Understanding State Aid and Infrastructure Projects in the EU

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Analysis of the Market Investor Economy Principle, Treaty Rules on State Aid, State Aid Prohibition, and distinctions between aid, compensation, and investment in the context of EU regulations and enforcement mechanisms. Focus on criteria for compatibility, exemptions, and limits on aid in various infrastructure sectors.

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PEBA & UKSALA State aid and infrastructure projects Aidan Robertson QC Brick Court Chambers 30thJune 2015 brickcourt.co.uk +44 (0)20 7379 3550

The Market Investor Economy Principle in infrastructure cases brickcourt.co.uk +44 (0)20 7379 3550

The Treaty rules on State aid State aid rules Articles 107 & 108 TFEU (ex 87 & 88 EC, 92 & 93 EEC) Art 107(1) Save as otherwise provided in the Treaties, 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, in so far as it affects trade between Member States, be incompatible with the internal market. Article 107(2)/(3) aid which is/may be compatible Article 108 European Commission s powers of review brickcourt.co.uk +44 (0)20 7379 3550

State aid prohibition summarised aid in the sense of a benefit or advantage granted by the State or through State resources favours certain undertakings or the production of certain goods selectivity liable to distort competition liable to affect trade between EU Member States brickcourt.co.uk +44 (0)20 7379 3550

State aid prohibition summarised Notified to and approved by the Commission Exempt under Regulation 651/2014 General Block Exemption Regulation Art 16 urban development Art 26 research infrastructure Art 48 energy infrastructure Art 52 broadband infrastructure Art 55 sport/multifunctional recreational infrastructure Art 56 local infrastructure all subject to limits on proportion / amount of aid Enforcement by Commission and national courts under Article 108(3) TFEU brickcourt.co.uk +44 (0)20 7379 3550

Aid -v- compensation or investment The concept of aid embraces not only positive benefits, but also measures which, in various forms, mitigate the charges that are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect But not: Compensation for carrying out public service obligations, services of general economic interest SGEI Case C-280/00 Altmark [2003] ECR I-7747 Investments on terms that would be made by a market economy investor / operator i.e. the market economy investor / operator principle MEIP / MEO brickcourt.co.uk +44 (0)20 7379 3550

MEIP MEIP if the investment in infrastructure is under the same terms and conditions as would be acceptable to a private investor operating under normal market conditions Case T-565/08 Corsica Ferries [116] the conduct of private investor, with which the intervention of a public investor must be compared, need not necessarily be the conduct of an ordinary investor laying out capital with a view to realising a profit in the relatively short term A commercial investment in the short, medium or long term brickcourt.co.uk +44 (0)20 7379 3550

State aid in infrastructure projects Landmark case C-288/11 P Leipzig Halle Before Leipzig Halle, orthodox approach was that financing of infrastructure was in the public realm and outside the State aid prohibition European Commission Aviation Sector Communication OJ 1994 C 350/5 The construction or enlargement of infrastructure projects (such as airports, motorways, bridges, etc) represents a general measure of economic policy which cannot be controlled by the Commission under the Treaty rules on State aids. brickcourt.co.uk +44 (0)20 7379 3550

State aid in infrastructure projects After Leipzig Halle A transfer of state resources to any public sector organisation operating within a commercial market is subject to the State aid test. The construction of infrastructure with a view to its subsequent commercial use is an economic activity and potentially caught by the State aid prohibition E.g. Sports stadia see Anneli Howard s presentation brickcourt.co.uk +44 (0)20 7379 3550

Applying MEIP in infrastructure projects For the State body to assess but how to do so in practice? Draft Commission Notice on the notion of State aid IP/14/30 [79] The decisive element is whether the public authorities acted as a market economy operator would have done in a similar situation State body has a wide margin of judgement only aid if recipient would manifestly have been unable to obtain comparable private investment C-256/97 DM Transport [30] brickcourt.co.uk +44 (0)20 7379 3550

Applying MEIP in infrastructure projects Draft Commission Notice on the notion of State aid IP/14/30 [80] MEIP test to be applied leaving aside all social, regional policy and sectoral considerations which relate to a Member State s role as a public authority Public authority cannot take into account social costs such as redundancy payments and unemployment benefits: C-278/92 Spain [22] But private investors may also take social and regional policy considerations into account: C-303/88 Italy AG Van Gerven [14] brickcourt.co.uk +44 (0)20 7379 3550

Applying MEIP in infrastructure projects Joint letter from Directorate-Generals Competition and Regional and Urban Policy to Member States 2012 Ref. Ares(2012)934142 of 1.8.2012 General analytical grid No 1 private co-investors participate to a significant degree on pari passu T&Cs ex ante business plan Specific analytical grids No 2 airports, No 3 broadband No 4 cultural infrastructures No 5 ports No 6 RD&I No 7 water sector brickcourt.co.uk +44 (0)20 7379 3550

Applying MEIP in infrastructure projects Approach of the English courts R(Sky Blue Sports) v Coventry City Council [2014] EWHC 2089 (Admin), Hickinbottom J judicial review for failure to comply with Article 108(3) TFEU Council financial support for Ricoh Arena, Coventry Coventry City s home ground 2005-2013 in which Council had existing 50% share Comparison not with a new investor, but one with existing share [94] ... not all private market operators invest for speculative or short-term gain ... some ... are guided by a longer-term view of profitability [128] brickcourt.co.uk +44 (0)20 7379 3550