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Publicly funded infrastructure must be made available to users at prices that correspond to its market value.

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Introduction

When publicly-funded infrastructure is placed at the disposal of an undertaking, that undertaking must pay a market price, otherwise it derives an advantage in the meaning of Article 107(1) TFEU. But what is the market price? Is it the price charged to similar undertakings using comparable infrastructures? The judgment which is reviewed in this article indicates that, for two reasons, it may not be the right answer.

First, the amount of public resources that finance comparable infrastructures may vary. Therefore, prices charged to users may also vary despite the fact that infrastructures are similar in every other way. Second, the conditions of competition may vary, also resulting in different user fees.

The General Court addressed these issues in the judgment it delivered on 15 March 2018 in case T-108/16, Naviera Armas v Commission.[1] Naviera Armas [NA], a shipping company, appealed against the decision of the Commission in State aid case SA.36628. In that case, the Commission concluded that exclusive use of the port of Puerto de las Nieves by Fred Olsen [FO], another shipping company competing with NA, did not involve State aid.

NA offered maritime transport services between the various Canary Islands and between the Canary Islands and mainland Spain. From about 1994, FO obtained a license to operate regular passenger and cargo transport services between Puerto de Las Nieves on Gran Canaria and the port of Santa Cruz on Tenerife. FO was the only operator on that route.

NA repeatedly applied for a similar licence and was repeatedly rejected on the grounds that Puerto de las Nieves did not have sufficient capacity for safe operation of vessels from two different companies. [This does not appear to be a credible argument because the port could have arranged for the operation of different vessels at different time slots.] At any rate, in 2013, NA lodged a complaint with the Commission alleging that the exclusive licence of FO amounted to granting of illegal State aid.

 

In the meantime, following an extension of the port in 2014, a tender for the use of the port by two operators was launched in the same year. The Commission was informed of these developments. In December 2015 the Commission, in decision SA.36628, concluded that:

  1. The exclusive use of Puerto de las Nieves did not entail the granting of State aid.
  2. The port infrastructure was not designed or developed in order to benefit specifically FO.
  3. FO did not receive any advantage from fees it paid to the port operators because they were set at market level.
  4. The port operator maintained a non-discriminatory access policy and took reasonable measures to expand port capacity.
  5. Public funding of the port before December 2000 [the date of Aéroports de Paris judgment] did not constitute State aid.

The Commission decision was reviewed on the StateAidHub on 2 February 2016 (view article at http://stateaidhub.eu/blogs/stateaiduncovered/post/4695).

Length of preliminary assessment period

NA claimed that the Commission should have opened the formal investigation procedure. The long period of time it took the Commission to decide and the many exchanges it had with the Spanish authorities were evidence that it encountered serious difficulties in determining the existence and/or compatibility of State aid.

The General Court recalled, first, that the Commission is obliged to open the formal investigation procedure if the initial examination of a measure does not dispel any serious difficulties it may have about the compatibility of the aid with the internal market. [Paragraph 46 of the judgment]

Moreover, the concept of serious difficulties is objective and can be shown by the circumstances and duration of the preliminary examination and the content of the contested decision. [Paragraph 51]

The General Court also reiterated that when a Member State has not notified a measure that is alleged to contain State aid, the Commission is not required to carry out the preliminary examination within the prescribed period of two months. However, the Commission is required to conduct a diligent and impartial examination, but it cannot prolong, for an indefinite period, the preliminary examination. [Paragraph 60]

Then the Court noted that the Commission decision was adopted more than 31 months after the receipt of the complaint, which the Court considered to exceed the normal amount of time needed for the preliminary examination. Therefore, it proceeded to consider whether the particularly long duration of the preliminary examination could be partly due to objective circumstances beyond the scope of any serious difficulty. [Paragraph 65]

It concluded that because of the expansion of the port facilities and the launch of the tender the situation changed on a number of occasions, which could justify the delay in the adoption of the Commission decision. Moreover, the numerous exchanges between the Commission and the Spanish authorities could not necessarily be regarded as evidence of the existence of serious difficulties. [Paragraphs 67-69]

For these reasons, the General Court turned its attention to the content of the decision and whether there were indications of serious difficulties. [Paragraph 74]

 

Advantage to infrastructure owner v advantage to infrastructure user

The General Court began its analysis of the contents of the decision by observing that despite the Commission’s argument that FO had not enjoyed any exclusive rights, in fact it was the sole operator in Puerto de Las Nieves by the mere fact that applications by other shipping companies had been rejected.

The General Court agreed with NA that regardless of the date of the judgment in case T-128/98 Aéroports de Paris v Commission, that case concerned the funding of infrastructure. Therefore, the Commission was wrong to deduce from it that the user of the infrastructure – i.e. FO – could not receive State aid. [Paragraph 83]

This is an important new interpretation which clarifies that it is only the public funding of infrastructure [or infrastructure owners] that falls outside the scope of Article 107(1) before December 2000, not the public funding that may indirectly benefit infrastructure users. However, the practical usefulness of this new interpretation is virtually nil because State aid granted before 2000 cannot be recovered any more [unless a Commission investigation interrupts the 10-year recovery period, which is also becoming increasingly unlikely].

Bespoke development v exclusive use

Then the Court turned its attention to a counter-argument of the Commission that the infrastructure of Puerto de las Nieves was not designed or developed to benefit specifically FO.

In this connection, the Court pointed out that because the concept of State aid is objective, the granting of an advantage in breach of Article 107(1) TFEU may even take place where that advantage is not specifically intended to benefit an undertaking or certain undertakings [paragraph 87]. Even if the infrastructure of Puerto de la Nieves was not on purpose developed to benefit specifically FO, the possibility cannot be excluded that the circumstances in which it was made available to FO for the purpose of commercial use may have involved the granting of State aid to it. [Paragraph 88]

Then the General Court addressed the issue of what the Commission should have done during the preliminary examination of the measure. The Court explained that the Commission was obliged to examine the complaint diligently and impartially and take into account issues not raised by the complainant. [Paragraph 101]

Pricing of publicly funded infrastructure

The General Court was of the opinion that NA had clearly stated in its complaint that FO benefited from State aid because it was not obliged to pay a fee corresponding to the real economic value of its right to use the port infrastructure of Puerto de las Nieves for commercial transportation [“n’était pas tenue au paiement d’une contrepartie correspondant à la valeur économique réelle de son droit d’utiliser seule l’infrastructure portuaire”] [paragraph 107]. The advantage was derived from the use of infrastructure that had been funded by state resources and that had been placed at its exclusive use without a competitive tender.

This is an important finding. Although the Court did not elaborate what “economic value” may mean, a competitive tender would presumably maximise the profits of the port owner who would be able to extract all or most surplus from the port user who would win the right to use the port facilities. The winner, in turn, would be the shipping company that would be able to earn the highest amount of profit so as to be able to outbid other competitors. It follows that pricing the use of the port at market rates charged at other ports is not enough to ensure the absence of advantage in the meaning of Article 107(1). This is because companies operating in other ports may not be as efficient as the eventual winner of a tender at Puerto de la Nieves, other ports may have different facilities [as must have been the case in relation to Puerto de la Nieves which could accommodate only one vessel] and because demand for maritime transport may vary.

 

The Court disagreed with the view of the Commission that NA did not specify precisely the nature of the advantage enjoyed by FO and the rate of the fees that it had paid and should have paid. Given that NA did not have access to the contractual details between FO and the port authority, it was therefore for the Commission, under its duty to carry out a diligent and impartial examination of the complaint, to ascertain whether FO had benefited from an advantage granted through state resources, given that since the mid-1990s it had used exclusively the port infrastructure of Puerto de la Nieves. In particular, the Court found that the Commission failed to verify whether the port charges paid by FO covered the costs incurred by the port authority plus reasonable profit, taking into account the market value [“valeur de marché”] of the exclusive right [paragraphs 92 and 110]. The Court did not specify the meaning of “market value”, but presumably it is the outcome of a competitive process.

Then the Court responded to several counter-arguments raised by the Commission in its defence. First, according to the Court, the mere fact that certain public goods can only be made available to a limited number of users and possibly only one user is not sufficient to exclude the possibility that a selective advantage is granted with state resources, even where the restriction is due to safety reasons. [Paragraph 114]

Second, the supply of goods or services on preferential terms may constitute State aid within the meaning of Article 107(1) TFEU. [Paragraph 117]

Third, the Commission should have checked whether the port authority acted as a private operator when it fixed the fees that were paid by FO [paragraph 119]. According to the Court, this is consistent with point 225 of the Commission Notice on the Notion of State Aid. Undertakings using public infrastructure derive an advantage constituting State aid unless the conditions for the use of such infrastructures comply with the market economy operator principle, i.e. the infrastructure is made available to them under conditions prevailing on the market. In addition, paragraphs 226 and 228 of that Notice indicate that the existence of such an advantage may be ruled out when charges for the use of the infrastructure are established by means of a transparent and non-discriminatory tendering procedure or when users contribute to its profitability. [Paragraph 120]

Fourth, the fact that FO could use the port of Puerto de Las Nieves without concluding a concession contract concerned only the legal form by which that use took place and not the question whether the financial terms enabled FO to enjoy an advantage which it would not have obtained under normal market conditions. [Paragraph 121]

Fifth, the Court also rejected the argument of the Commission that FO received no advantage because it paid all the requisite fees, because those fees were identical in all ports under the responsibility of the same public authority and because the fees were calculated to cover costs, depreciation as well as a reasonable profit. According to the Court, the Commission had to make a specific assessment as to whether the fees were at least equal to the amount which a private operator in normal competitive conditions would have charged. The fact that FO paid all required fees, that the fees in other ports were similar and that they covered all costs plus profit was irrelevant. [Paragraphs 123-126]

Sixth, the Court also rejected the argument that a tendering procedure is not necessary in order to exclude the existence of aid. The Court pointed out that it is not the exclusive use that may possibly give rise to an advantage. Rather it is whether the advantage was financed by state resources [in the form of a lower fee than that determined under market conditions]. [Paragraphs 128-130]

Partial exemption from a fee for use of buildings

Another plea of NA was that FO was partially exempt from paying a fee for the use of buildings and other space in the port. The Commission did not consider that FO had derived an advantage because the fee was similar to those charged in other ports. This plea was unsuccessful because the General Court considered that NA did not adduce any evidence to show that the method of calculating that fee conferred a selective advantage to FO.

Since, however, NA’s main plea was upheld, the General Court annulled the Commission decision because the Commission failed to open the formal investigation procedure and establish that the owner of the port of Puerto de la Nieves behaved as a private operator.

Conclusions

This judgment has significant practical implications for Member States. Price benchmarking is not enough. The owner of a publicly funded infrastructure always derives an advantage unless the funding authority acts as a private investor. In order for the aid not to benefit indirectly the users of the infrastructure, the owner has two options: either to determine what the market would be willing to pay [a virtually impossible task], or to organise a competitive selection procedure. A competitive selection will also ensure that the prices that will be charged by the selected user/operator to third parties will also be free of State aid because presumably that user/operator will be seeking to maximise its profit.

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[1] The full text of the judgment can be accessed at:

http://curia.europa.eu/juris/fiche.jsf?id=T%3B108%3B16%3BRD%3B1%3BP%3B1%3BT2016%2F0108%2FJ&pro=&lgrec=en&nat=or&oqp=&dates=%2524type%253Dpro%2524mode%253D8D%2524from%253D2018.03.08%2524to%253D2018.03.16&lg=&language=en&jur=C%2CT&cit=none%252CC%252CCJ%252CR%252C2008E%252C%252C%252C%252C%252C%252C%252C%252C%252C%252Ctrue%252Cfalse%252Cfalse&td=%3BALL&pcs=Oor&avg=&mat=CONC.AIDE%252Cor&etat=clot&jge=&for=&cid=989393.



Comments

by Dr. Hans Arno Petzold, Tuesday, 27 March 2018, 17:59:03

I’m not sure whether I fully grasp your conclusions. The constructions to be found in ports do vary across the EU, so funder and owner are not necessarily identical. Nor are owner and operator, though especially public entities usually employ an operator, selected – hopefully – by a proper tendering process (cf. art. 56 b para. 7 GBER). In this case, the operator has to pay a “concession fee” to the owner which then, as determined by the tender, reflects the market price and excludes any State aid to the operator. If the owner operates himself (no “third party” involved), there is no question of State aid (cf. GBER). Concerning State aid to the users of the port (the shipping lines), I refer to the judgment C-524/14 P (Flughafen Lübeck) and the ECJ’s clarification on selectivity: the yardstick is the airport itself, not the neighbouring one (cf. para. 123 of this judgment on the opposite way of argument). It is thus not relevant whether or not the selected operator wants to maximise its profit, but that it does not unjustifiably discriminate against any user. In this constellation, a comparison to port fees in other ports is not required. Only in the case where the public owner of a port is also the operator, it will – in order to avoid State aid to the users (the shipping lines) – have to charge port fees according to market prices, at least cover its own full costs plus a usual market profit, which is easily to be determined by studying the annual (or quarterly) reports of other port operators. For me, the main clarification in this judgment concerns the obligations of the Commission and the necessary scope of its investigation, plus underlining that a factual monopoly caused by lapse of time may very well constitute State aid, be it intentional or not.



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Professor at the College of Europe, Bruges, and at the University of Maastricht, and Academic Director at lexxion training

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