Case 3 - A regional grant, a cut-price land lease and an exclusive freight terminal
Region R, whose GDP per head is 72% of the EU average, wants a logistics operator for its new freight hub. It grants LogiCo (i) EUR 4.5 million towards a EUR 12 million automated warehouse; (ii) a 30-year lease of publicly owned land at EUR 1 per m2 per year, while an independent valuer puts the market rent at EUR 45 per m2 per year; and (iii) an exclusive 15-year right to operate the region's only public freight terminal, with fees subject to approval by the region. LogiCo's customers are freight forwarders in two other Member States. The Commission opens the formal investigation procedure after a competitor's complaint; the money has already been paid and the warehouse is operating. R argues that the grant compensates LogiCo for a public service obligation to handle emergency flood supplies and that the terminal is a service of general economic interest. The region's regional aid map allows regional investment aid in R.
1. Analyse the EUR 4.5 million grant and the land lease under Article 107(1) TFEU, including the arguments based on public service compensation.
Read the worked answer
1. The four conditions. Article 107(1) requires an advantage granted by a Member State through State resources, to an undertaking, which is selective and distorts competition and affects trade between Member States. LogiCo is an undertaking, the region's budget is a State resource, and the aid is selective because it benefits one named operator rather than all undertakings in a comparable position. Trade is affected: LogiCo's clients are in two other Member States, and transport services are cross-border by nature. Market access of competitors is affected.
2. The grant. The EUR 4.5 million is a direct advantage of 37.5% of the eligible investment cost. Regional investment aid can be compatible under Article 107(3)(a) or (c), and may be block-exempt under Regulation 651/2014, Article 14 - but only if the aid intensity stays within the ceiling of the regional aid map, if the incentive effect is documented (the application must precede the start of works, Article 6), and if the large-investment-project notification thresholds are respected. Those checks cannot be skipped because the map 'allows' aid in R.
3. The lease. A market-economy operator would charge the market rent. The Commission's guidance on land sales and the 2016 Notice on the notion of aid require either an unconditional competitive tender or an independent valuation before negotiations. The valuation exists and shows a huge gap: EUR 1 instead of EUR 45 per m2, for 30 years. The advantage is the difference between the rent paid and the market rent, capitalised over the term, not merely one year's difference.
4. The Altmark defence. Public service compensation escapes Article 107(1) only if (a) the SGEI is clearly defined, (b) the parameters are objective and fixed in advance, (c) there is no overcompensation, and (d) the operator is chosen by public procurement or the compensation is benchmarked against an efficient operator's costs (C-280/00). A lump sum for a warehouse, with no separate accounting for flood handling, satisfies none of these. The region approving its own fees does not satisfy condition (d).
Conclusion: both measures are prima facie aid; compatibility would have required notification and authorisation, and the SGEI argument does not rescue the grant.
2. Is the 15-year exclusive terminal right a State aid problem, a competition problem, or both? How should Article 106 TFEU and Article 102 be applied?
Read the worked answer
1. Aid? An exclusive right does not, by itself, transfer State resources; it becomes aid only if it confers a measurable advantage on terms a private operator would not grant (for example, a guaranteed revenue or an unfunded compensation). Here the main problem is different: the State has created a legal monopoly.
2. Article 106(1) read with Article 102. Member States may not enact measures that create a situation in which a dominant undertaking is led to abuse its position. LogiCo is dominant on the only freight terminal in the region, and a 15-year exclusive right is a legal monopoly. The region must therefore ensure that the operator cannot discriminate between forwarders, refuse access without objective justification, or impose a margin squeeze on downstream hauliers. Approval of the fees is relevant, but it does not exclude other abuses: an approved tariff may still be excessive or discriminatory, and the region is both the grantor of the monopoly and the fee regulator.
3. Article 106(2) derogation. Exclusive rights may be justified where they are necessary to ensure a service of general economic interest and where the development of trade is not affected to an extent contrary to the Union's interest. The region must prove necessity and proportionality (why 15 years, why no tender, why the only terminal), and the measure must be subject to periodic review. Necessity is hard to establish where the objective could be met by a competitive concession with universal service obligations.
4. Procurement and transparency. Granting a 15-year exclusive right without a competitive, transparent and non-discriminatory procedure breaches the TFEU principles of equal treatment and transparency applicable to concessions, and, if the value exceeds the applicable threshold (currently around EUR 5.5 million), Directive 2014/23 requires a concession notice and a competitive procedure. The award itself may thus be annulled by the national court independently of State aid.
Conclusion: the exclusive right is primarily a competition and procurement issue, with an Article 106(1)/102 duty on the region; State aid analysis is secondary unless the right carries a disguised financial advantage.
3. What are the consequences of paying the aid before the Commission's decision, and what can a competitor obtain before the national court?
Read the worked answer
1. The standstill obligation. Article 108(3) TFEU requires notification and prohibits implementation before authorisation. Aid paid without authorisation is unlawful, even if it later turns out to be compatible (C-199/06, CELF). The Commission's formal investigation does not retroactively validate the payments.
2. Commission consequences. Under Regulation 2015/1589, Articles 16 and 17, the Commission will order recovery of the unlawful aid with interest, unless recovery is contrary to a general principle of Union law; the limitation period is ten years from the last grant. Recovery is not a penalty but restoration of the pre-aid situation; the beneficiary cannot plead legitimate expectations arising from unlawful conduct.
3. National court consequences. Article 108(3) has direct effect: the national court must protect competitors' rights and must draw all consequences of the breach (C-354/90, Fédération Nationale du Commerce Extérieur; C-39/94, SFEI). It must order recovery of the aid plus interest, even where the Commission has not yet decided, and it may not simply wait for a compatible decision: in CELF the Court held that the national court must order repayment unless there are exceptional circumstances, and a later compatibility decision does not validate the earlier period.
4. Damages and interim relief. Competitors may also claim damages for loss caused by the unlawful aid where national law provides a remedy for loss caused by a breach of Union law, subject to the equivalence and effectiveness principles. The national court can grant interim measures suspending performance of the grant or lease and can refer questions to the Court under Article 267 TFEU.
5. Selectivity of the lease. The lease is a continuing advantage; the national court should value the aid element over the whole term and order recovery proportionate to the benefit actually received. The region's assertion that the aid is compatible under the regional map is irrelevant until the Commission has authorised it.