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- The judgment in Altmark Trans created a fairly transparent legal framework enabling a decentralised system for decisions at the national level concerning the financing of public services
- It also transferred the risks of the assessment under EU law of local public service compensation schemes to the national level
- The recent judgments of the General Court indicate that the local interpretation and application of the Altmark criteria must be carried out with great caution, and the local regulation of public service compensation schemes must pay attention to every relevant legal and economic detail
- The judgments also indicate that the discretion available to the Member States in organising, regulating and financing public services falls under substantive control by EU law, and it is fairly difficult to anticipate the appropriate interpretation of the Altmark criteria by the relevant EU bodies
- The judgments raise the question whether the opportunities offered by Altmark Trans for the benefit of the Member States could be meaningfully exploited by national actors
In 2003, the judgment of the Court of Justice in Case C-280/00 Altmark Trans heralded a new era under EU law for the financing of public services in the Member States. It distinguished between state aid and compensation paid for the delivery of services of general economic interest, clarified the circumstances in which the financing of public services would qualify as public service compensation and would be compatible with EU law, and it suggested a decentralised framework for the application of the new rules. By determining the criteria for public service compensation, the judgment has increased certainty in the interpretation and application of the relevant Treaty provisions. Also, by empowering actors at the national level to assess whether the financing of public services in the individual case meets the Altmark criteria, the judgment enabled decisions to be taken at the right time, in the right place and following the right considerations. Nevertheless, decentralization also meant the shifting of the risk of the incorrect interpretation and application of the law to Member State actors, the possibility for which is not negligible considering the range and nature of the criteria laid down in Altmark. In order to assist Member State actors in their decisions under Altmark, in 2012 the Commission adopted a package of measures expounding in detail when the financing of public services by the Member States are compatible with EU law.
The recent rulings of the General Court dealing with the state aid granted to Zweckverband Tierkörperbeseitigung (ZT) for the collection and disposal of dead animals show, however, that the changes introduced in Altmark may not be optimal, certainly, from the perspective of actors at the national level. According to Germany and ZT, they proceeded in compliance with EU law when they determined the financing of ZT. ZT, the holder of an exclusive right to carry out these operations, was subjected to a public service obligation to ensure that dead animals are collected and disposed of adequately even in case of an epidemic, and its financing coming from state resources was designed to cover the costs of the public service obligation. In the Commission’s view, the financing of ZT constituted incompatible state aid mainly because discharging the public service obligation did not incur any extra costs for ZT which had sufficient spare capacity to manage all eventualities, some of its costs were covered by the polluters under the ‘polluter pays’ principle, and some of its public service compensation went towards its normal operating costs.
The judgments confirmed that the Member States enjoy a broad discretion in organising, regulating and financing public services, and that EU law will only interfere with the basic policy choices of the Member States in case of a manifest error of assessment. They, however, also maintained that Member State discretion is not immune from control by EU law, and that any exemption from the application of EU competition and state aid law, and from the law of the Single Market must be justified by the special characteristics of services of general economic interests. With this in mind, the General Court examined whether the German scheme in question, which was allegedly put into place to finance public service obligations, met the Altmark criteria.
- Firstly, the General Court held that because the disposal of dead animals is an intrinsic part of the economic activities of farmers and slaughterhouses, for which under the ‘polluter pays’ principle farmers have been paying, the service imposed on ZT cannot be classified as a service of general economic interest. This finding was not affected by the fact that ZT was required to maintain sufficient spare capacities in case of an outbreak of an epidemic. The claim by ZT that its activities constituted an exercise of public powers (because they were compulsory, they relied on the use of public powers to have them organised, and there was no market) was rejected by the General Court on the grounds that a) the actual performance of the service by economic operators was not compulsory, only the decision was compulsory that these services must be made available; b) there was no direct application of public powers in the delivery of the services in question, and although the services concerned matters of public policy they were essentially of economic nature; and c) the activities constituted economic activities through the offer of goods and services in the market, and in this regard the form, the legal status, the links with government and administration of the operator in question, and the actual presence of competitors in the market segment were found irrelevant. The General Court focused on the overall activity carried out by ZT, and it found that all of its activities – including the maintenance of reserve capacities – were linked in one way or another to an activity of economic nature.
- Secondly, the General Court decided that the parameters of the public service compensation were not established in advance in an objective and transparent manner as the relevant German measure merely ordered that payments must be available for ZT to cover any future shortfalls of revenue. The General Court also emphasised that while the Member States enjoy a broad margin of discretion in determining the circumstances of public service compensation in complex economic circumstances, their discretion needs to be confined by EU law in order to avoid the Member States abusing the concept of services of general economic interest to relieve themselves of their Treaty obligations.
- Thirdly, the General Court held that the compensation provided to ZT exceeded the net extra costs of the public service obligation as it covered costs that would have been incurred in the normal course of ZT’s operations. This followed from the fact that ZT did not have to maintain extra capacities beyond its existing capacities for the purpose of dealing with an epidemic mainly because it could use the capacities available outside its normal operating hours. Thus, it seems that the Member State offering compensation for costs which are unnecessary for the delivery of the public service obligation falls under the review powers of the EU institutions, and the Member States need to take extra care when they justify the covering of costs incurred by economic operators from public monies.
- Fourthly, the General Court accepted that ZT’s operation can be compared with the operation of other similar companies in Germany, and that on this basis it cannot be considered as a typical well-run and adequately equipped undertaking. It suggested that the relative high costs of ZT’s operation would not have occurred in other companies entrusted with a public service obligation. Although the General Court emphasised that the application of the Altmark criteria must be flexible and take into account sectoral specificities, in particular, the specificities of discharging public service obligations in individual sectors, it never explained how this has affected its and the Commission’s assessment (and would have affected the local assessment) of the public service compensation provided to ZT.
The General Court also rejected that the financing of ZT could be exempted under Article 106(2) TFEU as ZT was not entrusted with a public service obligation, and that even in case ZT’s services could be classified as services of general economic interest, its financing cannot be declared as compatible with the Single Market as it failed to meet the conditions of the 2012 Commission package.
The judgments show that the opportunity made available in Altmark Trans must be used by actors at the national level with caution. Although the financing arrangements of ZT were not particularly prudent, it was difficult to anticipate that both the Commission and the General Court would find that the collection and disposal of animal carcasses and maintaining capacities for that purpose were not a public service task, that they would disagree with the national assessment of what constitutes adequate capacity in this segment of the market, and that ZT’s level of financing would not be assessed on its own merits taking into account the specificities of this activity in the given geographical area. The judgments are likely to lead the Member States to reconsider their ability to assess within the bounds of the discretion available to them what constitutes a public service obligation and what public involvement is necessary for the sufficient fulfilment of that obligation. With these uncertainties, the local, decentralised interpretation and application of the Altmark criteria remain highly risky, and local actors may find it less damaging to assume that the public service compensation they aim to provide qualifies as state aid and to proceed accordingly.
The judgments also tighten the grip of EU law further on national choices concerning the organisation, regulation and financing of local public services. Not only will the assessment by national actors of what (economic) activities constitute public services fall under the review power of EU institutions, but they also need to justify the strict necessity of their decisions from the perspective of the public service obligation imposed on economic operators. Actors at the national level must be able to establish – even in a comparative dimension – that the given activity could not have been performed under normal market conditions on the basis of accurate and sufficient information of the relevant market. They will also need to ensure that the public service activity can in no way be associated with an activity of economic nature carried out by the organisation in question. The interpretation of the fourth Altmark criteria by the General Court, which seems particularly difficult to comply with, makes it highly questionable whether national actors can refuse to procure services from the market and insist on a public sector delivery of public services. As Sanchez-Graells noted, it is constitutionally extremely contentious whether EU law is entitled to force the Member States through general principles of law to abandon national models of public service delivery. The usual local reflexes – following which may find support in the principle of subsidiarity and in the EU recognizing the diversity of national public service traditions – are likely to lead to unlawful choices, and local actors must pay attention to every legal and economic detail when they set up a scheme for compensating the provision of public services.
The General Court’s judgments are now under appeal before the Court of Justice as Cases C-446/14 P and C-447/14 P. The submissions put forward in appeal argue that a) the provision of the epidemic reserve capacity is not an economic activity which classifies the appellant as a whole as an undertaking, but it falls within the exercise of public powers, b) the judgment erred when determining that ZT did not incur any net costs for the provision of the public service obligation, c) the provision of an epidemic reserve capacity, including its organization and financing by the appellant, constitutes a service of general economic interest.
The views expressed above belong to the author and do not in any way represent the views of the HAS Centre for Social Sciences.