Public authorities will get clarity from new European Commission state aid guidance, says expert

The European Commission's new 'notion of aid' guidance document is part of a modernisation programme designed to "provide legal certainty and cut red tape for public authorities and companies", according to the Commission. In particular, the guidance is explicitly intended to "facilitate public investment" by providing guidance on how to use public funding in ways that do not distort competition, it said.

"Any guidance by the Commission on how it interprets the state aid rules is very valuable - for both public bodies, and aid recipients," said competition law expert Caroline Ramsay of Pinsent Masons, the law firm behind Out-Law.com. "This document will provide further clarity, and help parties to structure their transactions in a way that is state aid compliant."

The new guidance has been produced as part of, and forms the final part of, the Commission's state aid modernisation programme, which began in 2012. The Commission has already simplified its rules, guidance and complaint forms; and extended the scope of the General Block Exemption Regulation (GEDR) to allow more categories of transaction to proceed without prior scrutiny.

The European Commission is targeting at least €315 billion in public and private investment across the EU by 2017 as part of its Investment Plan for Europe. This will require considerable public investment, structured in a way that does not risk distorting the "level playing field" approach of the EU's single market or risk crowding out private investment, the Commission said.

EU state aid rules are intended to prevent the distortion of competition which occurs when national governments grant advantages or incentives to different businesses. To ensure fair competition within the EU, state aid is prohibited unless it can be justified for general economic development reasons. The guidance document contains general information on all aspects of the definition of state aid, making reference to relevant EU case law as well as the Commission's own decision-making processes; as well as specific guidance on a number of points relevant to public investment.

The guidance states that the purchase of goods and services by public authorities through tenders governed by the EU's public procurement rules is "in principle" free of state aid. Other types of public investment will generally not involve illegal state aid if they do not directly compete with other projects of the same kind, where a market price is paid and where there is little or no cross-border impact.

Roads, railway infrastructure, inland waterways and water supply and waste water projects do not generally compete with private projects, and so generally will not need to be cleared with the Commission, according to the guidance. However, investment in projects which typically would compete with privately-funded infrastructure generally would be subject to prior scrutiny by the Commission. Publicly-supported energy, broadband, airports or port projects could have "a selective economic advantage" prohibited by the rules where competing projects had to operate without such public support, the guidance said.

The guidance does, however, explicitly allow infrastructure to be built with public financing that involves state aid where that aid "is not passed on to the operator or users of this infrastructure". This would cover the scenario where public body contracted for the construction of new infrastructure through "a competitive, transparent, non-discriminatory and unconditional" tender process, according to the guidance.