A recent ruling by the European Court of Justice adds to the impression that the outsourcing of public policy delivery to the private sector, notably in the energy sector (through instruments such as the UK Government’s so-called ‘Energy Company Obligation’) may end up falling foul of the EU state aid regime.
It is no secret that Member States do everything they can to avoid application of the EU state aid rules (under Article 107 TFEU) to the policy instruments which they devise. There is a simple reason for that. Where those rules apply, the EU Commission is given exclusive authority to scrutinise, and indeed to veto, such national measures before they are implemented.
That is why the ECJ’s 2001 judgement in ‘PreussenElectra’ has been so important to national policy makers for the past decade or so. In that case the Court ruled that an obligation imposed on private sector generators to purchase renewable power at minimum prices did not fall within the scope of Article 107 because it did not involve the use of ‘state’ resources.
However, there are increasing signs (most recently in its ruling of 30 May 2013 in the CIDEF case) that the Court may be sympathetic to a re-appraisal of ‘PreussenElectra’, particularly in cases where Member States have effectively ‘co opted’ private sector bodies in delivering public policy goals.
The case concerned the activities of CIDEF, a French organisation representing turkey breeders, and the arrangements by which those activities in such fields as publicity, promotions, external relations, quality assurance and research were funded.
By virtue of a decision by the French authorities, an agreement among CIDEF members to contribute towards the costs of those activities was extended to all participants in the turkey industry in France. Two parties on whom obligations to make these contributions (CVOs) had been imposed raised proceedings claiming that the CVOs formed part of a state aid scheme (under which CIDEF provided support to industry players through its various activities) which had not been notified to the Commission and had therefore been unlawfully imposed.
The French court referred to the ECJ the question whether Article 107 TFEU was capable of applying in the circumstances.
The Court ruled that Article 107 TFEU was inapplicable to the CVO arrangements.
The Court pointed out that for Article 107 to be engaged, any advantages conferred on undertakings must be granted directly or indirectly through state resources and be imputable to the State. In other words, financing through state resources was a ‘constitutive element’ of the very concept of ‘State aid’.
The Court emphasised that financing through state resources does not necessarily involve a transfer from the public sector to the private sector. Private sector funds which, “constantly remain under public control, and therefore available to the competent national authorities” (para.35), may nonetheless be categorised as state resources.
In the present case, however, as the Court observed, “the national authorities cannot actually use the resources resulting from the [CVOs] to support certain undertakings. It is [CIDEF] that decides how to use those resources, which are entirely dedicated to pursuing objectives determined by that organisation. Likewise, those resources are not constantly under public control and are not available to State authorities” (para.36).
Moreover, the Court noted that the decision of the French authorities to impose CVOs on traders such as the two applicants were not, “dependent upon the pursuit [by CIDEF] of political objectives which are specific, fixed and defined by the public authorities” (para.39) and that in effect, “the State was simply acting as a ‘vehicle’ in order to make the contributions introduced by [CIDEF] compulsory, for the purposes of pursuing the objectives established by [CIDEF]” (para.40). In this respect, the Court echoed the views expressed by the Advocate General in his opinion that what was missing in this case was, “something more specific and precise than a mere indication of the general objectives to be pursued [...] [such as] a description of the specific measures or activities that must be carried out in order to achieve those objectives” (opinion, para.85).
In his opinion, the Advocate General pithily concluded that, “it does not follow from [the French legislation] that [CIDEF] have been allocated a real public role or that public authorities have been endowed with powers to control the activities carried out by [it]” (opinion, para.89).
It appears from this judgement, and in particular the point at which the Court looked to draw the boundary between public/private sector cooperation (outside Article 107) and public/private sector co option (within Article 107), that the ground work may now be being laid for a reappraisal by the Court of the ‘PreussenElectra’ ruling. This would seem most likely in circumstances where a Member State is looking to exercise decisive influence over the manner in which its public policy goals are to be implemented by its private sector nominees.
To that extent, we may be on the brink of a re-acquisition by the EU Commission of a policy role from which it has been in effect excluded by the Member States for over 10 years.