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The Commission’s Kristall Bäder decision concerns funds granted for a swimming pool complex as State aid. It is an example for the intricacies of the market economy operator (MEOP) test, the possibilities to compensate services of general economic interest (SGEI) and a chance to ponder what might ultimately make the difference to the locally isolated Swimming Pool Dorsten case [press release].
The aid measure
In 2011, the European Commission received a confidential complaint regarding a non-notified aid measure that had been granted for investments into the modernization, extension and upgrading of a swimming pool by spa and wellness facilities in the German state Bavaria. In September 2014, the Commission declared the measure illegal aid but compatible with the internal market.
The project at stake was the public swimming pool run by a Bavarian municipality. The municipality outsourced the construction and future operation of new pool and wellness facilities by granting a private operator a concession for these services after conducting a procurement procedure. Under the concession contract, the municipality on the one hand had to pay the investment costs of approx. EUR 12 million. To that end, the municipality received an investment grant of EUR 2.4 million from the State Bavaria. The private operator on the other hand had to inter alia plan and build the new complex, exploit it for 25 years, pay an up-front fee for 25 years of approx. EUR 6 million, maintain and modernize the facilities regularly, keep entrance fees to swimming pools (but not spa and sauna) to acceptable prices and offer reduced prices for certain social groups and associations (Red Cross, rescue and first aid squad’s exercises) and free entrance for local schools and kindergartens. For the latter offer, the municipality promised to pay an annual compensation to the operator.
In the years preceding the measure, the pool had incurred losses of approx. EUR 1 million annually. However, the cost of closing down the establishment – for which the dismantling, early repayment of debts and compensation payments to 33 employees had to be taken into account – had been estimated at approx. EUR 6.5 million. The costs and potential gains of the investment had been assessed in the light of the costs of continuation or closing down and the municipality decided to invest.
The Commission’s assessment
Existence of aid
The Commission assessed first, whether the measures constituted State aid under Article 107(1) TFEU, i.e. a State-granted selective advantage to an undertaking with cross border distortive effect.
Both the municipality and the State Bavaria are public sources, so that the financing was imputable to a state. Referencing to the General Court’s Leipzig-Halle judgment, the Commission linked the managing and operating of infrastructure to its construction and development and found that the offered services were part of the spa and wellness tourism market and constituted economic activities; thus, the respective beneficiaries (municipality and private operator) were considered selectively benefitting undertakings to the extent they manage and operate, construct and develop the infrastructure.
The Commission rejected the argument of Germany that the municipality acted like a MEOP by deciding in favour of (i) investing into the pool instead of (ii) closure or (iii) unchanged continuation of the swimming pool: As the State Bavaria participated in the public funding and an advantage was conferred on the operator of the new complex, the actions were not those of a private economy operator. The Commission added, in essence, that the costs for investing into modernization and extension exceeded the costs of dismantling the pool complex and the concession fee paid to the municipality by the operator did not exceed the resulting difference.
The obligations connected to the offering of swimming pool capacities to the public was considered not to fulfill the criteria allowing for SGEI to be compensated without a finding of aid under Article 107(1) TFEU: The compensation exceeded what was necessary to cover the costs incurred in the discharge of public service obligations and the facilities were not for use of SGEI customers only.
The Commission observed a potential distortive effect on competition as the facilities at stake were located near the Austrian border.
Compatibility of the aid
Nevertheless, the Commission found that the aid measure was compatible with the internal market under the General Block Exemption Regulation (GBER) implementing the TFEU provisions on compatibility (Article 107(3) TFEU) in detail. The GBER applies to investment aid for sports and multifunctional infrastructures because the aid amount does not exceed EUR 15 million and the total costs of the project did not exceed EUR 50 million (specific applicability threshold).
General GBER conditions are in particular:
The Commission performed a detailed economic assessment to determine whether the project at hand would have been financed at the same conditions by a market economy operator. It ignored the division between aid granted by Bavaria and aid granted by the municipality – this is in line with the Commission considering multi-layered public structures as parts of one overall Member State and with the effects-based approach of Competition law practice. Specific provisions for sports infrastructure were taken into account.
Finally, the case reminds of the Swimming Pool Dorsten case which is often cited as an example of aid without cross-border effect. The investment in the Dorsten case was rather similar to the one at hand. One difference was an expert opinion stating that the Dorsten pool attracted almost exclusively customers from a 50 kilometers radius around the facility, which limited its customers to those from Germany. Thus, the cross-border criterion of Article 107(1) TFEU did not apply. The Dorsten pool facility “is by no means unique” in the region, the Commission stated. The Kristall swimming pool is only approx. 30 kilometers from the Austrian border. A crucial distinction, however, might also have been that Dorsten was assessed following a notification, whereas the Kristall Bäder investment was under scrutiny following a complaint by a competitor.
Dr. Johannes Ylinen, Specialist for State aid and Antitrust law at Arnecke Sibeth Dabelstein