C.1 State Aid issues can arise when the public sector confers a direct or indirect financial advantage on the JV. The key test is whether the recipient of the advantage is receiving a benefit which they would not have received in the normal course of business or on terms which would not be available in the market. The relevant article of the EC Treaty (article 87) can be broken down into four tests to establish whether State Aid rules apply. State Aid will only be present if all four tests are met:
● Is the financial advantage granted by the State or through State resources? This refers to the many direct and indirect ways in which State Aid may be granted. There must be a financial cost to the state for State Aid to be present, such as, for instance, the provision of loans on preferable terms (which are different to the private sector participant's loans) or sale of land at an undervalue.
● Does the measure favour certain undertakings or the production of certain goods? Only measures favouring certain recipients are the concern of the State Aid rules; general government measures such as economy-wide tax rates are not covered and benefits for individual citizens are not State Aid.
● Does the aid affect trade between Member States? This includes potential effects. Although in many cases JV companies may be planning activities in the UK only, if either/any of their parent companies are economically active or potentially active in other EU countries, the State Aid rules will normally apply. Alternatively if the activities of the JV are simply of a type which could be undertaken by entities in other states (e.g. the activities relate to products or services which are traded between Member States) any aid to the JV may be deemed to affect trade. This is even where the JV does not itself trade with other Member States. Very small amounts of aid have also been shown to affect trade.
● Does the measure distort or have the potential to distort competition? This is the crucial factor when determining the applicability of the State Aid rules. The test will be met where the aid potentially or actually strengthens the position of the recipient in relation to its competitors. Almost all selective aid will have the potential to distort competition - regardless of the scale of potential distortion or market share of the aid recipient. The test is therefore relatively easily met.
C.2 In the context of Public Private Partnerships, the last test, concerning the distortion of competition, could be important. Possible distortion of competition could occur at a number of different levels in a JV. A benefit may accrue to the private sector participant(s) in a JV entity deal, or as a cross-subsidy to the JV itself, or to the ultimate consumers. The JV proposition could, however, be framed in such a way as to minimise the potential for distortion of competition, in ways such as the following:
● Possible aid to private sector partner? This can often be addressed by a competitive and fully transparent selection process, with the private sector participant paying the appropriate premium for entering into the JV. However if bids are merely for the lowest subsidy needed to run a service aid could still arise. There will also be no State Aid if the "market economy investor principle" (MEIP) applies. Where there is both public and private investment in an enterprise, the MEIP test can be demonstrated where:
1 there is concomitance - i.e. the private investor invests on exactly the same terms and at the same time as the public investor; or
2 the respective public/private investments are on a pari passu basis - i.e. although the investments are not on identical terms they are made on the basis of equal risks and rewards.
● Possible aid to the JV? This can usually be addressed by fair and commercial pricing of all the asset(s) contributed by the public sector partner to the JV, also translating into a fair share allocation and fair dividend policies. Care must be taken with hidden assets, such as intellectual property rights, which may remain in the public sector but be used by the JV after its creation. Use of such assets must be on arms length terms and charged in full to the JV at commercial rates or made available to the JV's competitors on equal terms.
● Possible aid to ultimate consumers? This can be addressed by fair and commercial pricing of the good/service supplied by the JV.
C.3 Finally it should be considered if:
● Any de minimis exemption or block exemption85 (including the block exemption relating to aid for small or medium sized companies) applies; or
● The services provided are "services of general economic interest" or, "public services obligations" and the compensation or aid can be seen as provided only for the operation of public services facilities or services in the general economic interest. This can be a difficult test to satisfy.86
C.4 BIS produces thorough guidance on the State Aid rules, revised most recently in 2007.87
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85 Commission Regulation (EC) no 800/2008 of 6 august 2008.
86 See Altmark Trans GmGH case 280/00 2003 ECRI-7747 and related European Commission decision on exemption from notification for aid for certain SGEIs (2005/842/EC of 28 November 2005) and the related Commission Framework on SGEIs not falling within the decision (OJC 297 of 29 November 2005).
87 BIS State Aid Branch, email: bis.enquiries@berr.gsi.gov.uk or telephone 020 7215 5000.