the leipzig-halle decision and its implications for publicly funded infrastructure projects lorraine...

The Leipzig-Halle decision and its implications for publicly funded

infrastructure projects

Lorraine Lee

Scottish Government

State Aid Unit

Overview

• Leipzig-Halle decision.• Analytical Grids.• Market Economy Investor Principle (MEIP).• EC communication on the setting of reference

and discount rates.• GBER article 55 – Aid for sport and

multifunctional recreational infrastructure.• GBER Article 56 – Investment aid for local

infrastructure.

Infrastructure

Overview of the Leipzig-Halle Decision

• Historically MS considered financing of infrastructure was out-with scope of state aid.

• Infrastructure was not regarded as an economic activity but a matter for regional and economic policy.

• Construction and future operation seen as tasks within public realm.

• Leipzig-Halle ruling made clear that interpretation no longer applied.

Overview of the Leipzig-Halle Decision• German authorities invested €350m at LH airport for the

construction of a new runway and gave exclusive use to DHL.

• Authorities notified to EC for legal certainty on basis of MEIP.

• EC and ECJ ruled that investment did not meet MEIP, that aid did exist but that it was compatible.

• Ruling confirmed that infrastructure constructed for later economic use is subject to state aid assessment.

• Also confirmed that some activity shall be considered typical tasks of the State acting as a public authority and compatible e.g. Safety, security.

Leipzig Halle ruling confirmed two legal principles;

1. That the State can be regarded as an ‘undertaking’ when it operates in a commercial market and/

2. Infrastructure constructed for later economic use

are subject to state aid rules.

Overview of the Leipzig-Halle Decision

Analytical Grids • DG Comp note to DG Regio on application of ruling and when

notification is required.

• Construction or operation of infrastructure cannot be disassociated when assessing the presence of state aid.

• Distinction made between activities that are typically reserved for the State (non-economic) and those that are not (economic).

• Not commercially exploitable – public roads/motorways, parks…• Airports - police, customs, air traffic control, security.• Ports - as above, breakwaters, locks, navigable channels, dredging.

Market Economy Investor Principle (MEIP)

• Investment by public authorities under the same terms and conditions that would be acceptable to a private investor operating under normal market conditions will be free from aid.

Can be met by;• significant private co-investment – proves its attractive

investment, shares risk, invests on same terms and conditions – pari passu.

• an ex-ante business plan – has to be robust, appropriate rate of return, factors in all potential future costs and revenues, supported by industry experts

• Requires separation of accounts

Market Economy Investor Principle Principle

Public investor Private investor

Enterprise

Not relevant:• Policy objectives• Employment• Training• Environment

Relevant • Profit• Risk-averse• Better than alternative• Return on investment

Leipzig-Halle MEIP case

Not relevant:• Regional development• Job creation• Accessibility of region• Noise reduction

Leipzig – Halle Airport

Private investorGerman AuthoritiesPublic shareholders

Relevant • Poor ex-ante business plan.• High risk • Low return on investment

EC Communication on the setting of reference and discount rates

• No aid if State offer market conform loans.• Establish a market rate. Investigate similar transactions.• If market rate found this is rate to be applied to avoid

presence of aid. • If no market equivalent available use the EC method

for setting the reference and discount rates.

1.9.2014 – UK – rate – 0.88%

Plus • Margins applied in principle depending on the rating of

the undertaking concerned and the collateral offered.

Private lender/creditor

High Normal Low

Strong (AAA-A) 60 75 100

Good (BBB) 75 100 220

Satisfactory (BB) 100 220 400

Weak (B) 220 400 650

Bad (CCC) 400 650 1,000

Commercial Loans

BBB rating and Normal collateral = Margin of 100.

EC reference rate = 0.88%

Proxy for market rate = 1.88%

Sub - Commercial LoansLoan of £300,000 Interest

Market/Proxy Rate - 4% = £12,000

Rate offered - 2% = £ 6,000

Difference/State aid = £ 6,000

Cover by De minimis

GBER Article 55 Aid for sport & multifunctional recreational

infrastructure• Sport and recreational facilities (leisure parks and hotels

excluded).• Access must be granted on a transparent

and non-discriminatory basis. • At least 20% use by other users at market rates.• Investment aid (for construction or upgrade of infrastructure).

The aid amount cannot exceed the difference between the eligible costs and the operating profit.

• Operating aid. To assist the provision of services. The amount cannot exceed the operating losses over the relevant period.

• Aid not exceeding €1m max aid can be set at 80%.

GBER Article 56 Investment aid for local infrastructures

• Infrastructure that contributes to improving business, consumer environment, modernising and developing the industrial basis at a local level.

• Excludes airport and port infrastructure.• Access to be on an open, transparent and non-discriminatory basis

at market rates. • Eligible costs are investment costs in tangible or intangible assets.• Aid amount - the difference between the eligible costs and the

operating profit of the investment. • German land redevelopment scheme – no aid. Re-notified scheme

following LH judgement. • The Commission found that the development of land by local

authorities is part of their public tasks and therefore outside the realm of EU state aid rules.

Publicly funded infrastructure projects levels of aid

AID

• APPROVED SCHEMES

• GBER

• FRAMEWORKS

• TREATY

• SGEI

• DE MINIMIS

NO AID

OWNERMEIP?

Non-economic?

OPERATORMEIP?

Non-economic?

END USERPays market

rates?

NO

NO

NO

YES

YES

YES

Summary• The future use of infrastructure determines the

presence of aid. • Clarity provided on activities regarded as within

public remit and those out-with. • Financing on MEIP is no aid,

– if business plan supports. – Use of reference and discount rates for loan finance.– Pari passu investment.

• Compatible aid using GBER articles 55 and 56. • Assess aid at level of owner, operator and end

user.

Thank you