SGEI

 

Services of General Economic Interest (SGEI) are not defined in the Treaty and it is for individual Member States to define and there is no overarching EU definition. The Commission and Court only have a role in determining manifest error. In general they tend to include such things as gas, electricity, telecoms, public service broadcasting and public transport but this is not an exhaustive list.

 

An SGEI is usually a service which the market does not provide or does not provide to the extent or at the quality which the state requires AND is in the general and not the particular interest. This means that the beneficiaries of the service should be the community at large and not a specific sector of industry.

 

What could not be supported under an SGEI umbrella?

 

The range of services which count as SGEI is very wide and is very much a matter for the Member State. As a guide the sort of activities which would not qualify for support under SGEI would be capital grants to manufacturing plant to buy new equipment, R&D aid, rescue and restructuring aid, general capital investment or regional aid. These types of aid should be given under the normal guidelines and frameworks.

 

State Aid Treatment of SGEI

 

Funding of SGEI is in principle caught by the state aid rules which apply to state funding of economic activities. Article 86(2) is the normal means of approving aid to undertakings performing an SGEI. However, in order to ensure legal certainty the Commission has therefore come forward with two texts: a Decision exempting from notification small SGEIs below a certain threshold and a Framework for everything else. The Decision also exempts all compensation for social housing and hospitals regardless of the amount.

 

DECISION - please refer to the full text of this decision as the following is only a summary.

http://ec.europa.eu/comm/competition/state_aid/legislation/sgei.html

What is exempt from notification?

 

Please note that this is only an exemption from the need to notify it is NOT an exemption from state aid rules. This compensation is still aid.

 

Annual aid for SGEI of less than 30 million euros given to undertakings whose annual turnover in the last two financial years was less than 100 million euros. Aid of any amount for hospitals and social housing – provided that they are carrying out SGEIs.

 

Compensation for air or maritime links to islands with annual traffic in the last two financial years of less than 300,000 passengers

 

SGEI compensation for ports and airports where annual average traffic in the last two financial years does not exceed 1 million passengers in the case of airports and 300 000 passengers in the case of ports.

The Decision does NOT apply to broadcasting or to land transport. These exemption criteria only apply when giving compensation for SGEI – they do not apply if for example you are giving capital investment aid.

 

What are the responsibilities of giving aid?

 

The Service of General Economic Interest   to be provided must be defined. The Commission recommend consultation on the terms of the SGEI and in particular seek the views of consumers – this is only a recommendation and not an absolute requirement. The definition should be as precise as possible.

 

The aid provider must entrust the SGEI to the recipient undertaking properly. Entrustment may be made by means of primary legislation, a contract or a Ministerial letter. However it is done it must set out the following:

                         

·                      The nature and the duration of the public service obligations;

·                      The undertakings and the territory concerned;

·                      The nature of any exclusive or special rights assigned to the undertaking;

·                      The parameters for calculating, controlling and reviewing the compensation

·                      The arrangements for avoiding and repaying any overcompensation.

 

Ideally this entrustment document should be made publicly available. Competitors should be able to see exactly who is being funded, where, why and how much is being given. If competitors are unaware of the terms of your entrustment they may complain to the Commission that the aid provider has given unnotified aid.

 

The aid provider must ensure that there is no over compensation – i.e. pay only the amount needed to discharge the service but allowing the undertaking to make a reasonable profit – reasonable profit is defined in article 5.4. Basically this involves a rate of return on capital based on the amount of risk that the undertaking is exposed to in carrying out the service. This should not exceed the normal profit levels of companies in the sector. SGEI funding is only supposed to ensure that the entrusted company is no worse off because it is carried out the service – it should not be significantly better off.

 

The costs that can be compensated are set out in Article 5.2 .The aid provider must make regular checks to ensure that there is no over-compensation.   However if there is over compensation and it is less than 10% of the annual compensation this can be carried over. If the undertaking also carries out non-SGEI activities the aid giver can decide that any profit from these should go towards the financing of the SGEI.

 

The aid provider must keep detailed records of the aid given. These records are the only way of proving that the provider has complied with the block exemption and have not given illegal aid. They must be kept for ten years and the Commission can ask to see them at any time. In addition, if an undertaking is performing SGEI and non-SGEI tasks there must be separate accounts for both activities.

 

FRAMEWORK - please refer to the full text of the framework as the following is only a summary

http://ec.europa.eu/comm/competition/state_aid/legislation/sgei.html   

 

All compensation which does not meet either the terms of Altmark (see below) or the Decision must be notified to and approved by the Commission. The Framework sets out criteria the Commission will apply in clearing aid. These criteria are in the main not new – they are merely a formulation of the way the Commission has always applied Article 86(2).

 

ALTMARK http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2005:312:0067:0073:EN:PDF

 

To assess whether the funding is aid the Commission use the “Altmark test”. The Court of Justice held that public service compensation does not constitute State aid provided that four cumulative criteria are met:

• the undertaking is given a public service obligation to perform and   that obligation is clearly defined;

• the parameters of funding are set out transparently in advance;

• compensation does not exceed what is necessary to carry out the service, allowing for a reasonable profit; and

• if the undertaking was not chosen via a public procurement procedure. The level of compensation required must be calculated on the basis of an analysis of the costs which a typical well run undertaking would have incurred.
     

 

What are the conditions for compatibility?

 

Definition of SGEI

As with the Decision you must have given the undertaking a public service task to perform. Again this should be precisely defined and the Commission recommend that you consult on the definition.

 

Entrustment

There must also be an entrustment document, which again can either take the form of primary legislation, contract or Ministerial letter. The entrustment document must contain the information listed above.

 

Compensation

The compensation must not exceed what is necessary for the undertaking to perform the service – allowing for a reasonable profit. Compensation must not be used by the undertaking to cross subsidise non-SGEI activity. (However it is perfectly legitimate to insist that profits from non-SGEI activities are used to reduce funding needed for SGEI). A full description of the costs that can and cannot be met are given in article 13 of the Framework. The definition of reasonable profit is the same as for the Decision and is set out in Article 15.

 

Over-compensation

Aid givers must also check regularly for over-compensation. Aid givers need to be sure that the amount of aid is still needed and if not the parameters of aid must be redrawn. However over-compensation of less than 10% of the total aid can be carried over to the following financial year providing of course that there is a suitable adjustment in the amount of aid awarded that year. Over-compensation of more than 10% must be repaid unless there are very exceptional circumstances. An undertaking cannot keep this money on the grounds that it is being used for a purpose which the Commission would normally approve – for example environmental protection or R&D. If the company is to be given money for this purpose it must be notified to and approved by the Commission in advance in the usual manner.

 

Other Points

Undertakings receiving aid and who also engage in other non-SGEI services must keep separate accounts for SGEI and non-SGEI activities as per the Transparency Directive.

 

Commission for Protection of Competition
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