navigation.skipToContent
State guarantees must be limited in duration and amount and the conditions for their mobilization must be defined in advance. Public funding to an operator in a closed sector does not affect trade and, therefore, does not constitute State aid.

--------------------------------------------------------------------------------------------------------------

The EStAL Seminar 2019: The Evolving Concept on the Notion of Aid (Economic Activity - Effect on Trade - Infrastructure - SGEI) on 11-13 April 2019 in Barcelona provides an in-depth examination and discussion of the most important developments and recent judgments related to the notion of aid and the question of how to determine whether a measure constitutes State aid.

--------------------------------------------------------------------------------------------

 

Sign up for our free News alert

Sign Up For Free

 

 

Introduction

Large infrastructure projects are complex, encounter many unforeseen problems and often fall behind schedule for years. Consider, for example, the new airport in Berlin or the Crossrail line in London. Big, ambitious projects are risky. The company that operates Eurotunnel was launched in 1987 and managed to pay its first dividend only 22 years later in 2009. Although Eurotunnel is a case in point of the riskiness of large projects, it also shows that investors are willing to commit large amounts of money and wait for a long period before profits start flowing in (see also Tesla and Space-X in the United States). But at the same time investors demand state guarantees, perhaps because they are afraid that governments may change their minds.

It is exceedingly difficult to price a guarantee that is linked to the construction and operation of an infrastructure project with a long period of recoupment of the initial investments costs. That difficulty was highlighted once more in the judgment of the General Court of 19 September 2018, in case T‑68/15, HH Ferries et al v European Commission. The General Court annulled the Commission decision approving State aid for the Oresund Bridge linking Denmark and Sweden. The main issues of contention were the amount of State aid in the various state guarantees and the impact of the aid on competition (that judgment was reviewed here on 6 November 2018 http://stateaidhub.eu/blogs/stateaiduncovered/post/9349)

On 13 December 2018, for very similar reasons, the General Court, in its judgment in case T‑631/15, Stena Line v European Commission, annulled another Commission decision that had authorized aid for another large infrastructure project.1 It concerned Commission decision SA.39078 on the financing of the Fehmarn Belt fixed link between Denmark and Germany.

On the same day, the General Court delivered its judgment in case T‑630/15, Scandlines Danmark v European Commission, which also annulled Commission decision SA.39078. The text of the two judgments is almost identical, therefore, only the Stena Line case is reviewed here. 2

 

The project

Stena Line is a ferry operator. It provides services in different Member States including connections between Denmark and Germany.

Denmark is the owner of the fixed link of the project. The fixed link is an immersed tunnel approximately 19 kilometres long. The project consists of the fixed link and hinterland connections for road and rail in Denmark and Germany.

The Commission, by its decision N 157/2009 on the financing of the planning phase of the Fehmarn Belt fixed link, concluded, first, that the measures relating to the financing of the planning of the project were likely not to constitute State aid and, second, that those measures were in any event compatible with the internal market. It decided not to raise any objections.

The estimated cost of the entire project, in 2014 prices, was DKK 64.4 billion (about EUR 8.7 billion): DKK 54.9 billion for the planning and construction of the fixed link, and DKK 9.5 billion for the planning and construction of the upgrading of the hinterland connections.

Two public undertakings have been entrusted with the execution of the project. The first, Femern, established in 2005, is responsible for financing, construction and operation of the fixed link. The second, Femern Landanlæg, established in 2009, is responsible for the construction, operation and financing of the Danish hinterland connections.

Once the fixed link is operational, Femern will collect fees paid by users for using the link. The hinterland road infrastructure, which is public, will be made available free of charge to all users.

Femern and Femern Landanlæg have obtained loans to finance the project. In addition, Femern will receive the charges paid by users of the fixed link in order to discharge its debt and will pay dividends to Femern Landanlæg, which the latter will use to discharge its own debt. Femern Landanlæg will also receive 80% of the fees paid by the railway operators for use of the rail connections.

The Commission found in decision SA.39078 of July 2015 that the public support to Femern constituted compatible aid, while the public support to Femern Landanlæg was not State aid because there was no affectation of trade between Member States.

 

 

Alleged failure to provide adequate explanation

Stena Line put forward four pleas in support of its action for annulment of the Commission decision. One of the pleas was that the Commission failed to state adequate reasons for its approval of the aid.

The General Court dismissed that plea because it found that the Commission did explain why it had concluded that the aid was compatible with the internal market. The Court also made the following important observation. “(50) According to settled case-law, the obligation to state reasons is an essential procedural requirement, as distinct from the question whether the reasons given are correct, which goes to the substantive legality of the contested measure”.

In other words, although the Commission explained its reasoning, it does not necessarily follow that the reasoning was correct in law. Indeed, the Court returned to the Commission’s assessment of the compatibility of the aid later in the judgment when it examined the substance of the Stena Line’s arguments.

 

Affectation of trade

Stena Line claimed that the Commission made an error of fact and of law by concluding that the measures granted to Femern Landanlæg concerning the rail connections did not constitute State aid as they were not liable to distort competition or to affect trade between Member States.

The General Court, first, recalled the principles concerning the affectation of trade. “(59) The Commission is not required to establish that the aid will in fact have an impact on trade and that competition will actually be distorted and is required only to examine whether the aid is liable to affect such trade and distort competition […] In particular, according to case-law, the fact that an economic sector has been liberalised at EU level may serve to determine that the aid has a real or potential effect on competition and affects trade between Member States … Moreover, it is not necessary for the recipient undertaking itself to take part in intra-EU trade. Aid granted by a Member State to an undertaking may help to maintain or increase domestic activity, with the result that undertakings established in other Member States have less chance of penetrating the market of the Member State concerned”.

The Commission, in its decision, considered that there could be no distortion of competition, as the rail connections would be upgraded and operated by the national railway infrastructure manager – a legal monopoly – and no competition “on” or “for” the market for the operation and management of the national rail network was possible. The management and operation of the network were carried out on a national, geographically closed and separate market, which was not open to competition.

In this regard, Stena Line argued that the fixed link and rail connections constituted a single integrated project and, therefore, trade was affected by their combined operations.

The General Court rejected that argument. “(63) That claim is incorrect. It cannot be concluded that the measures granted to Femern Landanlæg in relation to the rail connections constitute State aid for the sole reason that they were adopted in connection with the same project which granted measures for Femern in relation to the fixed link, and that those measures were categorised as State aid by the Commission. Those are two separate aid measures which, admittedly, concern the same project, but they have a different purpose and different beneficiaries.”

Stena Line also argued that there was competition on the market for the operation and management of the Danish railway infrastructure.

The Court, first, noted that “(86) railway infrastructure is a natural monopoly and EU directives on the liberalisation of the railway sector have not required Member States to open up the management of that infrastructure to competition.”

The Court further noted that “(87) the fact that an undertaking that meets certain conditions can obtain a licence to manage railway infrastructure and that there are in fact companies in possession of licences to manage such infrastructure does not mean that there is competition ‘on’ or ‘for’ the market for the operation and management of the Danish national railway network, including the rail connections at issue in the present dispute. The fact that such companies may operate on sections of the railway network which form a kind of natural monopoly, separate from the national railway network, is not sufficient to show that the latter, which is managed by Banedanmark under a statutory monopoly, is open to competition. The same applies with regard to the rail connections, which involve the expansion and upgrading of the existing infrastructure held by Banedanmark and will be jointly owned by it and Femern Landanlæg”.

Moreover, “(101) the existence of companies that construct and maintain certain parts of the Danish railway network, including following a competitive tendering procedure, does not demonstrate that the activities of managing or operating the railway infrastructure, as referred to in the contested decision and performed by Femern Landanlæg, are open to competition.”

“(102) Therefore, irrespective of whether the activity of maintaining the railway network is technically part of the activity of operating the network, it is clear, first, that Femern Landanlæg does not directly perform that activity, or indeed that of constructing the network, and, second, that the references in the contested decision to the activities of managing and operating the railway network do not go so far as to include the exercise of the construction and maintenance activities described to above.”

The observations by the General Court are important. The fact that the entity which operates a legal monopoly does not itself perform all of the tasks or carry out all of the activities or provide all of the services that fall within the scope of that monopoly does not mean that the market is open to competition. Although the Court has not said so, I suppose the decisive elements are, first, that the responsible public authority confers the right to the monopoly without competition and, second, that it does not require the monopoly holder to assign any specific tasks through competition or open up parts of the monopoly to competition. The commercial discretion that may be exercised autonomously by the monopoly holder is a different issue.

The General Court also considered the potential effect on trade between Member States through other activities of Femern Landanlæg and concluded that “(104) it is the fact that there is no competition on the market for the management of the Danish railway infrastructure which prevents other companies established in other Member States from penetrating that market, so that the measures granted to Femern Landanlæg cannot affect the entry of non-Danish operators onto the Danish market.” Moreover, the relevant Danish law “(105) does not allow Femern Landanlæg to engage in activities other than those relating to the planning of the hinterland connections, […] (nor is it allowed) to engage in activities other than those relating to the construction and operation of the hinterland connections”. “(106) It follows that the applicant has not succeeded in showing that Femern Landanlæg was authorised to carry out activities other than those relating to the project and that it could therefore penetrate markets in other Member States.”

 

 

Failure to open the formal investigation procedure

Stena Line alleged that the Commission infringed its obligation to initiate the formal investigation procedure.

The General Court recalled that “(113) the procedure under Article 108(2) TFEU must be followed whenever the Commission encounters serious difficulties in determining whether aid is compatible with the internal market. It follows that the Commission, when taking a decision in favour of aid, may restrict itself to the preliminary examination under Article 108(3) TFEU only if it is able to satisfy itself after an initial examination that the aid is compatible with the internal market.” “(114) Although it has no discretion in relation to the decision to initiate the formal investigation procedure, where it finds that such difficulties exist, the Commission nevertheless enjoys a certain margin of discretion in identifying and evaluating the circumstances of the case in order to determine whether or not they present serious difficulties”.

“(115) The concept of serious difficulties is an objective one. The existence of such difficulties must be sought both in the circumstances in which the contested measure was adopted and in its content, in an objective manner, comparing the grounds of the decision with the information available to the Commission when it took a decision on the compatibility of the disputed aid with the internal market. … The applicant bears the burden of proving the existence of serious difficulties and may discharge that burden by reference to a body of consistent evidence, concerning, first, the circumstances and the length of the preliminary examination procedure and, second, the content of the contested decision”.

Given that the legal basis of the Commission’s approval of the aid was Article 107(3)(b) TFEU, the Court went on to examine whether the fixed link was an important project of common European interest (IPCEI).

 

The common European interest of the project

Stena Line raised two complaints: (i) a manifest error of assessment in calculating the socio-economic return of the project and (ii) misapplication of Article 107(3)(b) TFEU and of the IPCEI Communication.

With respect to the calculation of the socio-economic return of the project, the Court referred to the Commission decision according to which the common European interest of the project was assessed on four factors. First, the common European interest of the project had been recognised in the project planning decision. Second, the fixed link was a priority TEN-T project and contributed to improving the connection between the Nordic countries and central Europe. Third, the project would produce a positive economic return. Fourth, the project had obtained EU funding for the planning activities and that an application had been submitted for EU funding for the construction phase.

Of those four factors, only the second can be considered as an indicator of the European importance of the project. The first is a self-declaration of dubious objectivity, while the third and fourth can apply to any infrastructure project.

The Commission took into account that the project involved two Member States and believed that it would generate benefits that would go beyond those two Member States. A cost benefit analysis showed that the project would produce an economic return of 4.7% which the General Court interpreted to mean “an economic return at European level” (Paragraph 127 of the judgment) because paragraph 91 of the Commission decision stated that “the cost benefit analysis shows that the Project will have wide benefits for Europe. Despite significant investment costs, the Fixed Link will return a net benefit and produce an economic return of 4.7 per cent.” (emphasis added)

The Court considered the wording of paragraph 91 of the Commission decision “apparent” but it is not so obvious what the Commission actually meant. Did the Danish authorities calculate the return for the EU as a whole? Did the economic return of 4.7% also take into account social costs, externalities and the impact on other Member States? The wording of paragraph 91 of the Commission decision is too imprecise in this respect. From other parts of the decision, one can deduce that what is meant is that the fixed link will carry more traffic and that transport delays will be avoided. These are indeed beneficial for the users of the fixed link which surely include transport companies from other Member States.

In this connection, it should perhaps be noted that paragraph 17 of the Commission’s IPCEI communications states the following:

“The benefits of the project must not be limited to the undertakings or to the sector concerned but must be of wider relevance and application to the European economy or society through positive spillover effects (such as having systemic effects on multiple levels of the value chain, or up- or downstream markets, or having alternative uses in other sectors or modal shift) which are clearly defined in a concrete and identifiable manner.” But a positive economic return does not prove positive spillovers for the EU as a whole.

A few paragraphs further in its judgment, the Court pointed out that a study “(129) measures, in the interests of prudence, the impact of competition from ferries operating at reduced frequency. Under that scenario, the socio-economic return was estimated at 4.1%.”

I think there is little doubt that the fixed link would improve transport services significantly and that the likely harm, even if substantial, to ferry operators would be far outweighed by the benefits of the greater volume of uninterrupted services made possible by the fixed link. But still, there is no explanation either from the Court or the Commission how the economic rate of return relates to the concept of “important project of common European interest”. In fact, the Court rejected Stena Line’s argument about the robustness of the cost-benefit methodology and insisted that “(136) that argument does not alter the conclusion that the socio-economic return demonstrates that the project is of common European interest.” The demonstration claimed by the Court is not obvious at all, apart from the fact that the project generates net benefits.

 

 

The application of the IPCEI communication

Stena Line alleged that the Commission assessment was contrary to its own communication on IPCEI.

The Court recalled that “(141) the concept of common European interest inherent in Article 107(3)(b) TFEU must be interpreted strictly and that a project may be so classified only if it forms part of a transnational European programme jointly supported by a number of Member State governments or arises from concerted action by a number of Member States to combat a common threat (see judgment of 6 October 2009, Germany v Commission, T‑21/06, not published, EU:T:2009:387, paragraph 70 and the case-law cited).”

Then it referred again to the four factors that the Commission used to determine that the project as a IPCEI. The Court stressed the fact that the project was embedded in the TEN-T, was co-financed by the EU, generated benefits that would go beyond the two Member States directly concerned and that those benefits were clearly defined and quantified with economic return of 4.7%. The Court concluded that the project conformed with the factors laid down in the Commission’s IPCEI communication (Paragraphs 147-149)

With respect to the requirement for co-funding by the beneficiary itself, the Court stated that “(151) it is true that doubts may arise as to whether the condition laid down in paragraph 18 of the IPCEI Communication, namely that the project must involve co-financing by the beneficiary, […], is fulfilled. However, […], the project is funded in large part by the beneficiaries of the measures, on account of the fact that tolls and fees will be charged to users of the fixed link and rail connections, which satisfies that condition.”

 

The necessity of the aid

Stena Line alleged that the Commission erred in its assessment of the necessity of the aid as shown by the existence of an incentive effect and the project’s IRR.

The General Court examined the incentive effect of the aid by first referring to paragraph 26 of the IPCEI communication that stipulates that aid must not subsidise the costs that would be incurred anyway and must not compensate for normal business risks. An incentive effect exists when a project cannot be realized without the aid.

A fundamental principle of compatibility of aid is that it may be granted only before a project starts. Stena Line claimed that construction on the project had already started before the aid application or before the Danish authorities committed to grant aid.

The General Court noted that “(159) a certain number of preparatory works, […], were authorised by the project planning decision, and, […], the Danish authorities confirmed that the standstill obligation had been observed, …, as required by Article 108(3) TFEU.” “(160) Next, it is clear […] that Femern was established for the sole purpose of constructing and operating the fixed link. It is therefore required by its articles of association to do so.” “(161) Lastly, it is not disputed that Femern was not in a position to start work on the project unless it was granted the aid at issue.” “(162) In those circumstances, a prior aid application or a prior commitment on the part of the Danish authorities to grant aid are not prerequisites for demonstrating that the aid had an incentive effect for the purpose of paragraph 28 of the IPCEI Communication.”

The General Court also examined the counterfactual scenario by referring to paragraphs 29 and 30 of the IPCEI communication, which require Member States to submit information on what happens to the project without aid. In the absence of an alternative project, the aid may not exceed the minimum necessary for the project to be sufficiently profitable, as shown by an IRR that corresponds the sector or company benchmark rate.

In the contested Commission decision, the Commission accepted that there was no counterfactual or alternative project. It also accepted that the Fehmarn Belt fixed link project could only be realised with substantial public support either in the form of state guarantees or direct grants. That was sufficient proof for the General Court that Denmark had complied with the provisions of the IPCEI communication. The Court rather cleverly pointed out that Stena Line’s argument could succeed if it could show “(177) for example, that in the meantime a counterfactual scenario in which no aid was granted had become viable.”

Stena Line also criticised the lack of detail in the calculation of the IRR which, it claimed, was incorrect.

The General Court noted as preliminary point that “(180) the IPCEI Communication is not very precise with regard to the analysis of the criteria of the necessity and proportionality of aid. Paragraph 28 et seq. of the communication does not make a distinction between those two criteria, as the Commission acknowledges, and even confuses them.”

“(181) In particular, with regard to the calculation of the profitability of a project, paragraph 30 of the IPCEI Communication refers, inter alia, to ‘an IRR corresponding to the sector or firm specific benchmark or hurdle rate’ and states that, in order to calculate the IRR, ‘all relevant and expected costs and benefits must be considered over the lifetime of the project’. That would therefore suggest a condition which seems to be based primarily on the necessity of the aid, as, if the project is not profitable during its lifetime, the aid is necessary. However, the beginning of paragraph 30 of the IPCEI Communication requires the Commission to verify that ‘the aid amount does not exceed the minimum necessary for the aided project to be sufficiently profitable’, which seems to relate to the different, but complementary, condition that the aid must be proportional.”

I think here the General Court is too harsh on the Commission. It is well understood that the funding gap method can determine both the necessity and proportionality of aid.

The General Court went on in paragraphs 182-187 to fault the Commission’s calculation of the IRR of the project because it had considered the revenue and costs of the project over a period of 55 years, while the IPCEI communication states that the calculation must be made over the life of the project. The Court also criticized the fact that the calculated IRR concerned the fixed link while the Commission’s compatibility assessment covered the whole project, including the hinterland connections. But since the public funding for the hinterland connections was not State aid, the Commission did not have to examine the necessity of aid for those parts of the project. It is puzzling why the Court thought that the IRR calculation had to cover the whole project.

The Court concluded that “(188) while it cannot be ruled out that, in principle, aid was necessary for the realisation of such a large project, it must be nonetheless be found that the Commission’s examination of the necessity of the aid in the contested decision was, at the very least, insufficient and imprecise. This indicates that there were serious difficulties, which should have prompted the Commission to initiate the formal investigation procedure, and also means that it is not possible to examine whether the Commission made a manifest error of assessment.”

 

The proportionality of the aid

Stena Line alleged that the Commission’s analysis of the proportionality of aid was insufficient and incomplete.

The General Court, first, recalled that “(195) paragraph 28 of the IPCEI Communication states that aid will be deemed proportionate only if the same result cannot be achieved with less aid. Paragraph 31 of that communication indicates that the maximum aid level will be determined with regard to the identified funding gap in relation to the eligible costs, the funding gap being defined as ‘the difference between the positive and negative cash flows over the lifetime of the investment, discounted to their current value on the basis of an appropriate discount factor reflecting the rate of return necessary for the beneficiary to carry out the project notably in view of the risks involved’. Aid is therefore proportionate up to the amount at which the project becomes profitable.”

Then the Court made the following three observations:

First, “(196) with regard in particular to State aid in the form of a guarantee, footnote 27, in paragraph 36 of the IPCEI Communication, states that ‘aid in the form of guarantees must be limited in time, and aid in the form of loans must be subject to repayment periods’. Moreover, point (b) of the third subparagraph of Section 4.1 of the Guarantee Notice, concerning guarantees, states that guarantees must be, inter alia, ‘limited in time’ and that ‘unlimited’ guarantees are incompatible with Article 107 TFEU.”

Second, “(197) in the contested decision, the Commission stated that the aid intensity was below the funding gap of the project. In recital 107 of the decision, the Commission indicated that the funding gap was EUR 3.1 billion and that the net present value of the eligible investment costs was EUR 5.6 billion, giving a funding gap ratio for the project of 54.9%. In recital 108 of the decision, it stated that the aid granted to Femern was EUR 2.8 billion, which gives aid intensity of 50.8%.”

Third, “(198) in recital 109 of the contested decision, the Commission added that the State guarantee and State loans were limited in scope and time. According to the Commission, the guarantee covers only the debt relating to the planning, construction and operation of the fixed link until the debt is fully repaid and there is no risk that the guarantee may be used to subsidise other non-eligible costs and activities.”

On the basis of these three observations, the Court noted that “(201) the contested decision does not contain any precise indications concerning the duration and end dates of the State guarantees and loans.” “(203) The question therefore arises as to whether, in principle, the very long and imprecisely determined duration of the measures referred to in paragraph 198 above has a bearing on the proportionality of those measures. That question must be addressed in the light of the principles set out by the Commission in the IPCEI Communication and in the Guarantee Notice, which expressly provide that guarantees must be ‘limited in time’.”

“(204) In those circumstances, first, it should be noted that those guarantees are linked to an object that is specific but the precise cost of which has not been determined […] [T]he provision of those guarantees is, in principle, limited to a period of 55 years from the opening of the fixed link, … All guarantees still valid at that date will remain so until they ‘naturally’ expire, that is, until the underlying debts have been repaid, which may be long after that date.”

“(205) Accordingly, the fact that the object is only partially determined and the extremely long and indeterminate, or indeed unforeseeable, debt repayment period, which determines the duration of the guarantees, should have prompted the Commission to investigate more closely the proportionality of that aid measure.”

“(211) It is apparent from the contested decision that the measures at issue granted to Femern covered not only the debt connected to the planning and construction of the fixed link but also that relating to the operation of the link, until the debt has been repaid in full.”

“(212) It should be borne in mind in that regard that, as the aid at issue covers the operating costs of the fixed link, it cannot be ruled out that, to some extent, it may constitute operating aid, that is, aid which is intended to release an undertaking from costs which it would normally have had to bear in its day-to-day management or ordinary activities”. “(213) The aid should have expired at ‘the point in time when the beneficiary would be able, on the basis of its cash flow, to borrow on the open market without the support of State guarantees or State loans’. That point is normally reached when the amount of the beneficiary’s debt has reached a level at which its income is likely to exceed operating costs and debt repayments under normal market conditions, and therefore before the debt has been repaid in full. Aid in excess of that level may therefore be regarded as operating aid, for which the Commission has not provided any justification in the contested decision.”

In paragraph 213 of the judgment, the General Court appears to ignore the fact that aid is operating aid when it covers day-to-day expenses, regardless of whether it exceeds or not the difference between revenue and costs. In fact, it implicitly acknowledges this in the very next paragraph.

“(214) That possibility was not even taken into account by the Commission, as the contested decision makes no distinction, in the analysis of the compatibility of the aid, on the basis of whether it covers, on the one hand, the costs relating to the planning and construction of the fixed link, which may, in principle, be classified as investment costs and, on the other, the costs of operating the link, which may, by contrast, constitute operating aid.”

The General Court concluded that the Commission had encountered serious difficulties which should have prompted it to open the formal investigation procedure.

 

 

Undue distortion of competition and the balancing test

Stena Line contended that the Commission failed to examine whether the aid gave rise to undue distortion of competition.

The General Court recalled paragraphs 42-43 of the IPCEI communication according to which “in assessing the negative effects of the aid measure, the Commission will focus its analysis on the foreseeable impact the aid may have on competition between undertakings in the product markets concerned, including up- or downstream markets, and on the risk of overcapacity”. And “the Commission will assess the risk of market foreclosure and dominance, in particular in case of absence of, or limited dissemination, of the research results’ and that ‘projects involving the construction of an infrastructure must ensure open and non-discriminatory access to the infrastructure and non-discriminatory pricing”.

The General Court noted that the Commission in its decision emphasized the benefits to mobility from the fixed link. “(222) With regard to the negative effects, […] the Commission states that the opening of the fixed link will have ‘a negative impact on the ferry operators, […], and that the decline in the number of ferry operations ‘may also have a negative impact on the ports used by those ferries in terms of traffic volumes and revenues’. It adds that those effects ‘are inherent in the project, which seeks to offer a quicker and more convenient alternative to the ferry services’.” “(224) The Commission adds, […], that ‘the cost benefit analysis of the Fehmarn Belt Fixed Link project clearly shows that the expected socio-economic outcome of the Fehmarn Belt Fixed Link in the long run is positive, regardless of the fact whether the ferry service continues or is terminated’. It states that the study in question calculated, so far as possible, all possible gains and costs of the fixed link in comparison with a situation involving the continuation of the ferry services, and concluded that, despite the significant investment costs of the fixed link and the hinterland connections, the project will return a net benefit and produce an economic return of 4.7% for Europe (and an economic return of 5.3% for Denmark), a benefit consisting mainly in time saving and greater flexibility in departure times for the various users of the fixed link.”

The above analysis by the Commission led the General Court to find that “(227) the Commission’s conclusion in this respect is not vitiated by a manifest error of assessment. It is reasonable to conclude that a project involving the construction of infrastructure that will provide an alternative to existing modes of transport entails the risk that the latter will disappear and, as that project provides a solution which, on the whole, has positive results, it is not for the Commission to call into question the choice made by the public authorities.”

“(229) It follows, first, that the Commission did not make any manifest error of assessment in its examination of undue distortion of competition and of the balance test and, second, that that examination did not give rise to serious doubts which should have prompted it to initiate the formal investigation procedure.”

 

The conditions for the mobilization of state guarantees

Stena Line argued that the Commission made a manifest error of assessment with regard to the conditions for the mobilisation of state guarantees.

As a preliminary point, the General Court observed that in section 5.3 of the Guarantee Notice it is stated that “the Commission will accept guarantees only if their mobilisation is contractually linked to specific conditions … These conditions will have to be agreed between the parties when the guarantee is initially granted. In the event that a Member State wants to mobilise the guarantee under conditions other than those initially agreed to at the granting stage, then the Commission will regard the mobilisation of the guarantee as creating new aid which has to be notified under Article [108(3) TFEU].”

Then the Court recalled that the Commission decision “(237) while acknowledging that the conditions for the mobilisation of the guarantees at issue are not set out in the Construction Law itself, states that, […], those conditions were determined by the Minister for Finance before Femern and Femern Landanlæg obtained loans and other financial instruments and form part of the loan agreements which those companies concluded with financial institutions.” “(239) In that regard, it is nevertheless clear that the contested decision does not explain how the Danish Minister for Finance will impose those conditions.” “(241) In the light of Section 5.3 of the Guarantee Notice, it is clear that the Commission was not in a position to find that the guarantees at issue were compatible with the internal market without knowing the conditions for mobilisation attaching to the grant of the guarantees.” “(242) Accordingly, the Court finds that the Commission erred in law and made a manifest error of assessment.”

On the basis of all the above findings, the General Court concluded that “(250) the Commission (i) failed to have regard to its obligation to initiate the formal investigation procedure in so far as concerns the assessment of the necessity and proportionality of the aid and (ii) erred in law and made a manifest error of assessment in so far as concerns the examination of the conditions for the mobilisation of the State guarantees.”

Consequently, the General Court annulled Commission decision SA.39078 on the financing of the Fehmarn Belt fixed link project.

 

Conclusions

Some of the weakness of the contested decision, such as those concerning the calculation of the IRR, should be fairly easy for the Commission to fix. However, the multiple problems with the state guarantees cannot be easily resolved. They may have a significant impact on the project. At any rate, the lesson to be drawn must be that when a Member State grants a guarantee for an infrastructure project, it must define its duration, the amount it covers, the conditions for its mobilization and must avoid offering a guarantee that extends to the operation phase of the infrastructure. If the guarantee must extend to the operation phase, then, somehow, it must be limited and shown to be necessary for the completion of the investment phase, as was done in the case of Hinkley Point C nuclear reactor (see T‑356/15, Austria v European Commission, that was reviewed here on 19 September 2018 http://stateaidhub.eu/blogs/stateaiduncovered/post/9307).

 

 

-------------------------------------------------------------------------------

1 The full text of the judgment in case T-631/15 can be accessed at: http://curia.europa.eu/juris/document/document.jsf?text=&docid=209017&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1849617.

2 The full text of the judgment in case T-630/15 can be accessed here: http://curia.europa.eu/juris/document/document.jsf?text=&docid=209013&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=3136769.

 

 

 

Photo by Irina Blok on Unsplash



Comments


Click here to comment upon this article

State Aid Uncovered
Opinions by Phedon Nicolaides

Share this now

Follow by Email

About

Phedon Nicolaides

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

Search this Blog

Upcoming lexxion trainings with Phedon Nicolaides:

Inhouse Training on State Aid
Choose date & town

Recent Comments