The European Court of Justice rules that financial support which only represents compensation for public service obligations imposed by authorities does not have the status of State aid

The European Court of Justice released on 24th July its long awaited judgement in the Magdeburg-Altmark case, which refers to the legal nature of financial compensations granted by public authorities to companies in the transport sector.

The Court ruled that there is no advantage, and therefore no State aid, where a financial measure must be regarded as compensation for the services provided by the recipient undertakings in order to fulfil public service obligations. However, for such compensations to escape classification as State aid, four conditions must be satisfied.

Firstly, the recipient company must actually have public service obligations to fulfil and those obligations must be clearly defined.

Secondly, the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner.

Third, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in the fulfillment of the public service obligations, taking into account the relevant receipts and a reasonable profit.

Fourth, where the undertaking is not chosen in a public procurement procedure, the level of compensation must be determined by a comparison with an analysis of the costs which a typical transport company would incur (taking into account the receipts and a reasonable profit).

The European Commission thinks that the judgement does not remove all legal uncertainties, and that there is therefore still a need for new regulation on public service requirements and public service contratcs, which has been on the table of the Council of Ministers of transport for more than a year.

  • Updated : September 16, 2003

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