EC Law on State Aid and State Funding of Public Service Obligations

This thesis examines the question how the funding provided by public authorities to undertakings imposed with the obligation to discharge services of general economic interest as compensation for the services provided is to be treated under the EC State aid rules. The thesis in this respect both analyses the current legal framework governing such funding and evaluates different alternative solutions to the problem. The question is whether and under what conditions the compensation granted by States to providers of services of general economic interest is to be classified as State aid under EC law. Regardless of the answer there are important consequences. If a measure falls under the State aid rules it is subject to the prohibition of State aid, however with a possibility for the measure to be exempted by the Commission under certain conditions. Further, this measure is subject to the Commission's surveillance, including the obligations of prior notification and prior authorisation. Measures, which are not defined as State aid, fall entirely outside this control system. There are essentially two interests engaged in the question of how to treat funding of services of general economic interest under the State aid rules. On the one hand, there is the interest of the State aid rules to ensure undistorted competition. On the other hand, there is the interest of the Member States to ensure the undistorted availability of services of general economic interest. One approach, the State aid approach, on how to treat financing of public service obligations under the State aid law is to regard such funding as State aid, even where the funding does not exceed mere compensation for the services provided. The main critique against this solution is that it is a too wide interpretation of the prohibition of State aid, encompassing more measures than the wording of the State aid rules seems to allow and consequently imposing unjustifiably hard procedural obligations on public service providers. Another approach, the compensation approach, on how to treat financing of public service obligations is to regard mere compensations for the actual costs incurred in providing such services as falling outside the definition of State aid, thus being caught neither by the prohibition on State aid nor by the procedural requirements. This interpretation is too narrow, allowing public service providers to escape competition rules under less strict circumstances than the Treaty rules seem to allow, thus creating a risk that competition is unduly distorted. The ECJ has recently delivered two judgments ruling on the relationship between funding of public service obligations and EC State aid law. The approach adopted by the court in these two cases, the conditional compensation approach, regards mere compensations for public service obligations as falling outside the scope of State aid as the compensation approach. However, these rulings set out a number of conditions in addition to that the funding should only be a compensation for the actual costs incurred for providing the services. The approach assumed in these cases is a middle way&semic it increases protection of competition while at the same time taking into account the interest of Member States to ensure undistorted availability of services of general economic interest. This approach is, even if not entirely unproblematic, a step in the right direction