Services of General Economic Interest

Services of General Economic Interest

Services of general interest are not the ordinary services provided in the market, but services which exhibit special characteristics. These services are usually carried out by the state, regions or municipalities in the public interest and the specific characteristic of these services is the fact that they would not be supplied in the market or they would be supplied in lower quality or scope if there was no financial compensation provided by public authorities. Legitimacy of such financial aid for services of general interest works on the assumption that the market fails in the supply of such services.

Services of general economic interest (“SGEI”) are the subgroup of services of general interest. The name indicates their economic character.

It is important to emphasize that the economic character of SGEI refers to the economic nature of their activities, not to their interest, objective. With reference to this definition also some of the social services can be included in SGEI. Competition rules and therefore also the public aid rules are applied to services that are economic in nature.

Examples of areas in which services of general interest can be identified:

    • Public transport
    • Postal services
    • Energy sector
    • Water and waste management
    • Financial services
    • Public broadcasting
    • Broadband infrastructure
    • Health care
    • Social services
    • Social and affordable housing
    • Critical medicines

EU member states (municipalities) have the considerable discretion when it comes to defining what they regard as SGEI. The only limits are those imposed by EU law (in sectors which have been harmonised at Union level, the member states’ discretion cannot contradict the rules governing such harmonisation) and manifest error of assessment checked by the European Commission (“Commission”) and the Union’s courts.

 

The Commission’s decision-making practice illustrates certain limited examples of manifest error:

    • Port operations, i.e. the loading, unloading, transhipment, storage and movement in general of goods or any equipment[1]
    • Activities consisting in advertising, e-commerce, teleshopping, the use of premium-rate telephone numbers in prize games, sponsoring or merchandising in terms of public broadcasting services[2]

 

[1] Judgement of the European Court of Justice on 10th December 1991, Merci convenzionali porto di Genova, Case C-179/90

[2] Communication from the Commission on the application of State aid rules to public service

broadcasting, OJ C 257, 27.10.2009, p. 1.

 

LEGISLATION

Judgement of the European Court of Justice in case Altmark (C-280/00)  74 KB

 

   

RELATIONSHIP BETWEEN SGEI AND STATE AID

Services of general economic interest are dependent on public subsidies which usually finance the operation of service providers. These compensations may constitute state aid.

In principle, three possible situations may occur in case of compensation granted for the provision of services of general economic interest:

1. The compensation does not constitute state aid.

2. The compensation constitutes state aid compatible with the internal market

a. State aid is compatible, the notification to Commission is not required;

b. State aid is compatible after the prior notification to Commission.

3. The compensation constitutes state aid not compatible with the internal market – it is not possible to provide it legally!

 

The crucial for the determination whether the funding of SGEI constitutes state aid or not is the judgement of the European Court of Justice in case Altmark (C-208/00). In this judgement the Court held that public service compensation does not represent any advantage for the provider of SGEI when four cumulative conditions are met. Therefore, one of the defining characteristics of state aid is excluded, which means that the compensation granted for the provision of SGEI does not constitute state aid.

The conditions stipulated in Altmark judgement are as follows:

1.     the recipient undertaking must have public service obligations and the obligations must be clearly defined;

2.     the parameters for calculating the compensation must be objective and established in advance;

3.     the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of the public service obligations, taking into account the relevant receipts and a reasonable profit and 

4.

a) the undertaking which is to discharge public service obligations is chosen pursuant to a public procurement procedure which would allow for the selection of the tenderer capable of providing those services at the least cost to the community;

b) the level of compensation needed must be determined on the basis of an analysis of the costs of a typical well-run company that has appropriate technical resources to provision of the public service.

 

Even if not all of the conditions are fulfilled, the compensation may be found as state aid compatible with the internal market (thus legally granted). The decisive regulations are SGEI Decision and SGEI Framework.

 

The difference between those two regulations resides in the fact that if the conditions of SGEI Decision are met, the compensation is considered automatically as state aid compatible with the internal market, with no need of Commission’s notification. If the compensation does not fulfil the thresholds set in SGEI Decision, it is possible to use SGEI Framework. In this case, it is necessary to notify Commission that will assess the compatibility with the internal market in respect of conditions stipulated in SGEI Framework.

 

Another possible option for financing SGEI is funding through general de minimis aid or Commission Regulation (EU) 2023/2832 of December 13, 2023, on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest (see above).

 

In the case of the use of the SGEI Decision, an entrustment (entrustment act) is required, which defines the content and duration of the SGEI and sets out rules for the prevention of overcompensation and its recovery. More details on the entrustment to implement the SGEI can be found here here. The requirements for entrustment are set out in Article 4 of the SGEI Decision.

 

The European Commission has provided questions and answers regarding the revised SGEI Decision here here (EN).

Significant changes in the new SGEI Decision

•    Increase in the annual limit for compensation payments from EUR 15 million to EUR 20 million for the provision of services of general economic interest in areas other than transport and transport infrastructure, including social services not listed in point (c) of the SGEI Decision and critical medicines;

•    reduction in the frequency of regular checks for overcompensation to once every five years during the term of the mandate and at the end of the mandate;

•    if the compensation payment is determined ex ante on the basis of a credible business plan or if the activity of the provider of the service of general economic interest is essentially limited to the provision of that service of general economic interest with potential annual commercial revenues of up to 5% of total annual revenues during the period of entrustment and the provider is legally required to reinvest all its profits in this service of general economic interest, the Member State is no longer  required to carry out ex post checks on overcompensation;

•    introduction of an obligation to report, from January 1, 2028, information on aid exceeding EUR 1 million per undertaking for a service of general economic interest in a central register at national or EU level within 20 working days of the aid being granted. We expect that aid exceeding EUR 1 million will be recorded in the European Commission's system. We will inform providers on the Office's website well in advance.

 

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