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ANNEX D: SUMMARY OF DECISION OF EUROPEAN COURT OF JUSTICE IN THE ALTMARK CASE
1. It has been suggested that the decision of the Court of Justice in Altmark Trans GmbH and Nahverkehrsgesellschaft Altmark GmbH
12 (the Altmark case) removes the requirement for tendering the Clyde and Hebrides ferry services.
2. This case concerned the granting of licences by the regional council of Magdeburg, the capital of the German Land of Sachsen-Anhalt, to Altmark Trans to operate regular public bus services in the locality of Stendal which attracted subsidies from the council. A competitor complained that the relevant provisions of German domestic law concerning the grant of such licences had not been followed, as Altmark Trans, it alleged, would not be economically viable but for the subsidies. This was ultimately rejected by the Federal Administrative Court. That Court however had concerns about the compatibility of continued payment of the subsidies and accordingly referred the issue to the Court of Justice.
3. The question referred was in three parts, two of which were principally concerned with the relevant provisions of Regulation No. 1191/69
13 concerning the obligations inherent in the concept of a public service in transport by rail, road and inland waterway. The first part of the question however raised the issue of whether subsidies to compensate for deficits in local public transport were subject to the prohibition on aid now contained in Article 87 of the
EC Treaty.
4. The Court answered this issue by concentrating on whether the subsidy was capable of being regarded as an advantage conferred on the recipient undertaking.
14 In the relevant part of its judgement, the Court set out 4 criteria (often now referred to as the Altmark Criteria) as follows (paragraphs numbered as in the decision):
"87. It follows from those judgments that, where a State measure must be regarded as compensation for the services provided by the recipient undertakings in order to discharge public service obligations, so that those undertakings do not enjoy a real financial advantage and the measure thus does not have the effect of putting them in a more favourable competitive position than the undertakings competing with them, such a measure is not caught by Article [87](1) of the Treaty.
88. However, for such compensation to escape classification as State aid in a particular case, a number of conditions must be satisfied.
89. First, the recipient undertaking must actually have public service obligations to discharge, and the obligations must be clearly defined. In the main proceedings, the national court will therefore have to examine whether the public service obligations which were imposed on Altmark Trans are clear from the national legislation and/or the licences at issue in the main proceedings.
90. Second, the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner, to avoid it conferring an economic advantage which may favour the recipient undertaking over competing undertakings.
91. Payment by a Member State of compensation for the loss incurred by an undertaking without the parameters of such compensation having been established beforehand, where it turns out after the event that the operation of certain services in connection with the discharge of public service obligations was not economically viable, therefore constitutes a financial measure which falls within the concept of State aid within the meaning of Article [87](1) of the Treaty.
92. Third, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the discharge of public service obligations, taking into account the relevant receipts and a reasonable profit for discharging those obligations. Compliance with such a condition is essential to ensure that the recipient undertaking is not given any advantage which distorts or threatens to distort competition by strengthening that undertaking's competitive position.
93. Fourth, where the undertaking which is to discharge public service obligations, in a specific case, is not chosen pursuant to a public procurement procedure which would allow for the selection of the tenderer capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, well run and adequately provided with means of transport so as to be able to meet the necessary public service requirements, would have incurred in discharging those obligations, taking into account the relevant receipts and a reasonable profit for discharging the obligations.
94. It follows from the above considerations that, where public subsidies granted to undertakings expressly required to discharge public service obligations in order to compensate for the costs incurred in discharging those obligations comply with the conditions set out in paragraphs 89 to 93 above, such subsidies do not fall within Article [87](1) of the Treaty. Conversely, a State measure which does not comply with one or more of those conditions must be regarded as State aid within the meaning of that provision."
5. It has been suggested that Altmark relaxed the State aid rules. This, however, is not the view of many expert commentators.
6. Adinda Sinnaeve, an administrator in the European Commission's Competition Directorate, stated (Volume 2 No. 3 of European State Aid Quarterly) that "Although the Altmark judgement in principle maintains the compensation approach, the conditions it has added are such that many State measures granted to offset the cost of public service obligations will not qualify as compensation not caught by Article 87(1)
EC." In other words, things that before Altmark were not State aid (because they were not caught by Article 87(1)) were State aid after Altmark because they did not comply with all the conditions.
7. Andreas Bartosch, a lawyers with Haver & Mallander, Brussels, stated (Volume 2 No. 3 of European State Aid Quarterly) that when it comes to the fourth Altmark test (the efficient economic operator one) "it becomes apparent that the new material standard may well be harsher than the one applied under Article 86(2)"
i.e. imposing a higher standard than existed previously.
8. Bo Vesterdorf, the President of the European Court of First Instance, is on record (Proceedings of the 2nd Experts Forum in European State Aid Law, held in Brussels on 29 April 2004) as saying that,
"The result of the Altmark ruling is that for instance existing (unnotified) public service compensation which does not exceed the costs incurred by the public service operator in carrying out the public service may now be challenged as illegal State aid simply because the parameters on the basis of which it was granted were not established in advance, because the public service obligation was not "sufficiently clear" or because no public procurement was held. A particular peculiar consequence of the Altmark ruling would seem to be the fact that even State measures adopted after the Ferring ruling and which respect the Ferring test but do not comply with the new Altmark criteria now constitute State aid."
9. It should be noted that Ferring was the leading case on public service compensation pre-Altmark. Mr Vesterdorf's view is, therefore, that compensation that previously met the Ferring test might not now satisfy the Altmark criteria and would therefore be unlawful State aid.
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