk may be a certain dilution of legal certainty: if certain compatibility conditions may be traded against certain alternative commitments it would be difficult to understand what the law actually requires.

Therefore, one would have to wait for the decisions applying the new framework to understand what it actually means in terms of the obligation of tendering of big SGEI. Indeed, in view of the actual situation in the real world and of the absence of a sufficient transitional period, a flexible interpretation of this obligation seems reasonable and would probably be unavoidable.

So, like with “The Turn of the Screw”, the reader of the new package – while enjoying its contents – would not always be totally sure whether he is in front of a hard legal obligation or rather in front of a more flexible principle.

It seems nevertheless important that, irrespective of the interpretation that is finally retained, the EC applies this rule in the future in a consistent and predictable way. After all, the main objective of the EC in the area of SGEI has traditionally been to provide legal certainty, equal treatment and a reasonable balance for Member States, SGEI and companies. This objective seems even more important now given the current context of epidemic euro-skepticism.

The EC has already made an important step by adopting the package, now it has an even more important challenge ahead: to implement it.