In a new decision, the European Commission finds that the state aid for the Fehmarn Belt Fixed Link is compatible with the Internal Market. The decision was made after the General Court found - given the legal action brought by Scandlines and Stena Line - that the aid had to be subject to a formal investigation.
In 2015, the Commission approved the Danish state aid for the Fehmarn Belt Fixed Link project. At that time, the Commission assessed that it was not necessary to initiate a formal investigation of the aid as the project pursued important pan-European aims of connecting Europe.
The ferry operators Scandlines and Stena Line brought legal action against the Commission as they believed that illegal state aid was granted to the Fehmarn Belt fixed link.. On 13 December 2018, the General Court ruled in favour of the ferry operators’ claim that the Commission ought to have initiated a formal investigation of the Fehmarn Belt Fixed Link, and the Commission has therefore had to make a new assessment of the state aid for the tunnel.
The General Court did not rule in favour of the part of the ferry companies’ complaint that concerned aid for the extension of the road and railway network on the Danish side of the tunnel. That part has been appealed to the European Court of Justice.
Read more about the Court’s decision in 2018 here.
The Fehmarn tunnel is financed primarily through capital investments and state-guaranteed private loans. The financing is not on market terms. The Commission has now ruled that it is state aid which is compatible with the Internal Market.
State aid and exercise of public authority
In the case before the Commission, Denmark argued that the purpose of the link is to support cultural and economic collaboration in the EU and between Denmark and Germany. According to Denmark, Femern A/S' activities were therefore to be considered exercise of public authority which is not covered by the state aid rules.
The Commission disagreed stating that large construction projects are not exercise of public authority per se. However, the activities in the planning phase of the Fehmarn Belt Fixed Link were qualified as exercise of public authority already in the Commission’s assessment of the case in 2009. Such aid is therefore not state aid.
An economic activity in competition with ferries
The state aid rules only apply to entities carrying out an economic activity. This is the case when goods or services are offered for sale on a market.
The Commission assessed that there is a market for crossing the Fehmarn Belt. The tunnel will therefore compete directly with the existing ferries.
As the tunnel implies that a service is provided, the Commission concluded that the actual construction of the tunnel is also an economic activity; although the Fehmarn Belt Fixed Link will not provide services on a market until the tunnel is opened. This means that the construction of the tunnel is an economic activity which is covered by the state aid rules. A conclusion which is in accordance with EU case law.
A more thorough assessment of the compatibility of the aid
In the General Court’s decision stipulating that the Commission ought to have initiated a formal investigation of the aid, the General Court found that the Commission’s assessment was “inaccurate”, “imprecise” and even self-contradictory.
In the Commission’s new decision, the conclusions are based on a more in-depth investigation than in the decision from 2015. The Commission makes a formal investigation and assesses on that basis that the Fehmarn Belt Fixed Link receives state aid. Subsequently, the Commission assesses that the aid is compatible with the Internal Market under TFEU article 107(3)(b).
For example, the Commission has examined whether the objective of the project could be achieved by other means, e.g. with continued or extended ferry services.
The Commission makes a thorough assessment of whether the aid only covers the need for financing the link and therefore does not extend any further than necessary. The Commission also gives weight to the fact that aid was not granted to the actual operation of the Fehmarn Belt Fixed Link.
The Commission also assesses that the positive effects by way of contributions to pursue a common European interest exceed the negative effects of the aid by way of distortion of competition, including the impact on the ferry services and the nearby harbours.
Exercise of state guarantees
The Court also criticised the Commission for not having assessed the conditions as to when the state guarantees could be exercised because the decision from 2015 only emphasised that the guarantees complied with the general principles of the Danish contract and tort law.
In its new decision, the Commission explains when draws can be made on the guarantee under the Danish law of obligations, and the application now contains a number of additional requirements for a demand for payment under the guarantee. The Commission now finds that the requirements for payment comply with the requirements in the guarantee notice.
Read the Commission's decision here