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
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
On 20 December 2011, the Commission adopted new legal rules regulating the provision of public service compensation that replace original legal rules (the so-called “Altmark package”) from 2005:
- Commission Decision of 20 December 2011 on 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 (“SGEI Decision”)
- European Union framework for State aid in the form of public service compensation (“SGEI Framework”)
- Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest (“SGEI Communication”)
On December 13, 2023, the Commission adopted
- Commission Regulation (EU) 2023/2832 of 13 December 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, replacing Commission Regulation (EU) No 360/ 2012 of 25 April 2012 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 (Commission Regulation (EU) No 360/2012 was applied in the Czech Republic during the transitional period, i.e. until June 30, 2024). According to the Regulation 2023/2832 the total amount of de minimis aid granted to a single undertaking providing services of general economic interest in any three-year period may not exceed EUR 750,000.
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).
OTHER DOCUMENTS RELATING TO SERVICES OF GENERAL ECONOMIC INTEREST
More details about entrustment of the operation of public services can be found here 16 KB
For better clarity, the scheme for determination of state aid and its compatibility with the internal market is presented here 32 KB
In case of any doubts about funding of SGEI, please contact the State Aid Department, the Office for the Protection of Competition posta@uohs.gov.cz.
Data Collection application and fulfillment of SGEI information obligations
Each Member State of the European Union is required to submit a report on the implementation of the Decision (Article 9) to the European Commission every two years. This report shall contain a detailed overview of the application of the Decision to various categories of services, including social services and hospital care. The Office is responsible for collecting data and preparing the report for the Czech Republic. The reports are submitted to the European Commission every two years.
The reports of all Member States of the European Union (including the Czech Republic) are available on the European Commission's website under the link Member States reports on the application of the SGEI decision
In order to streamline the overall process, increase the automation of activities, and automatically consolidate data submitted by state aid providers, the Office created a web application called Data Collection in 2022 to fulfill this reporting obligation. The Data Collection application is used to collect data on compensation payments made during the relevant two-year period for which the information obligation applies. It is not used for the continuous recording of compensation payments. The Office provides information on data collection through, among other things, publishing state aid news on the Office's website.
The Data Collection application is available here.