Greater Scope for Public Services in EU Law?
Written by: Wolf Sauter
The Commission’s December 2014 TenderNed Decision on services of general interest
Wolf Sauter, the author of Public Service in EU Law, discusses the implications of the 2014 TenderNed Decision for the European Union.
The European Commission recently adopted a Decision that declared the public funding for an electronic public procurement platform in the Netherlands fell outside the EU State aid rules. This Decision clarifies and expands the concept of ‘services of general interest’ for the EU as a whole. This is exciting news for EU lawyers looking at public services and relevant to a broader audience of people who are interested in the role of EU law and its interaction with national powers. In this post I will first briefly get into the question what are services of general interest. Next I will discuss the content of the Commission’s Decision.
Services of general interest (SGI) and services of general interest (SGEI) are EU legal terms that broadly indicate what in everyday parlance would be called public services. Today these would in most EU Member States involve things like healthcare, education and social services. Formerly they might have included energy and telecommunications, now liberalised. Transport and postal services generally occupy a half-way house. Such services account for an important share of GDP, and more importantly these are the services that we take for granted are available universally on standard and often subsidized and/or price controlled terms. In the EU, Member States remain responsible for designating such services, but must do so within the confines of EU law. It is this relationship between national responsibilities and EU legal restrictions that concerns us here.
In this context the categories of SGI and SGEI are important. This is because their scope determines whether or not the competition and state aid rules of the Treaty on the functioning of the European Union (TFEU) apply to the entities involved at all (they don’t in the case of SGI), and to what extent they may apply subject to a proportional exception (for SGEI, insofar as necessary to perform their public service task). SGI are mentioned only in Protocol 26 of the TFEU, but not in a very specific manner – stating only that “the provisions of the Treaties do not affect in any way the competence of Member States to provide, commission and organise non-economic services of general interest”. SGEI are mentioned in Article 106(2) TFEU (as well more extensively as in Protocol 26) and are subject to relatively abundant case law and guidance by the Commission. In theory SGI are the overarching category of which SGEI are a subset, as is represented in the diagram below. The main distinguishing factor is that SGEI are economic and performed by undertakings while SGI are not.
Source COM(2011) 146, Reform of the EU State Aid Rules on Services of General Economic Interest)
The recent TenderNed Decision by the European Commission is remarkable not only because it concerns SGI at all – which is relatively rare – but also because of what it says about them. TenderNed, the contested service, provides a publicly funded e-procurement platform to public authorities which are subject to the EU procurement rules in the Netherlands. It does so in competition with a number of privately run platforms. The latter have filed a stat aid complaint with the European Commission against the Dutch government on the grounds that the public funding of TenderNed distorts competition and constitutes state aid. In the December 2014 TenderNed Decision the European Commission comprehensively rejected the complaint of the private e-procurement platform providers on the grounds that TenderNed performs an SGI and hence the state aid rules do not apply.
In the first place the Commission held that authorities subject to the EU public procurement rules are acting in their capacity as public authorites when complying with their public procurement obligations and “TenderNed should be considered, by extension, to act in a similar capacity where providing them with the means to ensure those obligations are complied with” (para 64). Hence TenderNed is not considered to be an undertaking. This reasoning is odd because it would also apply to the private e-procurement platform providers who likewise serve public authorities complying with their public procurement obligations. Surely they are still undertakings? Also, the existence of competitive provision in itself is normally a key indicator that activities are being carried out in a market, and by undertakings. As was stated above, undertakings are then subject o the competition and state aid rules, unless carrying out SGEI which is subject to a proportional exception. However in the absence of an undertaking, as is the case here in the world of SGI, we do not reach the SGEI stage and no proportionality test is applied.
Second the Commission’s TenderNed Decision states that the fact private operators have already taken the initiative to provide the relevant services does not mean the state foregoes the right to carry out an activity that it deems necessary to ensure that public bodies comply with their statutory obligations (para 68). This appears to be at odds with the Commission’s own guidance in its 2012 Communication on state aid and compensation for services of general economic interest:
“Generally speaking, the entrustment of a ‘particular public service task’ implies the supply of services which, if it were considering its own commercial interest, an undertaking would not assume or would not assume to the same extent or under the same conditions .” (para 47)
Clearly in the TenderNed context there are private providers who have done just that. Moreover in the same Communication the Commission states:
“The Commission thus considers that it would not be appropriate to attach specific public service obligations to an activity which is already provided or can be provided satisfactorily and under conditions, such as price, objective quality characteristics, continuity and access to the service, consistent with the public interest, as defined by the State, by undertakings operating under normal market conditions.” (para 48)
These relatively clear criteria were not applied here – thereby making it easier to let TenderNed off the hook on this count as well. However the approach taken in this case means it will be more difficult in future cases for the Commission to resist Member States’ claims that all types of entities are covered by the SGI exception. As a result the latter now appears more attractive than the SGEI route where the Commission has done the opposite and tried to tighten the rules on public compensation to undertakings.
Third and finally in the TenderNed Decision the earlier case law on the concepts of undertaking and economic activity is largely ignored: in fact the Commission states that the provision of public procurement platforms is not an “inherent” economic activity (para 68). This is deliberate obscurantism. Hence this Decision is not a much-needed clarification of the SGI concept. Instead, while ignoring the criteria that had been developed so far (albeit largely in the context of SGEI), it beacons a new escape route from the realm of the competition and state aid rules that due to the permissiveness shown here to public intervention risks becoming a four lane highway. That is neither in the interest of legal certainty nor in that of the internal market.