With regard to State aid, the European Commission has recently extended the scope of the General Block Exemption Regulation by introducing a new exemption from the obligation to notify State aid measures for maritime and internal seaports and for airports. Since this exemption concerns only one of the many shipping sectors and the principles of the European Court of Justice (hereinafter “ECJ”) regarding State aid still stand for the other sectors, we consider it useful to analyze two major decisions of the ECJ on State aid to shipping companies.
The ECJ has recently issued two crucial decisions on State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest (hereinafter “SGEIs”).
The two cases concern compensation received, respectively, by SNCM and Saremar for the provision of services of general economic interest as regards maritime links to islands.
EU law on SGEIs
The European Commission Decision of 20 December 2011 (hereinafter the “Decision”) regulates 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.
Article 4 of the Decision provides that operation of SGEIs shall be entrusted to the undertaking concerned by way of one or more acts that shall include the following information:
- the content and duration of the public service obligations;
- the undertaking and, where applicable, the territory concerned;
- the nature of any exclusive or special rights assigned to the undertaking by the granting authority;
- the description of the compensation mechanism and the parameters for calculating, monitoring and reviewing the compensation;
- the arrangements for avoiding and recovering any overcompensation; and
- a reference to the Decision itself.
The SGEI compensation amount must not exceed “what is necessary to cover the net cost incurred in discharging the public service obligations, including a reasonable profit” (see Article 5 of the Decision). For the purposes of calculating the compensation, the costs to be taken into account are as follows:
- where the activities of the undertaking in question are confined to the service of general economic interest, all its costs may be taken into consideration;
- where the undertaking also carries out activities falling outside the scope of the service of general economic interest, only the costs related to the service of general economic interest shall be taken into consideration.
Altmark criteria are the cumulative conditions set out in the ECJ’s judgment in case C-280/00, under which ( if all conditions are met) SGEI compensation does not amount to State aid. In short:
- the activity entrusted must be a service of general economic interest and the relevant tasks and obligations must be clearly defined in advance;
- the parameters on the basis of which compensation is calculated must be established in advance in an objective and transparent manner;
- the compensation cannot exceed the costs incurred in the discharge of the public service obligations, taking into account a reasonable profit in relation to the provision of the service (therefore, no overcompensation is allowed); and
- the beneficiary must be selected in a public tender or, if no public procurement procedure is followed, the compensation for performance of public service obligations must be determined having regard to the costs of a well-run undertaking.
Let us now analyse the two cases recently decided by the European Court of Justice.
Case T-454/13 – SNCM v. European Commission
In the first case, the ECJ analysed the compensation received by SNCM (Société Nationale Maritime Corse Méditerranée) in respect of certain transport services provided between Marseille and Corsica.
SNCM challenged the decision of the European Commission whereby only part of the compensation received by the company for transport services carried out on the aforementioned route was deemed compatible. The Commission indeed regarded the compensation paid for additional services provided during the peak season as incompatible with EU State aid rules. In the Commission’s view, France committed a “manifest error” in classifying the additional services as SGEIs.
The Court pointed out that, while Member States have a wide discretion to define what they regard as SGEIs, the Commission has only powers to check for so-called “manifest errors”. In the case at hand, the Commission found that there was no evidence of a need for additional services by SNCM and found their classification as SGEIs incorrect and, therefore, the relevant compensation incompatible with State aid legislation.
As a rule, SGEIs indeed have the purpose to remedy the market’s inability or failure to provide a certain service deemed essential for the general interest. In the case at issue, the additional summer services provided by SNCM should not have been included in the SGEI, because the market was able to provide them without State intervention.
SNCM tried to defend itself by arguing that (i) it was selected to carry out the services in question by public tender; (ii) the Commission had not previously disputed the compensation scheme; and (iii) the services were needed for territorial continuity.
The Court replied that: (i) the tender was based on a negotiated procedure and, in any case, organised in such a manner as to discourage the participation of more companies; (ii) the previous decisions of the Commission could not entail reliance from the private party, as the market is constantly evolving and assessments may thus vary along with the market situation; (iii) territorial continuity could be ensured by the market without the State having to impose an obligation on SNCM.
Case T-219/14 – Autonomous Region of Sardinia v. European Commission
The second case concerns maritime transport services provided by Saremar, respectively, between Sardinia and the small Sardinian islands and between Sardinia and Corsica.
The Court found that the criteria under the Decision were not met and that the Altmark’s second condition was not satisfied, as the parameters on the basis of which the compensation of public service costs should have been calculated were not defined beforehand in an objective and transparent manner. Indeed, the acts whereby Saremar was required to carry out the transport service initially did not provide for any compensation. Compensation was envisaged only at a later stage, when Saremar started suffering from losses.
The Court recalled that, while the Member States have wide discretion in both the classification of a SGEI and the determination of the relevant compensation, such classification and determination must be made in advance, in a clear and transparent manner, so as to allow verification by the Commission in order to prevent Member States from abusing the SGEI rules.
In the case at hand, not only the compensation due to Saremar for the services provided was not determined beforehand, but the Autonomous Region of Sardinia (hereinafter “ARS”) allowed Saremar – in consideration of the losses suffered by Saremar – to amend its fares, which still should remain accessible to the public, without however determining their maximum limit. Saremar was therefore allowed to adjust its fares in such a way as to ensure economic and financial balance in its activities.
In the light of the foregoing, the Court, confirming the view previously expressed by the Commission, concluded that the public service obligations imposed on Saremar were not required as they were inappropriate for ensuring accessibility of the service to the public, in consideration of Saremar’s freedom to review its fares without particular constraints.
The two judgments mentioned above are particularly important as they highlight the limits of the discretion of Member States in defining and entrusting services of general economic interest in the maritime transport sector.
The mere classification by a Member State of a given service as a SGEI is not sufficient to ensure compliance with State aid rules. Indeed, the criteria under the Decision and all the four Altmark criteria must be (cumulatively) met to avoid the risk of compensation for such services being deemed by the Commission incompatible with State aid rules and, thus, ordered to be recovered.