The EFTA Surveillance Authority clears a PSO compensation in the maritime sector on the basis of the Altmark doctrine

Applying the Altmark doctrine to the case The Coastal Route Contracts Bergen-Kirkenes (Decision of 16 August 2018 no 072/18/COL) the EFTA Surveillance Authority (the ESA) has ruled out that a public service compensation paid by Norway for the provision of maritime links constituted State aid.

Following guidance given by the Authority in the previous Hurtigruten case (Decision no. 70/17/COL) the Norwegian contracting authorities divided the contract for the provision of the so-called Coastal Route links into three different packages with a 10-year entrustment period. The maritime links to be provided by the awardees was qualified as a public service obligation (PSO). And the compensation to be paid to the providers of these PSO was found by the ESA to meet all the four conditions for the application of the Altmark doctrine.

First Condition- Clearly defined PSO

In the ESA view, the PSO compensation granted to the awardees, Hurtigruten and Havila, constitutes compensation for clearly defined services of general economic interest (SGEI). Indeed, the contracting authorities clearly set out the various requirements to be met by the service providers, including the requirement for reserve capacity that was necessary and proportionate to a real public service need.

Second Condition- Prior determination of the parameters of the PSO compensation

The methods to calculate the PSO compensation were defined in a clear and transparent manner in the contracts concluded with Hurtigruten and Havila, which then met the Second Condition. In particular, the contracts distinguished costs related to the capacity and sailing pattern from the costs and revenues related to passengers, and costs and revenues related to cargo transport.

Third Condition- No overcompensation

The Norwegian contracting authorities have correctly calculated the PSO compensation by employing a cost and revenue methodology. Because Hurtigruten and Havila used their vessels also for commercial activities in addition to the PSO, the contracting authorities require them to keep separate accounts. In this way, it was possible to register the costs and revenues directly associated to the discharge of the PSO and assess them in transparent and objective manner. The ESA also held that the expected 9% return on capital agreed between the contracting authorities and the awardees was a reasonable profit on public service activities.

Fourth Condition- The public procurement process

In this case, the Norwegian authorities opted for a negotiated procedure to select the providers of the tendered out SGEI. The ESA stated that the contracting authorities shaped this negotiated procedure so that it had a competitive nature. The ESA praised the Norway authorities for splitting up the Coastal Route services in three smaller packages because this option opened up the market to more operators and perhaps attracted more than one bidder. All the bidders participated in a single procurement procedure and could make offers for one or more packages but they did not have access to information concerning competing bidders.

Though negotiated procedures imply a certain margin of discretion for contracting authorities in assessing the bids placed by tenderers, the ESA took the position that the procedure designed by the Norwegian authorities enabled them to select the operator capable of providing the service in question at the least cost to the community. All the selection and award criteria were set out in advance in the tender notice, greatly limiting the discretion of the Norwegian authorities. The compensation adjustment clause inserted in the contract entered into with Hurtigruten was within the scope of negotiations aimed at reducing the level of the PSO compensation. Moreover, the Norwegian authorities imposed strict conditions for the application of the clause.

In light of the above, the ESA found that the PSO compensation in question met the four-limb test for the application of the Altmark doctrine and, accordingly, did not confer an advantage on Hurtigruten and Havila. As a result, these national measures did not constitute State aid within the meaning of Article 61(1) of the EEA Agreement.

Final remarks

The ESA decision in The Coastal Route Contracts Bergen-Kirkenes case is worth reading for it ruled out that a PSO compensation constituted a State aid on the basis of the Altmark doctrine. Importantly, the national measures notified by Norway to the ESA met all the four conditions of the application of the doctrine, including the much controversial Fourth Condition. The Coastal Route Contracts Bergen-Kirkenes gives guidance on which steps national authorities. that opt for a negotiated procedure to select to whom entrust a public mission. have to take to comply with the Fourth Altmark Condition. The competitive tender procedure was preceded by a preliminary market consultation with potential suppliers to stimulate their interest in the competition that resulted in three participating in the ensuing tender process. The crucial factor in The Coastal Route Contracts Bergen-Kirkenes case was that the contracting authorities clearly set out in the tender notice the selection and award criteria limiting from the outset their discretion. In spite of the negotiations entailed by the tender procedure called for by the Norwegian authorities, they still select the awardee of the public service contracts at the least costs to the community.