UNIVERSITY OF AMSTERDAM
The Faculty of law
International and European law
European Competition Law and Regulation
What makes the difference between an advantage as meant
in Article 107(1) TFEU and a compensation for a service of
general economic interest?
Master Thesis
Veronika Šišková Supervisor: Cees Dekker
Word count: 12.988
July 27 2018
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Abstract
Veronika Šišková, What makes the difference between an advantage as meant in Article 107(1) TFEU and a compensation for a service of general economic interest?, Master’s thesis, University of Amsterdam, Master track: International and European law: European competition law and regulation, supervisor of master’s thesis Cees Dekker, University of Amsterdam, July 27 2018, 12.988 words.
This thesis aims to answer the question: what makes the differences between an advantage as meant in Article 107(1) TFEU and a compensation for a service of general economic interest? The thesis is structured into an introduction, six sections, and a conclusion. Each section corresponds to a sub-question in order to systematically answer the research question. Following an explanation of both concepts of “advantage” and “compensation for SGEI”, the research aims to ascertain a situation whereby both concepts can be subjected to comparative analysis, and which may therefore provide an answer to the stated question. Both concepts are compared in relation to the conduct of public procurement procedures as to whether such procedures are capable of neutralising an advantage in the sense of Article 107(1) TFEU. In the recourse of this analysis, an interesting question arises. If a tender procedure neutralises State aid and thus no advantage is conferred on the recipient of such aid, is it really necessary to determine SGEI and follow Altmark conditions if also in other circumstances (no SGEI) the procurement avoids advantage in the sense of Article 107(1) TFEU? In this context, the thesis aims to determine whether there is in fact a difference between the concept of an advantage and the compensation for SGEI.
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Acknowledgement
I would like to say a big thank you to my supervisor Cees Dekker for the support, guidance and constant feedback throughout the process of writing this present thesis.
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Table of Contents
Introduction ... 5
Methodology ... 6
1. Why is it important to know what an advantage is in the sense of Article 107(1)? 7 1.1. State Aid in the sense of Article 107 TFEU ... 7
1.2. Criteria for application of Article 107(1) TFEU ... 8
1.3. Conclusion ... 10
2. What makes an advantage in the sense of Article 107(1) TFEU? ... 11
2.1. The definition of an advantage ... 11
2.2. Assessment of conferment of an advantage ... 12
2.3. Conclusion ... 15
3. Under what circumstances does the compensation for SGEI not form a State aid measure? ... 16
3.1. What is SGEI? ... 16
3.2. Application of Article 106(2) TFEU and Altmark test ... 18
3.3. Selection of SGEI provider ... 21
3.4. What if the Altmark conditions are not fulfilled? ... 22
3.5. Conclusion ... 23
4. How can an advantage as meant in Article 107(1) be eliminated by the public procurement procedure? ... 25
4.1. Conditions under which an advantage can be eliminated ... 26
4.2. Conclusion ... 28
5. What is the difference between an advantage that doesn’t constitute State aid and compensation for certain service? ... 30
6. What are the limits for determining the SGEI? ... 35
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Introduction
This paper’s research question is “What makes the difference between an advantage as meant in Article 107(1) TFEU and a compensation for a service of general economic interest?”. Following an explanation of both concepts of “advantage” and “compensation for SGEI”, the research aims to ascertain a situation whereby both concepts can be subjected to comparative analysis, and which may therefore provide an answer to the stated question. This paper comprises six sections and a conclusion. Each section constitutes a sub-question to assist in systematically analysing the relevant issues for this research. The first section addresses why is it important to know what an advantage is. It discloses the concept of State aid in the sense of Article 107(1) TFEU, in particular the principles of State aid rules and elements that determine State aid. The second section explains what represents an advantage in the sense of Article 107(1) TFEU. This section explains the advantage criterion, and assesses the circumstances under which the state measure confers an advantage on the beneficiary undertaking according to the MEOP test. The next section focuses on the circumstances under which compensation for a SGEI does not constitute a State aid measure. It focuses on the concept of SGEI and analyses the application of Article 106(2) TFEU, the Altmark test, and other conditions under which such compensation is State aid free. The fourth section aims to clarify how an advantage within the meaning of Article 107(1) TFEU can be eliminated by the public procurement procedure and explains the conditions thereof. The following section examines the difference between a situation in which the use of a public procurement procedure eliminates an advantage in the case of compensation for a SGEI and a situation not concerning a SGEI. The sixth section describes the principles of determining services as SGEI and explains the limits of these principles. The paper’s conclusion summarizes the research findings.
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Methodology
The research will focus on the difference between the concept of advantage as meant in Article 107(1) and the compensation for SGEI, and the role of public procurement rules. The research is subjected to legal doctrinal analysis through existing case law, which sets the framework for defining these concepts as well as the analysis of legislation and the Commission’s decisions, guidelines and communications. This analysis draws upon existing literature in discussing these concepts. The research continues with an analysis of the potential neutralisation of an advantage in public procurement, and the discretion of Member States to determine SGEI and establish compensation for a certain service. The research focus is to ascertain what constitutes the difference between an advantage and compensation for SGEI.
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1. Why is it important to know what an advantage is in the sense of Article 107(1)?
In order to answer this question, it is important to zoom in on the concept of State aid in the sense of Article 107(1) TFEU. This section aims to describe the principles of State aid rules; in particular, to briefly address the elements that determine the existence of State aid and stress the role of an advantage in this concept. These things are of particular importance for understanding the issues that will be discussed in the course of this paper.
1.1. State Aid in the sense of Article 107 TFEU
The rationale behind the idea of State aid rules was to ensure a well-functioning internal market and undistorted competition, and to prevent protectionism.1 In other
words, to prevent distortion of competition caused by State intervention that strengthens the position of an undertaking compared with its competitors in intra-EU trade. This State aid control prohibits Member States from granting an economic advantage to entities providing economic activity when this aid restricts competition and has an effect on trade between Member States.
The broad meaning of the notion of State aid is underlined by the case law of European courts, which can be traced back to the early 1950s. Nowadays, the regulation of State aid is included in the Treaties, the case law of European courts and the Commission’s soft law.
Article 107(1) of the Treaty on the Functioning of the European Union (hereinafter referred to as “TFEU”) stipulates that:
Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts competition or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.
1 Damian Chalmers, European Union Law: text and materials ( Cambridge University Press, third
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Although the wording of Article 107(1) TFEU proclaims any aid granted by a State a priori incompatible with the internal market,2 it does not provide a definition of ‘aid’ itself, nor can such a definition be found in any other provision of TFEU. As soon as a Member State decides to grant subsidies from public resources to a particular undertaking, there is a risk that such financing will amount to State aid. Therefore, to ensure an effective application of State aid rules, an aid cannot be granted by a Member State until the Commission has authorised it. This is guaranteed by the general notification obligation of Member States laid down in Article 108(3) TFEU, which obliges Member States to notify the Commission in advance and which also applies to State aid that has not been notified at all.3 However, not all State aid is forbidden. A measure which fulfils the conditions of State aid within the meaning of Article 107(1) TFEU can still be compatible with the internal market. State aid must be authorised by the Commission when it fulfils the criteria in Article 107(2) TFEU, or it may be declared as compatible according to Article 107(3) TFEU.4 Regarding the
latter, the Commission has discretion in considering the authorisation of State aid.5
The Treaty itself overlooks violation of competition rules in the case of the provision of services in general economic interest (hereinafter referred to as “SGEI”) 6. Thus, an
exception can be made even when provision of such services restricts competition, but under conditions of necessity, and when it does not affect trade contrary to the Union’s interests.7
1.2. Criteria for application of Article 107(1) TFEU
As already mentioned, TFEU itself does not provide any definition of ‘State aid’. Whether a measure constitutes State aid depends on various criteria developed by the case law of the European courts and the Commission’s decision-making practice. In addition, in the context of State aid modernisation, the Commission launched in 2012
2 Juan Jorge Piernas López, The Concept of State Aid Under EU Law: From internal market to
competition and beyond (Oxford scholarship online, 2015), 2.
3 Chalmers (n.1), 1074.
4 Julian Nowag, Enviromental Integration in Competition and Free-Movement Laws: State Aid Law (
Oxford University Press, 2016), 92.
5 Chalmers (n.1), 1076. 6 Article 106(2) TFEU. 7 López (n.2), 205.
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the Notice on the notion of State aid,8 which inter alia clarifies the different elements of the notion of State aid: the existence of an undertaking; the granting of an advantage; the selectivity of the measure; the imputability of the measure to the State, the undertaking’s financing through State resources, and the undertaking’s effect on competition and trade between Member States.9
According to Article 107(1) TFEU State aid rules apply only when the beneficiary of an aid measure is an undertaking. The Court of Justice has defined undertakings as ‘entities engaged in an economic activity, regardless of their legal status and the way in which they are financed.’10 Thus, the decisive factor is that the entity indulges in economic activities. An economic activity consists of offering goods and services in a market.11 If an undertaking takes part in both economic and non-economic activities, it is considered to be an undertaking only with regard to its economic activities.12 Furthermore, Article 107(1) does not apply where the State exercises public power, i.e., where the activities are an essential element of its role as a State.13 However,
where it is possible to separate the carrying on of economic activities from the exercising of public power, the State is considered as an undertaking regarding those economic activities.14
If a public authority grants an advantage to a beneficiary undertaking, the measure is always imputable to the State, regardless of any form of legal autonomy from other public authorities.15 Another condition for State aid to exist is the granting of an advantage, directly or indirectly, through State resources.16
As regards the selectivity element of State aid to fall within the scope of Article 107(1) TFEU, a State measure must favour ‘certain undertakings or the production of
8 Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the
functioning of European Union (Notice), 216/C, 262/01.
9 Ibid., para. 5.
10 Joined Cases 180/98 and 184/98 Pavlov and Others [2000] ECLI:EU:C:2000:428, para. 74;
C-222/04 Cassa di Risparmio di Firenze SpA and Others [2006] ECLI:EU:C:2006:8, para. 107.
11 Case 118/85 Commission v Italy [1987] ECLI:EU:C:1987:283, para. 7; C-35/96 Commission v Italy
[1998] ECLI:EU:C:1998:303, para. 36; Pavlov and Others (n.10), para. 75.
12 Case T-128/98 Aéroports de Paris v Commission [2000] ECLI:EU:T:2000:290, para. 108. 13 Notice (n.8), para. 17.
14 Ibid., para 18. 15 Ibid., para. 39.
16 Case 82/77 Van Tiggele ECLI:EU:C:1978:10, para. 25-26; Case T-358/94 Air France v Commission
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certain goods’. Hence, not all measures which favour economic operators fall under the notion of aid, but only those which grant an advantage in a selective way to certain undertakings or categories of undertakings or to certain economic sectors’.17 Lastly, a State measure constitutes State aid in the sense of Article 107(1) TFEU when it distorts or threatens to distort competition and affects trade between Member States. When the State measure strengthens the competitive position of the beneficiary undertaking compared with that of its competitors, it is considered to distort competition.18 As a general rule, where a State measure grants an economic advantage on the recipient undertaking, distortion of competition is assumed.19 In addition, ‘where State financial aid strengthens the position of an undertaking as compared with other undertakings competing in intra-EU trade, the latter must be regarded as affected by the aid’.20
1.3. Conclusion
Although the provision in Article 107(1) TFEU proclaims that any aid granted by a Member State is incompatible with the internal market, it does not provide any definition of such aid. Nonetheless, various elements of State aid were further clarified by the European Commission, as interpreted by the CJEU and General Court21, in order to determine the application of this Treaty provision. When a State measure can be characterised by all the elements discussed above, it constitutes State aid that is prohibited in the sense of Article 107(1) TFEU. Thus Article 107(1) TFEU constitutes a test to determine whether certain public measure amounts to prohibited State aid and it is a tool to control State intervention that could distort competition and affect interstate trade.
The granting of an economic advantage to the beneficiary undertaking is one of the decisive cumulative criteria for characterisation of a particular measure as State aid. The existence of an advantage that does not affect interstate trade, is not financed
17 Notice (n.8.), para. 117.
18 Case 730/79 Philip Morris Holland v Commission [1980] ECU 2671, para. 1; Case 259/85 France v
Commission [1987] ECR 4393, para. 24.
19 Case 730/79 Philip Morris Holland v Commission [1980] ECU 2671, Opinion of AG Capotorti,
2698.
20 Case C-518/13 Eventech v The Parking Adjudicator [2015] ECLI:EU:C:2015:9, para. 66; Joined
Cases C-197/11 and C-203/11 Libert and others [2013] ECLI:EU:C:2013:288, para. 77; Case T-288/97
Friulia Venezia Giulia [2001] ECLI:EU:T:2001:115, para. 41; Notice (n.8), para. 190.
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trough State resources, is not selective, does not benefit an undertaking or does not distort competition is irrelevant, just because not all the criteria of Article 107(1) TFEU are fulfilled. Hence, the characterisation of a particular measure as State aid depends solely on the fulfilment of any of the other criteria. Therefore, alongside the other criteria, it is important to know what is an advantage in the sense of Article 107(1) TFEU.
2. What makes an advantage in the sense of Article 107(1) TFEU?
Without doubt, it can be said, that the notion of an economic advantage is inherent in the notion of aid. It was defined within the broad definition of ‘aid’ developed by the Court of Justice as far back as 1961.22 But what exactly is meant by the ‘advantage’ in the sense of Article 107(1) TFEU? The next subsection will analyse the formulas related to the notion of an advantage created by the decision-making practice, which are the standards used to illustrate the concept of advantage.
2.1. The definition of an advantage
The recent definition of ‘advantage’ refers to the SFEI case.23 It concerned an alleged
aid granted by France through La Poste to La Poste’s subsidiaries. This dispute concerned the commercial and logistical assistance provided by La Poste to its subsidiaries in their express delivery services. Hence, one of the preliminary questions was whether this assistance, provided without asking for any payment in return, should be regarded as State aid.24
Following its previous rulings the Court confirmed in paragraph 58, that the advantage encompasses not only positive economic benefits but also interventions which, in various forms, mitigate the charges which are normally included in the budget of an undertaking. Furthermore, according to paragraph 60 ‘in order to determine whether a State measure constitutes aid, it is necessary to establish whether the recipient undertaking receives an economic advantage which it would not have obtained under normal market conditions’; that is to say, without the State
22 Case C-30/59 Steenkolenmijnen v High Authority [1961] ECR 1, para. 19. 23 Case C-39/94 SFEI and Others (SFEI) [1996] ECLI:EU:C:1996:285. 24Ibid., para. 15.
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intervention. The question whether the benefit is obtained under normal market conditions is a matter for economic analysis.25
Advantage is present whenever the financial situation of an undertaking is improved by State intervention on terms differing from normal market conditions.26 Hence, only the effects of the measures of State intervention are relevant; the nature, the aim, and the intentions of public policies involved in the measures are irrelevant.27
An undertaking can receive an advantage also when it is relieved of some economic burdens inherent to its economic activities; when for example the State does not take enforcement measures with regard to the collecting of taxes or other payments. An advantage can exist when the State provides services or sells products at unusually low prices or remunerates an undertaking for providing such at excessively high prices.28 This falls within the broad category of measures which lighten the costs normally assumed in an undertaking’s budget. This again confirms that the focus is on the effects of the measure, rather than its form or purpose, effects that change the economic situation of an undertaking as opposed to that in the inherent market conditions.
2.2. Assessment of conferment of an advantage
A State’s economic transactions do not confer an advantage if they are carried out under normal market conditions. In this regard, throughout the evolution of State aid policy the Union’s courts have developed various principles in order to determine whether a State measure confers an advantage on an undertaking and hence amounts to State aid. Be it the ‘market economy investor principle’, ‘private vendor test’ or ‘private creditor test’,29 they each have the same basic concept. Stemming from the common nature of those tests, the European Commission refers, in general terms, to the market economy operator test (hereinafter referred to as the “MEOT”).30 The principles of MEOT were gradually developed by the case law of the Court of Justice,
25 Ibid., para. 61.
26 Notice (n.8.), para. 67..
27 Case 173/73 Italy v Commission ECLI:EU:C:1974:71, para. 13.
28 Phedon Nicolaides, and Sarah Schoenmaekers. "The Concept of Advantage in State Aid and Public
Procurement and the Application of Public Procurement Rules to Minimise Advantage in the New GBER." (EStAL - European State Aid Law Quarterly, no. 1, 2015), 144.
29 Notice (n.8.), para. 74. 30 Ibid., 75.
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according to various economic transactions investigated by the European Commission.
The emergence of the MEOT as such was the result of European Commission practice
and was already applied by the Commission in the early 1970s.31 The Court of Justice
eventually approved this test, doing so explicitly for the first time in the Meura case.32 Any discussion of the application of the MEOT refers to the SFEI judgment, as that is the source of the recent definition of an advantage, which is based on the application of this test. It is so because the existence of State aid is dependent on the conferment of an advantage to a particular beneficiary, and that happens only if the beneficiary would not have obtained this advantage under normal market conditions.
Thus, the purpose of this test is to assess whether the State’s intervention has granted State aid to an undertaking by acting other than as a market economic operator.33 It compares the decision of a public authority with that of a private market economic operator; i.e., whether an economic operator would make the same decision under normal market conditions. It is important to point out that any alleged rational aim to pursue public policy, which is behind the State intervention, is not relevant.34 In the same vein, the profitability of the State aid beneficiary is not in itself a decisive factor in determining whether a particular economic transaction was carried out under normal market conditions.35 Unless the public body acted in a way that a market economic operator would have done in a similar situation, the beneficiary undertaking would obtain an advantage contrary to normal market conditions,36 unfairly placing it in a favourable position compared with its competitors.37
Furthermore, it is clear from case law, that in order to assess whether the same economic transaction would be carried out by a private economic operator under normal market conditions, imagining a situation as close as possible to that of State’s, ‘only the benefits and obligations linked to the situation of the State as an economic
31 Chalmers (n.1), 78.
32 Case C 234/84 Belgium v Commission (‘Meura’) [1986] ECR 2263. 33 Notice (n.8.), para 76.
34 Ibid. 35 Ibid.
36 Joined Cases T-228/99 and T-233/99 West deutsche Landesbank Girozentrale and Land
Nordrhein-Westfalen v Commission (‘Landesbank’) ECLI:EU:T:2003:57, para. 208.
37 Case C-124/10 P Commission v EDF (‘EDF’) [2012] ECLI:EU:C:2012:318, para. 90; Case C-387/92
Banco Exterior de España [1994] ECLI:EU:C:1994:100, para. 14; Case C-6/97 Italy v Commission
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operator – to the exclusion of those linked to its situation as a public authority – are to be taken into account’.38 It addition, the role of the State as economic operator, on the one hand, and of the State acting as a public authority, on the other, shall be distinguished.39 For this reason the MEOT only applies in situations where the State confers an economic advantage on a beneficiary undertaking, while acting as an economic operator and not as a public authority.40
Of course, State intervention may be driven by public policy reasons and include considerations which the private economic operator would not consider. Therefore, when comparing the decisions for economic transactions of the State with those of a private economic operator, all considerations that are related exclusively to the State’s role as a public authority are not part of the assessment under MEOT.41 The assessment must be conducted ex ante of the State’s intervention and according to the information available at the time of the decision of the particular economic transaction.42 It reflects the fact that any sensible market economy operator would
never provide an advantage to another undertaking without ex ante assessment of the prospective returns on its own financial contributions and business strategy.43 This again makes it clear why the State’s policy objectives are excluded from the assessment. The market economy operator is motivated by the financial prospect of the economic transaction and normally does not consider, even ignores, the public
policy objectives, however desirable and worthy they may be.44 Therefore, economic
evaluations under MEOT should not be affected by policy considerations.45
The State must prove, on the basis of verifiable evidence, that before or at the same time as conferring the advantage (i.) it took the decision and implemented the respective measures acting as an economic operator46 and (ii.) based its decision on economic evaluations carried out before making the investment in order to determine
38 EDF (n.37), para. 79-81; Case 234/84 Belgium v Commission [1986] ECLI:EU:C:1986:302, para.
14;, Case 40/85 Belgium v Commission [1986] ECLI:EU:C:1986:305, para. 13; Joined Cases C-278/92 and C-280/92 Spain v Commission [1994] ECLI:EU:C:1994:325, para. 22; Case C-334/99 Germany v Commission [2003] ECLI:EU:C:2003:55, para. 134.
39 EDF (n.37), para. 80. 40 Ibid. para. 81. 41 Notice (n.8.), para. 77. 42 Ibid., para. 130. 43 Meura (n.32), para. 144. 44 Ibid. 45 Notice (n.8.), footnote 133. 46 EDF (n.37), para. 82.
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its future profitability.47
In addition, the economic transaction does not have to designed to maximise profit; it is sufficient that it is not carried out at excessive risk when compared with the actions of market economic operators in similar situations.48 Claims as to how well the conferment of an advantage should result in a financial return must be ‘reasonable’,49 which is evident from reports of economic entities such as banks, consultants and economic experts in general.50
It should be noted that in proving that the State acted as an economic operator, it is not sufficient to rely on an economic evaluation after the conferment of an advantage51. In all cases the economic transactions of the State must be justified ex ante, and not ex post52 in a subsequent justification of the measure actually chosen.53 However, the principle of MEOT is narrower than the actual economic behaviour of a private economic market operator, who tends to take excessive risks with the vision of great returns.54
Finally, in practice, the application of the MEOT distinguishes between situations where, on the one hand, the economic transaction’s compliance with normal market conditions can be established on the transaction-specific market data, and situations where, on the other hand, this has to be assessed using other relevant methods.55
2.3. Conclusion
Advantage is a very broad concept and it encompasses not only the positive economic benefit but also any State intervention falling in the category of measures which lighten the costs normally assumed in an undertaking’s budget. An advantage is present whenever the financial situation of an undertaking is improved by the State’s
intervention on terms differing from normal market conditions.56 Whether the benefit
47 Ibid., para. 84. 48 Ibid.
49 Case T-152/99 Molina v Commission [2002] ECR II-3049. 50 Case T-228/99 WestLB v Commission [2003] ECR II-00435. 51 Ibid., para. 85.
52 Ibid.
53 Case C-482/99 France v Commission [2002] ECR I-4397, para. 71-72; Ibid. 54 Meura (n.32), para. 145.
55 Notice (n.8), para. 83; on establishing compliance with market conditions see para. 84 -105. 56 Ibid., para. 67.
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is obtained under normal market conditions is subject to MEOT.
Unless the public body acts in a way that a market economic operator would act in a similar situation, the beneficiary undertaking would obtain an advantage contrary to normal market conditions, placing the undertaking in an unfairly favourable position compared with its competitors. The objective nature of the concept of State aid in the sense of Article 107(1) TFEU does not distinguish between State measures by reference to their aims or form but defines them in relation to their effects.57
Therefore, the MEOT should always be based only on objective criteria.58 However,
policy objectives can be considered at a later stage, when analysing the measure under
derogations according to Articles 107(2), 107(3) and 106(2) TFEU.59
3. Under what circumstances does the compensation for SGEI not form a State aid measure?
If the compensation for SGEI meets the criteria for application of Article 107(1) TFEU, the Commission can declare such State aid as compatible with the internal market,60 using the legal basis in Article 106(2) TFEU for assessing compatibility of State aid for SGEI.61 Also, there are a number of circumstances under which a compensation for SGEI does not qualify as State aid at all. However, before discussing that issue and answering the question of this section, it will be firstly zoomed in on the concept of SGEI in general.
3.1. What is SGEI?
SGEI are rooted in the shared values of the EU62; however, they are not defined in TFEU nor in the secondary legislation. TFEU only refers to the concept of SGEI in Protocol 26 TFEU, on services of general interest, Article 14 TFEU and Article
57 López (n.2.), 93. 58 Landesbank (n.36).
59 C-280/00 Altmark Trans GmbH and Regierungsprasidium Magdeburg v Nahverkehrsgesellschaft
Altmark GmbH [2003] ECR I-7747, Opinion of AG Léger, para. 77.
60 Guide to the application of the European Union rules on state aid, public procurement and the
internal market to services of general economic interest, and in particular to social services of general interest (‘Guide SGEI’), SWD (2013) 53 final/2, para. 18.
61 Communication from the Commission, European Union framework for State aid in the form of
public service compensation (‘Framework’), 2012/C 8/03, para. 5.
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106(2) TFEU.
The term ‘services in general interest’ (hereinafter referred to as the “SGI”) was clarified by the European Commission as ‘services that public authorities of the Member States at national, regional or local level classify as being of general interest and, therefore, subject to specific public service obligation (PSO)’.63
SGI covers not only SGEI, but also non-economic services of general interest.64 However, the latter are excluded from EU competition and internal market rules by virtue of the definition of an undertaking, which requires engagement in economic activity. Nonetheless, in the case of SGEI, the internal market and competition rules apply ‘in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them’.65 The safeguarding of the provision of SGEI is strengthened by Article 14 TFEU; hence, the EU and the Member States, each within their respective powers, must take care that such services operate on the basis of principles and conditions which enable them to fulfil their missions. After all, Member States have competence in providing, commissioning,
organising and funding SGEI.66
The concept of SGEI was clarified by the Commission as ‘economic activities which deliver outcomes in the overall public good that would not be supplied (or would be supplied under different conditions in terms of objective quality, safety, affordability, equal treatment or universal access) by the market without public intervention’.67 That is so because if there was no market failure, it would not be appropriate to impose
PSO on the provider of SGEI.68 This fact goes hand in hand with the competence of
Member States to fund SGEI,69 which would otherwise be provided at a loss by firms.70 For this reason, the SGEI provider is granted a compensation for provision of these services.
63 Guide SGEI (n.60), para. 21. 64 Protocol (n.62).
65 Article 106(2)TFEU.
66 Article 14 TFEU, Protocol (n.62). 67 Guide SGEI (n.60), para. 21.
68 Case C-205/99 Analir [2001] ECR I-1271, para. 71. 69 Article 14 TFEU.
70 SGEI, Opinion prepared by the State aid Group of EAGCP, June 29, 2006, available at:
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In addition, SGEI is an evolving notion, which depends in part on citizens’ needs Member States’ social and political preferences, and technological and market developments, etc.71 SGEI are services that exhibit special characteristics when compared with those of private economic operators.72 Unless there are specific EU rules defining certain services as SGEI, Member States enjoy a wide margin of discretion in determining certain services as SGEI, and their financing. ‘The Commission’s competence in this respect is limited to checking whether the Member State has made a manifest error.’73
3.2. Application of Article 106(2) TFEU and Altmark test
The outcome of the prohibition in Article 107(1) TFEU is that once an undertaking benefits from a State intervention fulfilling the criteria of this Article, the intervention
amounts to illegal State aid.74 However, in order to safeguard the provision of SGEI
and to comply with the obligation to ensure those services fulfil their mission, Article 106(2) TFEU sets out a derogation under which it is possible for Member States and undertakings to justify the non-application of Treaty rules, in particular rules on competition.75 Article 106(2) TFEU states that:
undertakings entrusted with the operation of SGEI or having the character of a revenue-producing monopoly shall be subject to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent that would be contrary to the interests of the Union. From the wording of this Article, three conditions for its application are apparent. First, an undertaking must be entrusted with the operation of SGEI; second, the
71 Communication from the Commission on the application of the European Union State aid rules to
compensation granted for the provision of services of general economic interest (‘Communication SGEI’), 2012/C 8/02, para. 45.
72 Case C-179/9, Merci convenzionali porto di Genova [1991] ECR I-5889, para. 27; Case C-242/95
GT-Link A/S [1997] ECR 4449, para. 53; Case C-266/96 Corsica Ferries France SA [1998] ECR I-3949, para. 45.
73 Communication SGEI (n.71), para. 46.
74 Fiedziuk, Natalia. "Towards Decentralization of State Aid Control: The Case of Services of General
Economic Interest." (World Competition 36.3, 2013,392.
75 Monti Giorgio: Chapter 25 - State Regulation and EU Competition law (in Damian Chalmers,
European Union Law: text and materials ( Cambridge University Press, third edition, 2014), online supplement available at:
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application of the Treaty rules would obstruct performance of the tasks assigned to the undertaking; and, third, the effects on trade shall not be contrary to the interests of the EU76; however, some negative effects on trade may be tolerated.77 Hence, contrary to the aim of Article 107(1) TFEU, which is to protect competition and trade between Member States,78 the only aim of Article 106(2) TFEU is to ensure that the performance of SGEI is not frustrated.
As soon as a State decides to use public funds and finance SGEI there is a risk that the funding will be incompatible with State aid rules.79 If such a State measure qualifies as State aid in the sense of Article 107(1) TFEU, it has to be notified to the Commission. Subsequently, it may be declared by the Commission as compatible
with the internal market, if it is justified under Article 106(2) TFEU. The Altmark80
judgment was the solution to the problem of notification of every single compensation for SGEI and its examination by the Commission. Furthermore, the Court of Justice settled the controversy over whether in comparable cases compatible aid was the issue or there was no aid at all but compensation for providing the service in question.81 In Altmark, the Court of Justice laid down four conditions under which the compensation for SGEI shall not be considered as State aid and escape the application of Article 107(1) TFEU, as it confers no real financial advantage on the provider of SGEI82 (after all, the conferment of economic advantage is an inherent condition for a
measure to be classified as State aid). According to the Court,
for such compensation to escape classification as State aid in a particular case, a number of conditions must be satisfied.83
• First, the recipient undertaking must actually have public service obligations to
76 Article 106(2)TFEU.
77 Case C-157/94 Commission v. Netherlands [1997] ECR I-5699, para. 66–71.
78 Case 173/73 Italy v Commission [1974] ECR 709, para. 27; Case 310/85 Deufil v Commission
[1987] ECR 901, para. 8; Case 56/93 Belgium v Commission [1996] ECR 1-723, para. 79; Case C-241/94 France v Commission [1996] ECR I-4J51, para. 20.
79 (N.75), 24.
80 C-280/00 Altmark Trans GmbH and Regierungsprasidium Magdeburg v Nahverkehrsgesellschaft
Altmark GmbH(‘Altmark’) [2003] ECR I-7747.
81 Sauter, W. (2012). The commission's new SGEI package: The rules for state aid and the
compensation of services of general economic interest, (TILEC Discussion Paper; Vol. 2012-018), 3.
82 Altmark (n.80), para. 87. 83 Ibid., para. 88.
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discharge, and the obligations must be clearly defined84;
• second, the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner, to avoid it conferring an economic advantage which may favour the recipient undertaking over competing undertakings85……… Payment by a Member State of compensation for the loss incurred by an undertaking without the parameters of such compensation having been established beforehand, where it turns out after the event that the operation of certain services in connection with the discharge of public service obligations was not economically viable, therefore constitutes a financial measure which falls within the concept of State aid within the meaning of Article 107(1) TFEU86;
• third, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations. Compliance with such a condition is essential to ensure that the recipient undertaking is not given any advantage which distorts or threatens to distort competition by strengthening that undertaking's competitive position87;
• fourth, where the undertaking which is to discharge public service obligations, in a specific case, is not chosen pursuant to a public procurement procedure which would allow for the selection of the tenderer capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with material means so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations.88
If the above cumulative criteria are satisfied, the compensation for the costs for providing the SGEI is not considered as State aid in the sense of Article 107(1)
TFEU89 ‘owing to the absence of any advantage’,90 and does not have to be notified
and justified under Article 106(2) TFEU. If those criteria are satisfied, it means that
84 Ibid., para. 89. 85 Ibid., para. 90. 86 Ibid., para. 91 87 Ibid., para 92. 88 Ibid., para. 93. 89 Ibid., para. 94.
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the compensation is State aid free, and hence it is not defined as compatible aid, but merely compensation for SGEI. All of the criteria were clarified by the Commission in its Communication.91 This section will further explain the fourth Altmark criterion.
3.3. Selection of SGEI provider
According to the fourth Altmark criterion the level of compensation for SGEI must be either the result of a public procurement procedure that ensures that the selected tenderer provides the SGEI at least cost to the Community92 or the ‘result of a benchmarking exercise with a typical undertaking, well run and adequately provided with the necessary means’.93
With regard to the first alternative, not all public procurement procedures can satisfy the State aid rules. Consequently, the Commission has provided detailed guidance concerning various procedures and award criteria available under the EU public procurement rules,94 which are sufficient to comply with this Altmark criterion. In short, the Commission has made it clear that the safe way for Member States to satisfy the Altmark criteria, is to conduct open, transparent and non-discriminatory public procurement procedure in line with EU public procurement Directives.95 It follows
that the use of a restricted procedure can, in principle, allow for the selection of a tenderer capable of providing SGEI at least cost to the Community; however, the competitive dialogue or negotiated procedure with prior publication of a contract notice can be acceptable only in exceptional cases.96 As regards the award criteria, besides the ‘lowest price’, the ‘most economically advantageous offer’ might be sufficient.97 Where the Member States have considerable discretion and hence are not with certainty able to exclude State aid issues, the Commission tries to align its
91 Ibid.
92 Ibid., para. 65: Based on the case law of the Court of Justice, a public procurement procedure only
excludes the existence of State aid where it allows for the selection of the tenderer capable of providing the service at ‘the least cost to the community’.
93 Ibid., para. 62. 94 Ibid., para. 63-68. 95 Ibid., para. 63. 96 Ibid, para. 66. 97 Ibid., para 67.
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guidance as closely as possible to the public procurement rules, while ensuring appropriate State aid scrutiny for procedures.98
When the SGEI provider is not selected by a public procurement procedure, the Altmark criterion provides an alternative: ‘benchmarking’. The best benchmark for the level of compensation for SGEI is the generally accepted market remuneration for a given service.99 Where such a benchmark does not exist, then the level of compensation is determined on the basis of an analysis of the costs that a typical undertaking, well run and adequately provided with material means so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations. The Commission in its Communication clarifies the concept of ‘well run undertaking’ and ‘typical undertaking’, as well as what is meant
by an ‘undertaking adequately provided with material means’.100 These concepts are
worded in a way intended to ensure that the high costs of an inefficient undertaking are not taken as a benchmark.101
3.4. What if the Altmark conditions are not fulfilled?
If the State measure does not comply with at least one of Altmark conditions, the compensation for SGEI is regarded as State aid102 and falls within the application of Articles 107(1) and 108(3) TFEU,103 although it can be reviewed under Article 106(2) TFEU and possibly justified.
However, it is hard to comply with the Altmark conditions, and Member States have had problems complying, especially with the fourth condition. Therefore, the Commission has adopted measures to provide for situations where Member States do not fulfil the Altmark conditions. First is the special de minimis Regulation for
98 The SGEI communication by By Nicola Pesaresi, Adinda Sinnaeve, Valérie Guigue-Koeppen,
Joachim Wiemann, Madalina Radulescu, available at:
<http://ec.europa.eu/competition/publications/cpn/2012_1_10_en.pdf.>, 6.
99 Communication SGEI (n.71), para. 69 100 Ibid., para. 71-76.
101 Ibid., para. 70.
102 Altmark (n.80), para. 94. 103 Ibid.
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SGEI104 which declares certain compensation measures for SGEI, not exceeding EUR
500,000 over three fiscal years as not forming State aid in the sense of Article 107(1) TFEU. It is interesting to note that this threshold is much higher than the threshold in the general State aid de minimis Regulation.105 When the compensation level is higher, a Member State can rely on the Decision on the application of Article 106(2)
TFEU.106 Such a Decision107 declares certain types of SGEI compensation
constituting State aid to be justified in accordance with Article 106(2) TFEU and exempts them from the notification obligation under Article 108(3) TFEU.108 The decision basically repeats the Altmark criteria with one difference: it does not require the fourth Altmark condition. Therefore, it is more convenient for Member States when they fail the Altmark test, because under this Decision they do not have to notify the State aid, which they would normally have to do. Lastly, if the Decision cannot be applied, there is a Framework109 that lays down conditions under which
compensation constituting State aid in the sense of Article 107(1) TFEU can be justified under Article 106(2) TFEU.110 Although this time the State aid has to be
notified, the Framework explains conditions under which the compensation for SGEI can be justified.
3.5. Conclusion
As can be seen from the above, in order to determine whether compensation for SGEI constitutes State aid, two tests exist. The purpose of the test under Article 106(2) TFEU is to declare the compensation as not constituting State aid (which means that firstly it is considered as State aid in the sense of Article 107(1) TFEU) and to this effect is notified to the Commission for review, and the Altmark test is established to decide whether the compensation constitutes State aid in the sense of Article 107(1)
104 Commission regulation No 360/2012 of 25 April 2012 on the application of Articles 107 and 108 of
the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest [2012] OJ L 114/8, Article 2(2).
105 Commission regulation No 1407/2013 of 18 December 2013 on the application of Articles 107 and
108 of the Treaty on the Functioning of the European Union to de minimis aid [2013] OJ L 352/1, Article 3(2).
106 Monti (N.75), 25.
107 Commission Decision No 2012/21/EU of 21 December 2011 on the application of Article 106(2) of
the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest [2011] OJ L 7/3.
108 Communication SGEI (n.71), para. 4. 109 Communication SGEI (n.71).
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TFEU and, hence, whether it must be notified to the Commission for application of the former test. If a Member State complies with all four Altmark criteria, the compensation for SGEI escapes the application of Articles 107(1), 106(2) and 108(3) TFEU.
Altmark judgment consists of a combination of procedural and substantive criteria to determine whether or not an advantage has been conferred.111 Although, on the one hand, the Altmark test is strict regarding the requirement of compliance with all its criteria in order to exclude conferment of any advantage, on the other hand it provides for a balance between (i) the interests of Member States to define, organise and finance their SGEI (where they enjoy a considerable margin of discretion), and (ii) the effective application of State aid rules, because it can be taken that the compliance with the Altmark test is sufficient to exclude any State aid issues from the outset. Where the compensation for SGEI satisfies the general criteria for the application of Article 107(1) TFEU, it can be justified under Article 106(2) TFEU as long as the undertaking is entrusted with the operation of SGEI and the application of the Treaty rules would obstruct performance of the tasks assigned to the undertaking and the effect on trade is not contrary to the interests of the EU. To this effect, the Commission has adopted a Framework which provides guidance towards successful justification of the measure under Article 106(2) TFEU. Nonetheless, the Court and the Commission have devised ways to eliminate the notification procedures and exclude any State aid issues from the outset.
In addition, besides Altmark there are other circumstances under which the Compensation for SGEI does not constitute State aid. If the State measure does not fulfil all Altmark criteria, the Member State can rely on the de minimis Regulation and Decision to escape the application of State aid rules. If it complies with the Regulation, the compensation does not form a State aid in the sense of Article 107(1) TFEU. If it complies with the Decision, the compensation is deemed to be justified under Article 106(2) TFEU. In either case, the Member State is also excluded from the notification obligation.
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4. How can an advantage as meant in Article 107(1) be eliminated by the public procurement procedure?
State aid law and public procurement law are different and separate fields of law, each based on its own rules. They both regulate economic transactions carried out by Member States and share the objective of protecting competition and preventing protectionism. The issue of the relationship between those two fields is very complex and is outside the scope of this paper. This section will focus on the role of public procurement procedure as an instrument to eliminate an advantage in the sense of Article 107(1) TFEU.
Under the public procurement procedure the notion of advantage is different; it can be said that it is much broader, because it is not directly financial in nature, as is the case of State aid.112 It is advantage gained due to a direct award or contract, discriminatory provision of information from the contracting authority, due to the length of contract, non-verifiable award criteria, etc. These things can violate the free movement rules but not the State aid rules. However, a tenderer, on the basis of the preceding, can obtain a financial benefit because it allows them to place the winning bid. So, even purely procurement transactions can in some situations in effect constitute incompatible State aid. According to the procurement law, Contracting Authorities must behave as private investors. The compliance with the public procurement rules should in principle ensure the achievement of the market price, which is presumed to correspond to the lowest bid or best price/quality ratio (when the Contracting Authority is the buyer) and the highest offer (in the case when the Contracting Authority is the vendor).113 However, if the price offered is not credible, the
Contracting Authority might be granting State aid in the sense of Article 107(1) TFEU.114 If, the Public Authority acts as a private investor, the economic operator winning the contract does not benefit from an economic advantage and the transaction is a normal commercial transaction devoid of any State aid.
112 Nicolaides (n.28), 145.
113 Joined cases C-214/12 P, C-215/12 P and C-223/12 P Land Burgen- land, Grazer Wechselseitige
Versicherung AG and Republic of Austria v European Commission [2013] ECLI:EU:C:2013:682, para. 94; Nicolaides (n.28), 151.
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4.1. Conditions under which an advantage can be eliminated
According to the Notice on the notion of aid, economic transactions carried out by Public Authorities do not confer an advantage on the beneficiary undertaking as long as they are in line with normal market conditions.115 This means that the Public Authority has to act as an economic operator. “A transaction's compliance with market conditions can be directly established through transaction-specific market information”116 inter alia where the sale or purchase of assets, goods or services is carried out through a competitive, transparent, non-discriminatory and unconditional tender procedure.117 If the public tender is carried out in compliance with principles of public procurement procedures, the transaction is presumed to be a normal commercial transaction.
First, the procedure must be competitive, thus open to all capable tenderers who are interested in participating.118 Second, the procedure must allow all participants to be
equally and duly informed at each of its stages.119
Other conditions are: non-discriminatory treatment, objective selection of tenderers, and award criteria specified in advance, which are assumed to ensure equality and objective selection.120 In order for the tender to be unconditional, the Commission
made the following clarification. ‘When public bodies buy assets, goods and services, any specific conditions attached to the tender should be non-discriminatory and closely and objectively related to the subject matter and to the specific economic objective of the contract.’121
As regards the award criteria, the tender must allow for the most economically advantageous offer to match the value of the market. The award criteria should leave the successful bidder with a normal return, not more.122
The most economically advantageous offer includes both the lowest price and the best
115 SFEI (n.23), para. 60-61. 116 Notice (n.8), para. 74. 117 Ibid., para. 84. 118 Ibid., para. 89. 119 Ibid., para. 90. 120 Ibid., para. 91. 121 Ibid., para. 96. 122 Ibid.
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price/quality ratio.123 ‘It is generally agreed in the literature that such criteria could ensure that the contracted object would be provided at least cost to the community.’124 On closer examination, the Commission’s statement suggests that in order to determine the market price, the emphasis should be put on the price factor of the bid. It is nonetheless interesting to mention that this Commission statement is distanced from the 2014 Public Procurement Directive as it narrows the discretion of public authorities to adjust the award criteria to meet the most economically advantageous offer without risking a granting of State aid.125
Furthermore, where a Public Authority sells assets, goods or services, the only relevant award criterion is the highest price, which must be considered credible. Also, for this tender to be regarded as unconditional, the buyer is free to acquire the assets, goods or services and to use them for its own purposes. The Public Authority cannot impose any special obligation on the buyer that a private economic operator would not require.126
According to the Commission, complying with the public procurement directives is sufficient to meet the above criteria and to eliminate the risk of granting State aid.127 However, what is necessary is that the procedure must allow the establishment of a market price. In some situations, despite the correct application and compliance with all the rules, it is impossible to establish a market price, thus normal market conditions. Such situations represent an exemption to this general rule. The Commission has suggested that the negotiated procedure without prior publication of the contract notice cannot establish a market price and provide the object of the contract at least cost to the community.128 A situation where only one bid is
submitted, however, is more complicated. The Commission, in its Communication,129
states that ‘it cannot be deemed sufficient to ensure that the procedure leads to the
123 Grith Skovgaard Olykke, The Notice of the Notion of State Aid and Public Procurement Law,
(EStAL - European State Aid Law Quarterly, no. 508, 2016), 522; Communication SGEI (n.71), para. 67; DIRECTIVE 2014/24/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 26 February 2014 on public procurement and repealing Directive 2004/18/EC, para. 96.
124 Olykke (n.123), 522. 125 Ibid.
126 Notice (n.8), para. 94-95. 127 Ibid., para. 93.
128 Ibid.; Communication SGEI (n.71), para. 66. 129 Communication SGEI (n.71).
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least costs to the Community’,130 but the Commission follows, in its Notice on aid, with, ‘unless either (i) there are particularly strong safeguards in the design of the procedure ensuring genuine and effective competition and it is not apparent that only one operator is realistically able to submit a credible bid or (ii) the public authorities verify through additional means that the outcome corresponds to the market price.’131 Furthermore, the negotiated procedure with prior publication of a contract notice can be acceptable only in exceptional cases.132, 133 So it seems that the most plausible type of procedure is the open and restricted procedure; however, it is not so much about the type of procedure but the way it is carried out and whether it allows the normal market conditions to be matched.
It is worth mentioning the Altmark judgment in this context. The fourth condition of Altmark, discussed in section 3.2.4, establishes incentives for Public Authorities to subject compensation for SGEI to the public procurement procedure, which seems to be the simplest way of meeting and ensuring the rest of the cumulative substantive and procedural conditions and, hence, that the compensation for SGEI does not grant an economic advantage to the tenderer. To be fulfilled, the other conditions must be incorporated in the contract and the tender documents. In addition, everything that has been said in this section applies in this situation also. In principle, the competitive procedure allows for the establishing of a market price and ensures that the services will be provided at least cost to the community; thus, the compensation will not exceed what is necessary. In the situation with only one bid, mentioned above, which in the end might be able to provide the service at least cost to the community and satisfy the fourth Altmark criteria, Member States are advised to notify the measure.134
4.2. Conclusion
Public Authorities do not confer an economic advantage in an economic transaction with a beneficiary undertaking if they act as an economic operator under normal market conditions. Using a competitive procedure is one of the means which allow the
130 Ibid., para. 68. 131 Notice (n.8), para. 93. 132 Ibid., para. 66.
133 Communication SGEI (n.71), para. 66. 134 Guide SGEI (n.60), para. 68.
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establishment of normal market conditions, and the Commission has said, ‘If public authorities buy goods or services through tenders, which respect EU rules on public procurement, this is in principle sufficient to ensure that the transaction is free of State aid’.135 However, in line with the words ‘in principle‘, formal commitment to public procurement rules does not ensure that an advantage will be eliminated and the Public Authority will not grant State aid. It is decisive that the procedure is able to establish a market price and provide the object of the contract at least cost to the community. The advantage should be eliminated where the procedure complies with the procurement rules and principles of competitiveness, transparency, non-discrimination and un-conditionality. A Public Authority has to act as an economic operator; thus, the award criteria shall be established in the same way as they would be in the case of a normal commercial transaction. If a Public Authority sells goods or services, the highest price has to be the decisive factor. Conversely, if a Public Authority buys goods or services, the lowest price or the most economic advantageous offer is the relevant award criterion. In addition, a Public Authority has to ensure that the offered price is credible. Where the public procurement procedure meets such preconditions, it should be sufficient to eliminate advantage and exclude granting of State aid.
Compliance with such competitive procedures ensures the fulfilment of the fourth Altmark criterion. Nonetheless, in order to ensure that no advantage is granted to the provider of SGEI, a Public Authority has to comply also with the other three Altmark conditions. It can be seen that the requirements are stricter for public procurement procedure in the Altmark test. It must be noted, that as soon as a public authority decides to use State resources in an economic transaction with a particular undertaking, and if all criteria of Article 107(1) TFEU are met, the transaction has to be notified to the Commission (unless otherwise exempted by certain provisions). So where the use of public procurement procedure is sufficient to eliminate an advantage, and thereby at least one criterion of Article 107(1) TFEU is not fulfilled, the transaction is free of State aid and does not have to be notified to the Commission.
135 European Commission, Press Release, State aid: Commission clarifies scope of EU State aid rules to
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Furthermore, where the Altmark criteria are fulfilled, the compensation does not confer an economic advantage on the beneficiary; hence, Public Authorities are also exempted from this notification obligation.
5. What is the difference between an advantage that doesn’t constitute State aid and compensation for certain service?
An interesting question arises from the conclusion above. If a tender procedure neutralises State aid and thus no advantage is conferred on the recipient, is it really necessary to determine SGEI and follow Altmark conditions if in other circumstances (no SGEI) the procurement also avoids advantage in the sense of Article 107(1) TFEU?
The logic that an advantage is eliminated by the use of public procurement rules - as the procedure allows for the selection of a provider at least cost to the Community - represents quite a paradox. We can consider various goods and services that can be “procured” by a public authority such as stationary for administration, public services for citizens, and economic activity in less developed regions. Although these examples represent very different situations, tenders should neutralise State aid in all such cases, since no advantage is conferred on the recipient.
Most cases where a public procurement procedure was sufficient to eliminate an advantage, in the sense of Article 107(1) TFEU, are related to the management or operation of infrastructure in land and sea transport. In these cases facility managers
received no advantage because they were selected through a tender procedure136. In a
case concerning the financing of transport infrastructure in Greece, the Commission assessed whether the infrastructure offered an advantage in favour of both the infrastructure users and the infrastructure manager.137 It is established practice that no State aid is present at user level where the transport infrastructure is open to all potential users on equal and non-discriminatory terms, thus not favouring any
136 Elefsina - Korinthos – Patras – Pirgos – Tsakona Motorway (Case N 45/2008) Commission
decision [2008] OJ 2008 C 177/01; Central Greece Motorway (Case N 565/2007) Commission decision [2008] OJ 2008 C 070/02.
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particular users.138Although the measure under examination was selective in nature, the infrastructure manager was selected through an open public tender and the price paid to the manager for the concession agreement corresponded to market
conditions.139 The concession agreement established a system whereby excess
revenues were claw-backed by the Greek State140 and it did not reduce any financial
risks which the manager should normally bear.141 Therefore the measure at issue did
not confer any advantage on the infrastructure manager, as such measure anticipated market conditions. The selected undertaking was not placed into a more favourable position than its competitors.142
Where the State procures goods or services for itself, there is also no Said problem. The public procurement procedure is clearly sufficient to eliminate any advantages, and such transactions do not alter market conditions. A public authority acts as an economic operator/‘regular consumer’, and selects the best credible offer on the market. Hence, the public procurement procedure does not favour a recipient over other competitors and nor does it favour any production, and the recipient does not receive any advantage contrary to normal market conditions.
However, the situation is more uncertain in terms of supporting the economic activity of a certain undertaking. Even where the tender procedure is followed, it can be presumed that such State intervention in principle will always confer an advantage on the recipient because it will receive benefit that would not be received under normal market conditions. Such an intervention would be justified if the State supports services defined as SGEI, but less so in the case of supporting other economic activities or services not defined as SGEI.143
Theoretically, if a public authority - (i.) acts as a private investor and ensures that a subsidy is set in a way to (ii.) eliminate any foreseeable advantages or benefits, the
138 Ibid., para. 37-38. 139 Ibid., para. 39-40. 140 Ibid., para. 39. 141 Ibid., para. 41. 142 Ibid., para. 42.
143 Sandro Santamato, General Competition, unit H-3, and Nicola Pesaresi,
Directorate-General Competition: Compensation for services of general economic interest: some thoughts on the
Altmark ruling, (Competition Policy Newsletter, 2004) available at:
