Case T‑364/20
Kingdom of Denmark
v
European Commission
Judgment of the General Court (Fifth Chamber, Extended Composition) of 28 February 2024
(State aid – Public financing of the Fehmarn Belt fixed rail-road link – Aid granted by Denmark to Femern – Decision declaring the aid compatible with the internal market – Action for annulment – Whether separable – Admissibility – Concept of ‘undertaking’ – Concept of ‘economic activity’ – Activities involving the construction and operation of a fixed rail-road link – Effect on trade between Member States and distortion of competition)
1. Action for annulment – Subject matter – Partial annulment – Condition – Separability of the contested provisions – Commission decision classifying a measure as State aid and declaring the aid compatible with the internal market – Separability of the classification of the measure as State aid
(Art. 263 TFEU)
(see paragraphs 34-37)
2. Competition – EU rules – Addressees – Undertakings – Concept – Exercise of an economic activity – Concept – Activities connected with the exercise of public powers – Excluded – Criteria for assessment – Activities linked with essential State functions by their nature, their aim and the applicable rules – Allocation of the burden of proof
(Art. 107(1) TFEU)
(see paragraphs 50-57, 95-103)
3. Competition – EU rules – Addressees – Undertakings – Concept – Exercise of an economic activity – Concept – Construction and operation of a fixed rail-road link by a public undertaking – No exercise of public powers – Included – Public undertaking placed under the close supervision of the public authorities and required to comply with certain public law obligations – Construction and operation of the fixed link with the object of implementing an international agreement – No liberalisation of the sector of activity concerned – Circumstances not permitting a finding of the exercise of public powers by the public undertaking
(Art. 107(1) TFEU)
(see paragraphs 75-86)
4. Competition – EU rules – Addressees – Undertakings – Concept – Exercise of an economic activity – Criteria for assessment – Entity offering goods or services on a market in competition with operators seeking to make a profit – Services provided for remuneration
(Art. 107(1) TFEU)
(see paragraphs 126-139, 145-153)
5. Competition – EU rules – Addressees – Undertakings – Concept – Exercise of an economic activity – No objective of maximising profits or obligation to reinvest profits – Activity supervised by the competent authorities – Irrelevant
(Art. 107(1) TFEU)
(see paragraphs 154-160)
6. Acts of the institutions – Statement of reasons – Obligation – Scope – Commission decision on State aid – Decision finding that the activities of construction and operation of a transport infrastructure are inseparable – Sufficient statement of reasons
(Arts 107(1) and 296 TFEU)
(see paragraphs 169-174)
7. Competition – EU rules – Addressees – Undertakings – Concept – Exercise of an economic activity – Concept – Construction of a fixed rail-road link by a public undertaking – Construction of the fixed link inseparably linked to its economic operation by the public undertaking on a market open to competition – Included – No economic operation by the public undertaking during the construction stage – Public undertaking enjoying exclusive rights for the construction and operation of the fixed link – Irrelevant
(Art. 107(1) TFEU)
(see paragraphs 185-202)
8. Aid granted by a Member State – Effect on trade between Member States – Adverse effect on competition – Criteria for assessment – Aid which may affect that trade and distort competition – Concept – Financing granted to a public undertaking for the construction and operation of a fixed rail-road link between Denmark and Germany – Included
(Art. 107(1) TFEU)
(see paragraphs 213-221)
Résumé
The General Court dismisses the action for partial annulment brought by the Kingdom of Denmark against the decision of the European Commission of 20 March 2020 (1) by which the Commission found that the support measures granted by Denmark to the public undertaking Femern A/S for the planning, construction and operation of a Fehmarn Belt fixed rail-road link between Denmark and Germany constitute State aid that is compatible with the internal market. In doing so, the Court clarifies aspects relating to the concept of ‘activity of an economic nature’ that is subject to EU competition law.
In 2008, Denmark and Germany signed a treaty regarding a Fehmarn Belt fixed link project consisting of, on the one hand, a railway and road tunnel under the Baltic Sea between Denmark and Germany (‘the Fixed Link’) and, on the other, road and rail hinterland connections in Denmark.
The Danish public undertaking Femern was entrusted with the financing, construction and operation of the Fixed Link. Having received capital injections, loans guaranteed by the State and loans granted by Denmark, Femern will receive fees from users as from when the Fixed Link is put into service, in order to repay its debt.
At the end of 2014, the Danish authorities notified the Commission of the financing model for the Fehmarn Belt Fixed Link project. Without initiating the formal investigation procedure, the Commission decided not to raise any objections to the notified measures. (2)
By judgments of 13 December 2018, (3) the Court partially annulled that decision. As regards the public financing granted to Femern, the Court held that the Commission had failed to fulfil its obligation under Article 108(3) TFEU to initiate the formal investigation procedure due to the existence of serious difficulties.
Having initiated the formal investigation procedure following those judgments, the Commission found, by its decision of 20 March 2020, that the measures consisting of capital injections and a combination of State loans and State guarantees granted to Femern for the planning, construction and operation of the Fixed Link constituted State aid that was compatible with the internal market on the basis of Article 107(3)(b) TFEU. (4)
Denmark brought an action before the Court, seeking annulment of that decision in so far as it classifies the public financing granted to Femern as State aid within the meaning of Article 107(1) TFEU.
Findings of the Court
In the first place, the Court rejects Denmark’s argument that the Commission erred in law in subjecting Femern’s activities to EU competition rules when its activities are connected with the exercise of public powers.
According to the case-law, public power activities or activities connected with the exercise of public powers are not economic in nature and do not justify the application of the competition rules laid down in the FEU Treaty.
In that regard, the Court begins by stating that the Commission did not err in law in considering, in the contested decision, that an entity exercises public powers when its activity is connected with the essential functions of the State by its nature, its aim and the rules to which it is subject.
Having made that clear, the Court observes that the information submitted to the Commission by the Danish authorities during the formal investigation procedure did not constitute factors which, taken individually or together, might lead to a finding that the construction and operation of the Fixed Link by Femern were connected with the exercise of public powers.
More particularly, the fact that Femern is placed under the close supervision of the public authorities and is required to comply with certain public law obligations applicable to public administrations is not sufficient to find that its activities are connected with the exercise of public powers. Furthermore, although the purpose of Femern’s activities is to implement an international agreement, the fact nonetheless remains that the Fehmarn Belt Treaty contains no provision to support the finding that, as such, the activities involving the construction and operation of the Fixed Link are connected with the exercise of such powers. In addition, the fact that a sector of activity has not been liberalised does not constitute conclusive evidence that, as a matter of principle, an activity is connected with the exercise of public powers.
Nor can the Commission be criticised for not having examined in detail whether the functions delegated to Femern as road authority and rail infrastructure manager and also for preparing the safety plans of the Fixed Link are connected with the exercise of public powers, since Denmark had not explicitly relied on that argument during the formal investigation procedure.
The Court rejects, in the second place, the various complaints alleging that the Commission made an error of assessment in finding that the operation of the Fixed Link constitutes an economic activity that is subject to EU competition law.
In accordance with settled case-law, for the purposes of the application of the provisions of EU competition law, any entity engaged in an economic activity consisting in offering goods or services on a given market is an undertaking. In order to determine whether an entity is engaged in an economic activity, the Commission must therefore establish that the entity offers goods or services on a market in competition with operators seeking to make a profit.
In the light of that case-law, the Court rejects, first of all, Denmark’s criticisms of the finding in the contested decision that the services that will be offered by Femern after the Fixed Link is put into service will be in direct competition with those offered by the private ferry operator which already operates, with the aim of making a profit, in the Fehmarn Belt. Although Femern and that private ferry operator offer services the characteristics of which differ in certain respects, they operate on the same market, namely the market for transport services for crossing the Fehmarn Belt, on which consumers will have the choice between the services offered by the ferry operator and those offered by Femern in the context of the operation of the Fixed Link. Furthermore, the Commission had also identified a market for transport services on other links which constitute an alternative for crossing the Fehmarn Belt.
Next, the Court observes that the Commission did not make an error of assessment in finding that the fact that users of the Fixed Link are required to pay is a relevant factor for the classification of the operation of that link as an economic activity. Where a Member State decides, as in this instance, to make access to an infrastructure conditional upon payment of a fee in order to generate revenues allocated, inter alia, to the repayment of the debt incurred in financing the planning and construction of that infrastructure, it must be considered that that infrastructure is the subject of an economic operation.
Lastly, the Court approves the Commission’s finding that the activity involving the construction of the Fixed Link is economic in nature on the ground that it is inseparably linked with the economic operation of that infrastructure.
In that regard, the Court observes that the commercial operation and the construction of transport infrastructures with a view to such commercial operation are capable of constituting economic activities. In that context, it has been held, (5) inter alia, that the Commission could properly conclude that it was not possible to separate the activity involving the operation of a commercial airport and the activity involving the construction of a new runway at that airport, since the airport fees are the major source of revenue for financing the new runway and the operation of that runway will form part of the economic activity of the airport. The principles established in those judgments cannot be limited solely to a situation involving the extension of a pre-existing transport infrastructure that is the subject of economic operation, but may also apply to the construction of a new infrastructure intended to be the subject of future economic operation, such as the infrastructure at issue in the present case.
As regards Denmark’s argument that, in essence, Femern would not be present on any market during the construction stage, the Court points out that the revenue from the operation of the Fixed Link will be used by Femern, inter alia, to repay the loans which it has taken out for the planning and construction of the Fixed Link. If the construction activity were considered to be separable from the operation of the Fixed Link and therefore non-economic, the preferential financing obtained for the construction of the Fixed Link could not be classified as State aid. It would follow that, at the stage of the operation of the Fixed Link, Femern would have the advantage of being able to operate a subsidised infrastructure, which would secure for it an economic advantage which it would not have obtained on normal market conditions. Thus, the Court concludes that the effectiveness of the State aid rules also precludes the activities involving the construction and operation of the Fixed Link from being separated on the ground that the Fixed Link will be put into service only when its construction has been completed.
Moreover, the fact that Danish law attributes the construction and operation of the Fixed Link solely to Femern also does not preclude those activities from being classified as economic activities, since the operation of the Fixed Link will consist in offering transport services on a market which is liberalised and open to competition. Were that not the case, it would be sufficient for a Member State to grant exclusive rights to an entity called upon to offer services on a liberalised market in order to circumvent the application of the competition rules.
Having regard to all of those considerations, the Court dismisses the action for partial annulment of the contested decision.