On 1 March 2017, the General Court of the European Union confirmed that France must recover over EUR 220 million in illegal State aid granted to a ferry operator group consisting of two organisations: Société Nationale Corse-Méditerranée (SNCM) and Compagnie Méridionale de Navigation (CMN). This ruling follows a series of challenges to a 2013 European Commission decision that the compensation paid to SNCN and CMN under a 2007 to 2013 concession contract failed to satisfy the so-called “Altmark criteria”.

Facts

SNCM and CMN operate maritime transport services between Marseille and Corsica under a form of public services contract. Under that contract the two concession holders received an annual contribution from the Corsican Transport Board as compensation for providing both a regular passenger and freight service throughout the year (“the basic service”) and additional passenger services during seasonal peak times (“the additional service”). Under the contract if the revenue received is less than the forecast revenue fixed by the operators in their tender the Transport Board would make up the difference. The contract also provided for a “target” compensation of 90% to cover additional fuel costs over and above the reference costs provided by the operators in their tender.

The contract had been tendered in 2006 under an OJEU advertised procedure. An initial tender procedure was cancelled following a challenge. Two operators then bid under a second OJEU procedure (SNCM/CMN and Corsica Ferries). The decision to award the contract to SNCM/CMN was successfully challenged in the French courts as being in breach of the EU’s Maritime Cabotage Regulation (Regulation (EEC) No 3577/92) and EU State aid rules. That judgment was however reversed on appeal by the Conseil d’Etat in July 2012.

European Commission decision

Following a complaint from the competing operator, Corsica Ferries, the European Commission entered into correspondence with the French authorities after the award of the contract. A formal State aid investigation was initiated in June 2012. By a decision dated 2 May 2013 the Commission concluded that the compensation paid for the basic service constituted illegal aid as it had not been notified to the Commission for approval but that it was nevertheless compatible with the internal market. It however concluded that the compensation paid to SNCM in respect of the additional service constituted illegal aid that was not compatible with the internal market.

In its analysis, the Commission applied the so-called “Altmark criteria”, namely that for such compensation not to confer a selective economic advantage on the recipient such as to constitute “aid” for the purposes of Article 107(1) of the TFEU it must satisfy four cumulative criteria:

  1. the recipient of the compensation must have clearly defined public service obligations
  2. the parameters for calculating the compensation must be objective, transparent and established in advance

  3. the compensation cannot exceed what is needed to cover the costs incurred in providing the service; and

  4. if the recipient of the compensation is not selected to provide the service through a public procurement procedure (which would establish the market price for the services in question) the level of compensation must be determined on the basis of the costs of a typical well-run company.

The Commission concluded that in this case the first and fourth conditions were not satisfied.

In relation to the first criterion, the Commission noted that whilst Member States have a broad discretion as to what services can be treated as SGEIs these services fall within the scope of the EU’s Maritime Cabotage rules. It follows that for a maritime transport service provider to be entrusted with carrying out a public service obligation there must: (1) be a real public need for the service, and (2) the scope of the service must be necessary and proportionate to that need. The Commission was prepared to accept this for the basic service but not for the additional service, where there was clearly evidence of open market provision.

As regards the fourth condition, the Commission concluded that the tendering process carried out had failed to ensure effective competition and that the compensation had not been defined by reference to a base cost established in advance or by comparison with the cost structure of other comparable shipping companies.

Consequently, the Commission had ordered the recovery of that compensation, which is calculated at the date of the decision to be just over EUR 220 million.

Proceedings before the General Court

Both the French Republic and SNCM brought actions before the General Court for annulment of that decision. The French Republic also sought interim measures to suspend the operation of the Commission’s decision, which were rejected by the General Court later that year.

In November 2013, the French Republic informed the Commission that the Corsican Regional Authorities had suspended compensation payments for the additional service. It was however unclear what compensation related to the additional services and the methodology by which this was calculated. According to the French Republic and SNCM this lack of transparency was as a result of the distinction between the basic service and the additional service being artificial, their view being that the two services were inseparable in achieving the objective of territorial continuity.

General Court judgment

In its judgment of 1 March this year, the General Court confirmed the European Commission’s 2013 decision and its application of the Altmark criteria (as outlined above). The Court also confirmed the Commission’s calculation of the amount of aid to be recovered.

Comment

As well as highlighting some of the complexities of recovering illegal aid from beneficiaries this case is a useful of reminder of the rules governing the public funding of transport services and other Services of General Economic Interest (SGEIs).