Liberalization in the context of the EU Competition Policy

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1 Ministry of Trade,Tourism and Liberalization in the context of the EU Competition Policy mr. sc. Olgica Spevec, nk senior expert PLAC responcibility of of the PLAC Project and can in no way be taken to reflect the views of the EU

2 Content Treaty on the Functioning of the European Union (TFEU) and liberalization Services of general economic interest State aid for public companies in form of financial transfers Financial relations transparency between the Member States and public companies Sectorial liberalization-the main areas

3 TFEU and liberalization Term liberalization needs to be considered in the context of Art.3 of TFEU and according to provision that gives the Union sole juristiction in... the establishing of the competition rules necessary for the functioning of the internal market Article 106 TFEU- regulates the Union policy towards the undertakings entrusted with the operation of services of general economic interest Articles 258. i 345. of the TFEU

4 EU Competition Policy Antitrust and merger control Liberalization public undertakings with special and exclusive rights and commercial state monopolies State aid control

5 Control of the undertakings All agreements between undertakings, which have as their object or effect the prevention, restriction or distortion of competition within the internal market are prohibited cartels, limitations in the vertical agreements etc. (Atr.101 TFEU) Any abuse by one or more undertakings of a dominant position within the internal market is prohibited monopoly, predatory, etc. (Article 102. TFEU) A concentrations which would significantly impede effective competition and trade between the MS, in particular as a result of the creation or strengthening of a dominant position are prohibited (Council Regulation 139/2004) The EC and the competent authorities of the Member States are in charge of control

6 State aid control Article 107 (1) of the TFEU Ministry of Finance Save as otherwise provided in this Treaty, any aid granted by Member State or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member states, shall be incompatible with the common market. Control-ony by EC

7 Undertakings in the public sector and competition rules Competition rules apply to the undertakings in the public sector in the same way they apply to the undertakings in the private sector Article 106(1) TFEU There can not be unjustified discrimination between public and private sector in applying the competition rules (Article 345. TFEU) Issue of ownership should be neutral If public or private undertaking provides SGEI - exceptions from the competition rules are allowed under certain conditions-article 106(2) EC has the authority to set the rules for defining compatibility of the certain measures with the SA regulations - Article 106(3) UFEU.

8 Exceptions from the competition rules Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. Article 106(2) TFEU. Article 93. TFEU lex specialis because it lays down the provisions applicable on the public services in the land transport sector rail and road transport.

9 Conditions for the exceptions Derogation of the rules and regulations on SA in accordance with Article 06(2) TFEU allows the MSs to alone determine which services are considered to be services of general economic interest (SGEI), to determine a manner of providing those services and the procedure for choosing the provider EC controls manifest error. Never the less, those exemptions have to be strictly defined and implemented in accordance with the regulations brought by EC in accordance with the Article 106(3) TFEU

10 Is there a definition of the Service of the General Economic Interest? Definition of the SGEI is in the hands of the MS that have discretion rights for determining kind and scope of those services Never the less, European Court has defined basic criteria that those services need to have in order to justify the exceptions : - Meet the criteria of importance/ irreplaceability for the wellbeing of the citizens - They need to be opened/ available to all consumers - Certain standards in performing those services have to be guaranteed regarding the quality, price and frequency

11 Minimal criteria for SGEI Obligation for providing SGEI has to be clearly set/defined Act/Regulation by which Public body in charge accredits certain operator for performing certain service as the SGEI Reasons for which certain service is being concidered SGEI have to be justified- their universal nature and benefit for the citizens Compensating the operator providing that service can be granted based on the objective and transparent criteria

12 When does the compensation exclude SA? Compensation that SGEI provider receives does not include the SA if the following criteria are met (Altmark criteria): By a certain act/regulation the public body in charge clearly defines the SGEI and a certain operator is given the accreditation for performing that service Parameters for calculating the compensation for providing the service are pre-set in a transparent and objective way Compensation can not be higher than the expenses If the operator is not chosen on the public tender, the amount of the compensation has to be set as if the operator is the well handled undertaking (profitable)

13 State aid and SGEI If all above-mentioned criteria are met, the compensation for providing the SGEI is not concidered to be SA and is not the subject of the EC control. On the other hand, measure that does not meet ONE OR MORE criteria is concidered to be the SA according to the Article 107(1) TFEU Often, the last criteria is not met- Operator is not chosen on the public tender and it s management undertakes the well run undertaking test

14 EU regulations in the area of providing SGEI Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest (OJ C 8/2012); EC Regulation 60/2012 on implementation of the Articles 107. and 108. TFEU on de minimis aid that is granted to the undertakings for providing SGEI (OJ L 114/2012); EC decision from 20.December on implementation of the Article 106(2) TFEU on SA in form of compensation for providing the SGEI for certain undertakings entrusted with providing the SGEI (OJ L 7/2012); Communication from the Commission EU framework for SA in the form of compensation for providing the SGEI (2011) (OJ C 8/2012)

15 Transparency rule Efficient and just application of the competition rules, especially the SA, requires transparency in often very complex relations between the publicly owned undertakings and public bodies Furthermore, transparency is required in a case when some undertakings (public or private) are accredited with certain exclusive or special rights or providing the SGEI

16 Definitions: Public undertaking any undertaking in which the State has the major influence-directly or indirectly-trough ownership, financial influence or managing rights Special rights rights that are guaranteed by regulations or in some other way to a limited number of undertakings-to provide certain services or some other activity in a specific geographic area based on the criteria that do not guarantee objectivity, proportionality or non-discrimination; or certain undertakings are given the benefits that influence the possibility of other undertakings to provide same service or activity under the similar conditions Exclusive right reserved right that is legaly given to one undertaking for providing certain sevice or economic activity

17 Financial relations-public undertakings anf the State (public government) 1/2 Transparency purpose is to enable clear difference between the role of the State as the public government from its role as the owner. Transparency of the financial relations between public government bodies and public undertakings requires clear insight into: - Amount of public funds that are directly granted to the public undertakings by the public institutions - Amount of public funds that are insured via financial institutions or other mediators - Actual use of those public funds.

18 Financial relations-public undertakings anf the State (public government) 2/2 For transferring State funds to the public undertakings same SA rules apply as for private undertakings (in accordance with the principles of non-discrimination and neutrality Article 345. TFEU) SA is graded as a difference between conditions under which the State grants those funds to the public undertaking and the conditions that private investor would find acceptable for transferring his own funds to another undertaking-meip (market economy investor principle) If the State provides the funding to the public undertakings under the conditions not acceptable under MEIP, it is than considered to be the State aid and the SA rules apply.

19 Implementation of the transparency principles Transparency relates in paticular to the following aspects of the relation between the public government and the public undertakings : - Covering the losses from the current dealings - Ensuring the capital - Granting the non-refundable funds or credits under preferential conditions - Waiving the profits or profit returns - Waiving the returns on use of the public funds - Exemption from paying the fees for finantial obligations proscribed by the State

20 Measures for insuring the transparency In order to insure implementation of the transparency rules, public undertakings have keep separate accounts in practice in order to insure: - Separation of internal accounts for different activities - Correct distribution of all expenses and profits based on the principles of expense accounting that should be implemented consistently and objectively

21 Exceptions: Transparency principle is not applicable on financial relations between the public government bodies and: 1) Public undertakings that provide services that can not influence the trade between the MS in the significant measure 2) Central bank 3) Public creditors when the State deposits held under the market conditions are concerned 4) Public undertakings with total year turnover less than 40 million euro in the last two years Separate accounts do not have to be kept by: undertakings form points 1) and 2) and those that receive compensation for providing SGEI and are chosen based on the open, transparent and non-discriminatory procedures

22 Market liberalization: - telecommunications - energy - trade - postal services Sectoral liberalization Requires obeying the principles and rules on competition and SA, but is implemented in accordance with special EU Directives/Rules and is not the subject of negotiations in Ch.8 Competition Policy!

23 Conclusion: Important points - Ch8 Competition Policy: Insuring implementation of the competition policies (Articles 101., 102.,107. TFEU) for the public undertakings, including those entrusted with exclusive or special rights (Article 106 TFEU) Establishing the set of rules for SGEI in the case of granting the compensation for their providing Establishing rules on transparency between public bodies and public undertakings especially those that at the same time perform market and non-market activity, for which they are compensated by the State (post, public television, etc.) Implementing the rules on competition for sectorial liberalization and establishing permanent cooperation between sectorial regulators and line Ministries with bodies in charge for the protection of the competition and State aid control.