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JESSICA: using existing State aid provisions

Eglé Striungyté and Christian Harringa DG Competition, European Commission*

* DISCLAIMER: The views expressed are purely those of the presenters and may not in any circumstances be regarded as an official position of the European Commission

Seminar on JESSICA and State AidBrussels, 4 May 2011

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Overview• State aid presence and beneficiaries

• Compatibility rules:

– Regional Aid Guidelines

– Environmental Aid Guidelines

– Broadband Guidelines

– Risk Capital Guidelines

– SGEI rules

– GBER

• References

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Is State aid present? (1)• Cumulative Art 107 (1) TFEU conditions to establish State aid presence:

– Support in whatever form provided by the State or through State resources to…

– selected economic activities (offering of goods or services on a specific market) carried out by any entities (pubic or private) conferring…

– an economic advantage, i. e. investments not in line with the market economy investor principle (MEIP), which could…

– distort competition and affect trade.

• Verifying MEIP-compliance to establish State aid presence:

– Loans - interest rates in line with the Reference Rate Communication (OJ C 14, 19.1.2008);

– Guarantees - fees and conditions in line with the Guarantee Notice (OJ C 155, 20.6.2008);

– Equity/quasi-equity - public-private investments on a pari passu basis (the Risk Capital Guidelines, OJ C 194 18.008.2006);

– Services of General Economic Interest (SGEI) - see below.

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Is State aid present? (2)• De minimis aid (not qualifying as State aid):

– EUR 200,000 over any 3 fiscal year period (Regulation N. 1998/2006)

– Only transparent aid, i. e. a grant or a gross grant equivalent (GGE) of loans and guarantees (equity only if treated as a grant)

• Calculating a GGE of State aid (for de minimis and compatibility):

– Standard loans - the present value of the difference between the (market) interest rate (normally based on the Reference Rate Communication) and the interest rate actually charged;

– Guarantees - the present value of the difference between the (market) guarantee fee (normally based on the Guarantee Notice) and the guarantee fee actually charged;

– Equity/quasi-equity – considered not to be transparent aid and, therefore, normally the total investment amount is treated as a grant.

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Potential State aid beneficiaries

Project promoters (and other project investors) receiving sub-commercial equity, loans and guarantees

HF/UDF managers receiving higher than market remuneration for investment management services

Private investors in HF/UDFs receiving preferential treatment compared to public investment

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Justifying State aid

General Block Exemption

Standard assessment

Detailed assessment

GuidelinesDirectly

under TFEUArt 107.3 (c), (d)

Specific policy instruments: pre-defined market failures and limited distortions Detailed economic assessment: effect-

based balancing test

No prior notification Prior notification obligation, approval of the Commission

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Regional Aid Guidelines• Project types:

– Multi-sectoral investment projects (SMEs and large companies)

• Standard assessment principles (schemes):

– Projects must be undertaken in the assisted areas of Art. 107(3)(a) or(c) TFEU covered by the regional aid map (if areas below the NUTS III level with min. 20.000 population covered by the regional map, SMEs may receive investments below EUR 25 million);

– Investment into new assets (initial investment, not replacement investment) and must be maintained for at least 5 years after completion;

– Aid intensities (a percentage of discounted eligible costs) – up to 50% for large enterprises, up to 60% for medium-sized and up to 70% for small enterprises;

– The recipient must contribute at least 25 per cent of the total eligible costs that are free of State aid .

• Individual notification (projects):

– Large investment projects above EUR 50 million or exceeding the RAG thresholds.

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Environmental Aid Guidelines• Project types:

– Renewable energy, high efficiency cogeneration, energy saving, district heating installations (not heating infrastructure), waste management (treating waste generated by other polluters) and the remediation of contaminated sites (where the polluter is not known).

• Standard assessment principles (schemes): – Eligible costs – only extra investment costs linked to environmental protection (compared

to a reference conventional investment) net of operating costs and benefits (i. e. cost savings) arising during the first 3 to 5 years of the investment;

– Aid intensities may not exceed 60-80% for renewables, cogeneration and energy savings and 50-70% for waste management and district heating;

– For the remediation of contaminated sites, 100% aid intensity of the eligible costs (the costs of remediation, minus the increase value of the site).

• Individual notification (projects): – Aid to a project exceeding EUR 7.5 million.

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Broadband Guidelines• Project types:

– Basic broadband and next generation access (NGA) networks.• Necessity criteria:

– Areas with insufficient broadband coverage: “white” areas (simplified procedure) and “grey” areas (standard assessment), no credible private investment in the target area within 3 years.

• Core safeguards:– Detailed mapping and coverage analysis, public consultation with existing operators;– Open tender process selecting the most economically advantageous bid; – Technological neutrality not to favour any technology or service provider; – Use of existing infrastructure, wholesale access, benchmarking pricing, monitoring and

claw-back.• Additional safeguards (core safeguards plus for NGA networks):

– Access to passive (and not only active) infrastructure;– National Regulatory Authorities shall be consulted; – Network architecture should support effective and full unbundling and satisfy all

different types of network access.

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Risk Capital Guidelines• Risk Capital Guidelines (OJ C 194 18.08.2006, p. 2) foresee public/private

investments in the form of equity and quasi-equity combined with loans and guarantees.

• Preferential (non pari-passu) conditions for private co-investors can be compatible.

• Standard assessment principles (“Chapter 4”):

– EUR 2,5 million joint public/private investment tranches per target SME per year;

– Minimum private participation of 50/30 percent in non-assisted/assisted areas.

• In-depth assessment principles (“Chapter 5”):

– Higher investment tranches and lower private participation possible when sufficiently justified by specific proof of market failure.

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General Block Exemption Regulation• GBER (OJ L 214, 09.08.2008, p. 13): conditions for several aid measures

to be exempt from obligation to notify.• 26 different settings (e.g. regional aid, investment aid, environmental

aid or risk capital measures) for recipients, aid intensities and eligible costs.

• Aid has to meet transparency criterion in Article 5 GBER, i.e. primarily aid has to be comprised in grants, interest rate subsidies, certain kinds of loans, guarantees and capped fiscal measures.

• Equity/quasi-equity considered non-transparent, possible when total amount considered as grant.

• Investments into SMEs only when provided by a public/private fund with minimum 50% private participation (30% in assisted areas).

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SGEI (1): The „Altmark Conditions“ Under the following conditions, set by the Court (Judgment of 24 July 2003 Case C-280/00, European Court reports 2003 p. I-07747) , public compensation for the provision of SGEIS by an undertaking is free from State aid:

1. The undertaking actually has public service obligations to discharge and these obligations are clearly defined.

2. The parameters of the compensation are objective and established in advance.

3. The compensation does not exceed the costs of the SGEI plus a reasonable profit and may not be used on other markets open to competition.

4. The SGEI provider has been selected by a tendering procedure or

Compensation for provision of SGEI has been calculated on the basis of the costs of a typical undertaking that is well run and adequately equipped (Efficiency test).

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SGEI II: the 2005 compatible SGEI package

“Small” SGEI:Turnover max. EUR 100 million and compensation max. EUR 30 million p.a.

Social housing Hospitals “Small” public service operators:

air and maritime links

““Large” SGEI

COMMISSION DECISION

OJ 2005/L 312/67

FRAMEWORK

OJ 2005/C 297/04

EXEMPT FROMNOTIFICATION NOTIFICATION

TRANSPARENCY DIRECTIVE

OJ 2006/L 318/17

Separate accounts required for:

SGEI activities

and

Commercial activities

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Test Case(s): Refurbishing the EU Quarter in Model Town

In order to demonstrate options for urban develop-ment projects in line with State aid rules, we use the following test case(s) both in assisted and non assisted areas:

1. Construction of 200 apartments in a privately owned social housing project for EUR 50 million of which EUR 10 million are public grant funding.

2. Building of 4,000 square meters of privately owned office space for EUR 8 million, EUR 6 million of which are public subordinated loan to international development company (no SME).

3. Installation of solar panels on top of office buildings for EUR 800,000 by a private undertaking with EUR 200,000 grant funding.

4. Building a public park for EUR 3 million public expenditure.5. Integrating 1-4 in a single development project with EUR 61.8 million volume in a

public private partnership without public grants but with favorable investment conditions for the private investor.

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References • State aid Handbook:

– http://ec.europa.eu/competition/state_aid/legislation/compilation/state_aid_11_03_11_en.pdf

• State aid for urban development – the Urban Vademecum:– http://ec.europa.eu/competition/state_aid/studies_reports/vademecum.pdf

• Contacts:– Paolo Cesarini, Head of Unit, H2,

H - State aid: Cohesion, R&D&I and Enforcement, DG Competition,

Tel: +32 2 2951286, email: Paolo.Cesarini@ec.europa.eu