Public Financing of Infrastructure

Although under the Treaty on the Functioning of the European Union, the European Commission has limited power regarding infrastructure policy, which remains a Member state competence, recent rulings of the ECJ  regarding ports and airports have allowed it to extend its role in this area by applying the State aid rules to infrastructure financing. In 2016 in its Notice on the Notion of aid, it set out its thinking with regard to various kinds of infrastructure, covering ports, airports broadband, energy, research, railway, roads, waterways and water supply.

Three potential types of State aid beneficiaries

State aid to infrastructure can be found to exist at three different levels. Aid can be provided for the building of infrastructure (including upgrading and improving), benefitting its developers or owners. When aid is provided for infrastructure operation, operators benefit. Finally, public financing can also confer a benefit on the end users, who use it.

Economic or non-economic activity?

According to the general principle developed through case law, aid granted for the building of infrastructure falls within the scope of the State aid rules if it is inextricably linked to an economic activity. However, the building of infrastructure is deemed a non-economic activity if it involves the exercise of public authority (e.g. military installations, customs, air traffic control) or if it is not intended to use the infrastructure to offer goods and services on a market (e.g. roads for free use).

Assessment criteria of State aid measures

Funding, which gives an advantage to an undertaking is considered as State aid if it is imputable to the State and financed through State resources. In addition, such advantage must be selective (not available to all) and have the potential to affect competition and trade between Member States.

Distortion of competition and effect on trade

State aid rules do not apply to situations where a predominantly local catchment area is concerned and it is demonstrated that the infrastructure in question has only marginal effects. This may be the case when the infrastructure has very few users located outside the Member State concerned or when cross-border investments in the relevant market are not possible or very small.

Private investor test

State aid rules do not apply if it can be proven that the State acted as a private investor in funding the development of infrastructure (i.e. a private sector investor would have acted in the same way). In this case, the criterion of "economic advantage" is not met and State aid rules do not apply.

Differentiation for mixed use

In the case of mixed use (economic and non-economic), it must be ensured, in particular by means of separate accounting, that the State funding for non-economic activities is not used to cross-subsidise the economic activity, unless the economic activity is of such small scope that it is considered to be a purely ancillary activity. The European Commission takes the view that an ancillary activity is presumed when both types of activities require the same factors of production (e.g. research institutions renting out their equipment on an occasional basis) or when they represent common ancillary services (e.g. restaurants, car parks). It is generally assumed that such additional services do not serve to attract customers from other Member States.

Developers or Owners as State aid beneficiaries

If the measure through which the State finances the developer or owner of the infrastructure is considered as State aid because it meets the criteria explained above (Article 107(1) TFEU), it is considered to be the beneficiary whether it uses the infrastructure itself or makes it available to third-party operators.

Infrastructure operators as State aid beneficiaries

Infrastructure operators are considered to benefit from a State aid measure if they – by using the infrastructure – obtain advantages, which they would not have obtained under 'normal market conditions'. The European Commission takes the view that the economic advantage can be ruled out if the concession to operate the infrastructure is awarded at an advantageous price following a competitive procurement procedure.

End-users of infrastructure as State aid beneficiaries

End-users are considered to benefit from public funding if either of the beneficiaries covered above receives State aid or owns State resources that confer an advantage on the end-user. This prerequisite is given if the end-user is an undertaking and that the infrastructure is not made available to him under market conditions. State aid is usually ruled out if the fees paid in exchange for using the infrastructure have been determined following a competitive procurement procedure.

Conclusion

Recent case law tends towards giving the Commission more powers in this area. European law has shifted from the position that the development and financing of infrastructure could be considered exclusively a Member State prerogative to one whereby funding entities need to be aware of the need to comply with State aid rules if an economic use of the infrastructure is to be expected. This now appears to be the case for most kinds of infrastructure with the exception of roads.