Basic principles of EU State aid policy
and the impact on ESIF
Ramona IANUȘ
Country coordinator for Romania, DG Competition
Diana BARGLAZAN
Case Handler, DG Competition
1
Overview
1. Relevance of State aid policy for ESI
Funds
2. ESI Funds & State aid rules
3. Basic principles of State aid policy
2


GDP/capita*
< 75% of EU average
75-90%
> 90%



*index EU27=100

3 categories
of regions
Less developed regions
Transition regions
More developed regions




Canarias



Madeira
Guyane
Réunion
Guadeloupe/
Martinique
Açores
Malta

Regional GDP figures: 2006-07-08
GNI figures: 2007-08-09
© EuroGeographics Association for the administrative boundaries
Relevance of SA policy for ESI Funds
• EU SA policy:
• Essential component of EU cohesion policy
• Strict control of MS spending on SA is necessary to
ensure level playing field in the internal market and
limit subsidy races
• 42% ESI moneys allocated to actions involving SA
• MS have discretion on the allocation of EU and MS financial
contributions to ESI Funds operations
• Hence a need to subject these contributions to SA control
SA & ESI expenditure (2007-13)
42% (€ 146m) of ESI budget  allocated to SA actions
€62bn
Actions involving SA:
€9bn
€34bn
RTD & Enterpreneurship
Information Society
Transport
€25bn
€201bn
€16bn
Energy & Environment
Training
EFSI & SA – Basic principles
• Principle 1 – SA compliance requirement
• Compliance requirement:
Operations supported by the ESI Funds shall comply
with applicable Union law and national law relating
to its application (Art. 6 CPR)
• Wide definition of State aid:
'State aid' means aid falling under Article 107(1)
TFEU which shall be deemed for the purposes of this
Regulation also to include de minimis aid. (Art.
2(13) CPR)
ESI & SA – Basic principles
• Principle 2 – MS/MA Responsibility
• MS has primary responsibility for the implementation
and control of operations (Recital 66, CPR)
• MA bears main responsibility for the effective and
efficient implementation of the Funds (Recital 108, CPR)
• Principle 3 – Dual track approach
• Legal separation between ESI Fund and SA procedures
• COM Decision approving allocation of ESI Fund
resources to OP’s does not prejudice COM position on
SA aspects
ESI & SA – Practical
• No “gap funding” assessment for revenue generating
projects involving SA (Art. 61(8) CPR)
• Approval of Major Projects
• CPR introduces new approval procedure
• Quality Review Report by Independent Expert
• Tacit COM approval unless “significant weakness” in QRR
• Quid “State aid” approval?
• SA issues should be solved before MA submits MP application
• Possibility for Independent Expert to consult DG COMP
Basic principles of SA policy - 1
• EU SA policy established in 1958 Treaty of Rome
• Main objective:
• Avoid distortion of competition in internal market
• Support economic and social cohesion
Basic principles of SA policy - 2
• Substance (Article 107 TFEU):
• SA in principle “incompatible” with the common
market
• Exemptions from ban defined in the Treaty
• Procedure (Article 108 TFEU):
• COM has exclusive competence to control
exemptions
• Ex ante control: Notification + Standstill
obligation
• Violation of SA rules:
• Complaints + Ex Officio investigations
• EC orders recovery of illegal & incompatible SA
Questions for ESI Fund operators
Three key State aid related questions :
• Question 1: Does the project involve “State aid” ?
Question 2: What to do if the project involves
State Aid?
Question 3: How to design aid measures in line
with the rules?
Question 1:
Does a measure constitute State aid?
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State Aid Rules in the EU Treaty
• Art. 107(1) TFEU: notion of aid and general
prohibition
 “Any aid granted by a Member State or
through State resources in any form
whatsoever which distorts or threatens to
distort competition by favouring certain
undertakings or the production of certain
goods shall, insofar as it affects trade
between Member States, be incompatible
with the internal market”.
• Arts. 107(2-3), 106(2), 93 TFEU: derogations
State Aid notion- Key concepts
• 1. Undertaking / economic activity
•
2. State origin: Imputability & State
resources
•
3. Advantage
•
4. Selectivity
•
5. Distortion of competition & effect on
trade
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1. Undertaking / economic activity
Concept of “Undertaking”:
Any entity engaged in economic activity regardless
ownership status
Concept of “Economic activity”:
• Activity offering goods/services in the market
• Non-economic activity:
• Public remit functions (police, state supervisory tasks…)
• Activities in non-liberalised markets provided strict
conditions are complied with (e.g. water supply)
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Question
Money granted for construction of airport
infrastructure does not constitute State aid and
therefore falls outside the scope of State aid rules
True
False
Construction of Infrastructure:
''Economic activity''
■ Traditional MS view:
►
Aid for construction of infrastructure is public interest task
►
Not subject to SA control
■ Leipzig-Halle Judgment:
►
Operation of airport infrastructure can be economic activity
►
Also construction of infrastructure which is linked to its
later operation constitutes an economic activity
■ Widening of scope of SA rules with significant
implications for ESI operations
2. State origin: Imputability
• When involvement of public authorities (Stardust
indicators)
• Measure is imputable to MS if public authorities
designate a private or public body to administer the
aid
• Imputability to MS excluded if EU law requires MS to
implement a measure (but measures remain imputable
to MS if specific EU provisions simply authorise them:
Alumina cases)
• Measures adopted jointly by several Member States
imputable to all the Member States concerned (cf. ESM)
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2. State origin: State resources
• Financial resources under the control of the “State”
• State at any level (National, regional, public
enterprises…)
• ESI Fund moneys  Allocated by MS  Therefore SA
• Horizon 2020 moneys  Allocated by COM  Not SA
• State resources in “any form”:
• Grants, tax exemptions, interest rate subsidies, …
• But also sale of land below market price or capital
injection not in line with market economy investor
principle
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3. Advantage
Any economic benefit which an undertaking would not have
obtained under normal market conditions
• Only effect of the measure relevant (not cause /
objective)
• Can take the form of positive granting, but also
relief of economic burden
• Includes compensation for regulatory costs
• Compensation for the provision of a service of
general economic interest excluded if four Altmark
criteria are met
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3. Advantage – MEO test
• "Market economy operator" (MEO) test when a
public body realises an economic transaction:
would a comparable private operator have acted
similarly?
• Same concept covering market investor / vendor /
creditor tests developed by Court
• Form of intervention (e.g. fiscal means) does not
rule out applicability of MEO test
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3. Advantage – MEO test
Application in practice
• A. Market conditions can be empirically
established
• Pari passu transactions (really same situation? Not if
private operators have previous exposure or synergies)
• Tender procedures (open, transparent and unconditional?)
• B. Benchmarks
• Similar transactions provide a range of market values
• Standard assessment methodology (IRR, NPV)
• Specific proxies for loans (Reference Rate Communication)
and guarantees (Guarantee Notice)
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4. Selectivity
MATERIAL SELECTIVITY:
• The measure applies only to certain (groups of) undertakings
or certain sectors of the economy in a MS
• De jure/de facto selectivity (measure de facto selective if is
structured in a way that its effects significantly favour a
particular group of undertakings)
• Selectivity may stem from discretionary administrative
practices
REGIONAL SELECTIVITY (Azores)
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5. Distortion of competition & effect on
trade
• Distortion of competition – generally assumed as soon
as State grants a financial advantage to an
undertaking in a liberalised sector where there is/
could be competition
• Distortion of competition – exceptionally excluded:
• if given service is under legal monopoly and is not in competition with similar
(liberalised) services
• the service provider cannot be active
(due to regulatory or statutory constraints) in any other
liberalised market
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5. Distortion of competition & effect
on trade
No effect on trade – examples:
• local swimming pools
• local museums
• hospitals aimed at local population
• news media in minority languages
• local conference centres
• ski lifts
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Question 2:
If a measure constitutes State aid, can it be
accepted?
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When is aid compatible?
•
Art. 107(2): automatic compatibility
−
−
•
Art. 107(3): Commission has discretionary power
a)
b)
c)
d)
•
Aid having a social character, granted to individual consumers without
discrimination
Aid to make good the damage caused by natural disasters or exceptional
occurences
Regional aid for most disadvantaged regions
Important project of common European interest or serious disturbance in the
economy of a Member State
Development of certain economic activities or certain economic areas
Culture and heritage conservation
Art. 106(2): services of general economic interest
When is aid compatible?
Treaty provisions
• Art. 107 (2) TFEU
Compatible: natural disaster,
aid of social character to
individuals
• Art. 107 (3) TFEU
Possibly compatible: areas
with low living standard or aid
to facilitate the development of
certain economic activities, etc.
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Guidelines, Frameworks,
Block exemptions
• Horizontal aid
• for R&D
• for SMEs
• for risk capital
• for employment
• for training
• for environmental protection
• regional aid
•Non-horizontal aid
• For specific sectors (culture,
broadband, transport)
• For rescue & restructuring
Compatibility: “Balancing test”
■ Assessment of compatibility  “balancing test”:
►
Benefits (contribution to objective of EU interest)
►
Costs (distortion of competition and trade)
■ Compatibility assessment covers i.a.
►
Contribution to objective of common interest?
►
Incentive effect?
►
Is the aid proportional?
►
Distortions of competition limited?
Compatibility: “Codification of criteria”
■ COM codified “compatibility criteria” for main
categories of SA
►
Criteria: Eligible projects and costs, max. aid intensities …
►
Guidelines, Regulations, Notices for :
●
●
Horizontal aid: Regional aid, SME, Training, RTD,
Environment, …
Sectoral aid: Broadband, Airlines, Audiovisual, …
■ Published on DG Competition’s website:
http://ec.europa.eu/competition/state_aid/legislation/compilation/index_en.html
Compatibility: “Procedural aspects”
■ General Rule: All aid to be notified & approved
■ Exceptions:
►
Aid under approved aid schemes
►
Aid under General Block Exemption Regulation (GBER)
►
●
COM defined clear compatibility criteria for certain types of aid
(SME aid, Regional Investment aid, …)
●
Aid measures satisfying these conditions are exempted from
notification & standstill requirement
SGEI Decision 2012/21
■ Aid not falling under these exceptions and granted
without Commission approval is “illegal aid”
State aid Architecture
NO
De Minimis
AID
Too small to distort trade
No Notification
No Information
Cumulation control
Block
AID Exemption
Regulation
• Routine aid
• Clear compatibility criteria
• Limited risk of distortion
No Notification
Information sheet
Guidelines, • Criteria published
AID frameworks, • Potential compatibility issues
(distortion, incentive effect, …)
etc.
Directly on
AID
TFEU
• Very limited experience
• No criteria published
• Ad hoc assessment
Ex Ante Notification
Ex Ante Notification
Question 3
• How to design aid measures in line with the
rules?
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GUIDELINES
IN-DEPTH ANALYSIS OF THE EFFECTS OF THE
AID
Block Exemption Regulation
(formal requirements)
De minimis
No aid (non-economic activity, MEIP, general
measure)
No Aid vs No Notification
 why does distinction matter?
 objective notion of aid
 cumulation rules
 one-time, last-time principle
 purpose of block exemption: administrative
simplification
 no impact on classification as aid
 derogation from notification requirement
only
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Factors to consider when choosing
between notification v block
exemption
Balancing test: Common principles
 Is the aid measure aimed at a well-defined objective of
common interest? (market failure or equity objective?)
 Is State aid an appropriate policy instrument?
 Is there an incentive effect, i.e. does the aid change the
behaviour of firms?
 Is the aid measure proportionate, i.e. could the same
change in behaviour be obtained with less aid?
Are the distortions of competition and effect on trade limited,
so that the overall balance is positive?
 Balancing positive and negative effects of aid
Formal criteria
 Incentive effect:
 application before the start of works
 Proportionality:
 Eligible costs (eg cost of investment in land, buildings,
machinery, salaries)
 Maximum aid intensity (= aid expressed as a % of the
eligible costs)
 Possible modulation of the aid intensity depending on size
of the firm (bonus of SME) and location
GBER v Guidelines (RAG, RDI)
COMMON
PRINCIPLE
GBER
RAG, RDI
Contribution to common
objective
Presumed
To be demonstrated
Need for state
intervention (market
failure, cohesion
objective)
Presumed for the aid categories under
GBER
RAG: Defined by Commission (regional aid maps)
RDI: to be demonstrated
Appropriateness
Presumed
To be demonstrated
Incentive effect
Application for aid before start of works
Ad hoc aid to large enterprises (stricter)
Stricter formal requirements + in depth analysis of
the counterfactual for notified individual aid
Proportionality
Maximum aid intensties
Net extra costs+max aid intensities
Negative effects
Limited by excluding more distortive aid
from GBER
Description of negative effects + BLACK list
Transparency of aid
Publication only for aid >500 000
Factors to Consider
 Decide whether measure should be notified or exempted
and design it accordingly
 how complex is the intended measure?
 do all levels of administration have knowledge to
implement correctly?
 If notified, stricter rules will apply
 COMP also available for informal guidance
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Choosing block exemption
 Advantage:
 speed (notification takes at least 2 months, usually longer)
 Challenge:
 responsibility of MS to ensure compliance
 COM follows-up via complaints, monitoring, ex officio
investigations
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Factors to Consider
 mistakes likely to occur at 2 levels:
 national legal basis
 practical implementation
 important that rules are applied at all levels
 if not: risk of negative decision ordering recovery
 remember that recovery primarily affects undertakings!
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