1. Lorraine Lee Scottish Government State Aid Unit
The Leipzig-Halle decision and its implications for publicly funded infrastructure projects
Lorraine Lee Scottish Government State Aid Unit

2. 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.

3. Infrastructure

4. 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.

5. 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.

6. Overview of the Leipzig-Halle Decision
Leipzig Halle ruling confirmed two legal principles;
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.

7. 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.

8. 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

9. Market Economy Investor Principle Principle
Public investor
Private investor
Relevant
Profit
Risk-averse
Better than alternative
Return on investment
Not relevant:
Policy objectives
Employment
Training
Environment
Enterprise

10. Leipzig-Halle MEIP case
German Authorities
Public shareholders
Private investor
Leipzig – Halle
Airport
Relevant
Poor ex-ante business plan.
High risk
Low return on investment
Not relevant:
Regional development
Job creation
Accessibility of region
Noise reduction

11. 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.
– UK – rate – 0.88%
Plus
Margins applied in principle depending on the rating of the undertaking concerned and the collateral offered.

12. Private lender/creditor
High
Normal
Low
Strong (AAA-A) 60 75
100
Good (BBB)
220
Satisfactory (BB)
400
Weak (B)
650
Bad (CCC)
1,000

13. Commercial Loans Sub - Commercial Loans
BBB rating and Normal collateral = Margin of 100.
EC reference rate = 0.88%
Proxy for market rate = 1.88%
Sub - Commercial Loans
Loan of £300, Interest
Market/Proxy Rate % = £12,000
Rate offered % = £ 6,000
Difference/State aid = £ 6,000
Cover by De minimis

14. 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%.

15. 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.

16. Publicly funded infrastructure projects levels of aid
NO AID
YES NO
AID
APPROVED SCHEMES
GBER
FRAMEWORKS
TREATY
SGEI
DE MINIMIS
OWNER
MEIP?
Non-economic?
OPERATOR
MEIP?
Non-economic?
YES NO
END USER
Pays market rates?
YES NO

17. 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.

18. Thank you