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Services of general economic interest

European Procurement iStock 000011527633Small 146x219How can public bodies make use of the state aid exemption relating to services of general economic interest? Edward Reynolds explains.

Public bodies often wish to support third parties by providing grants, loans or other resources, such as staff time, to support service delivery. This can breach the State aid rules unless a relevant exemption can be identified. The European Commission's rules around services of general economic interest (SGEI) are commonly relied on as one such exemption. However, it can be tempting to use these without meeting their detailed requirements, and so create a risk of challenge that in many cases could have been avoided. This article explains the rules in broad terms.

SGEI are those that can be identified as being of particular importance to the public. They are typically delivered under public service obligations because the market does not provide them to the extent desired. For example, postal services (the UK postal service was recently the subject of a decision by the European Commission (see here)), and some healthcare services.

Member States have discretion as to which services they classify as SGEI.  However, the European Commission has established conditions that must be fulfilled for aid to fall within the scope of an SGEI, and it will not usually be acceptable to designate as SGEI those that are, or can be, provided under market conditions. [1]

Before the rules outlined in the next paragraph came into force, an SGEI had to meet the conditions in the Altmark [2] decision. Under this, support for an SGEI will not breach the rules where:

  1. there is an entrustment act;
  2. the parameters for establishing compensation must be established in advance, and in an objective and transparent manner;
  3. the amount of compensation must not exceed what is necessary to cover the costs incurred in discharging the public service obligation; and
  4. the compensation must either be:

(i) determined on the basis of a public procurement procedure to ensure that it is provided at the "least cost to the community"; or

(ii) determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with the means to meet the public service obligation, would have incurred, taking into account the relevant receipts and a reasonable profit.

These conditions were developed in the European Commission's 2012 SGEI rules, which clarified key concepts established by Altmark, and intended to provide a simpler mechanism for supporting public services even when the Altmark conditions could not be met. The rules comprise four parts:

  1. the Communication (see here);[3]
  2. the SGEI De Minimis Regulation (see here);[4]
  3. the SGEI Decision (see here);[5]
  4. the Framework (see here).[6]

The fourth Altmark limb was intended to avoid overcompensation, and was commonly found not to have been met on the basis that there had been neither a compliant procurement nor an analysis of the costs that a typical well run undertaking providing the services would incur. The SGEI Decision in effect simplified compliance with the fourth limb so that compensation is limited to what is necessary to cover the costs incurred in discharging the public service obligation, plus a reasonable profit. 

Typically, the most important aspect of applying the SGEI rules correctly is to put in place an act of entrustment between the funder and the recipient. This must meet the relevant requirements for the particular support being given, and will usually need detailed clauses setting out how the level of funding is calculated, and ensuring that it can be clawed back in the event of "overcompensation". It is not sufficient to decide that a service in the public good is desirable and then grant fund the provider without suitable terms that reflect the SGEI rules.

Conclusion

The SGEI rules are a useful way of complying with the State aid rules. However, they are technical and detailed, and it is important to ensure that they are complied with fully to avoid creating a risk of successful challenge. If you are considering funding an SGEI, or receiving funding as a provider, and would like to discuss anything in this article, please get in touch with a member of our State aid team.

Edward Reynolds is an Associate at Bevan Brittan. He can be contacted on 0370 194 3034 or This email address is being protected from spambots. You need JavaScript enabled to view it..

[1]              Paragraph 48 of the Communication.

[2]              Case C-280/00 Altmark Trans and Regierungspräsidium Magdeburg [2003] I-7747.

[3]              2012/C 8/02.

[4]              Commission Regulation (EU) No 360/2012 of 25 April 2012.

[5]              Commission Decision of 20 December 2011 (2012/21/EU).

[6]              2012/C 8/03.

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