State aid: Commission clears financing of Post Denmark’s universal service obligation

This article is brought to you in association with the European Commission.

The European Commission has approved, under EU State aid rules, Denmark’s compensation to Post Danmark for its universal postal service obligation in 2020.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “In today’s digital world, ordinary mail continues to be replaced by digital communications. This puts a strain on the activities of postal operators, which continue to offer a service that is important for citizens. Today’s decision confirms that the compensation in favour of Post Danmark for the provision of universal postal servicesis in line with EU State aid rules. Post Danmark will be able to continue to provide this fundamental service across Denmark at uniform prices for consumers and companies, without unduly distorting competition.”

In March 2021, Denmark notified the Commission of its plan to compensate Post Danmark for a maximum amount of approximately €30 million (DKK 225 million) for discharging its universal postal service obligation in 2020. The notification followed a complaint filed with the Commission by a Danish association, representing companies active in the road transport and logistics sectors, alleging that the compensation to Post Danmark constitutes incompatible State aid.

In July 2021, the Commission opened an in-depth investigation because it had doubts about the compliance of the measure with EU State aid rules. In particular, the Commission had concerns regarding Post Danmark’s allocation of costs between its universal and non-universal postal services, and consequently regarding the calculation of the net cost of the universal service obligation (‘USO’) by Denmark based on this cost allocation.

The Commission’s assessment

The Commission has assessed the Danish measure under EU State aid rules, and in particular under Article 106(2) of the Treaty on the Functioning of the European Union, as well as the rules on public service compensation, under the Service of General Economic Interest (‘SGEI’) Framework and the Postal Services Directive.

The Commission concluded that, while the USO compensation constitutes State aid, it complies with the provisions of the SGEI Framework. In particular:

• Following more detailed explanations by Denmark of the cost allocation approach of Post Danmark, the Commission found that such cost allocation complies with generally accepted accounting principles, as well as with the relevant provisions in the SGEI Framework and the Postal Services Directive. To address concerns expressed notably by interested parties, including the complainant, Denmark decided to introduce measures to further strengthen the supervision of Post Danmark’s cost allocation approach.
• The net cost calculation has been adjusted downward by Denmark to take into account comments from interested parties. The Commission found the resulting approach to be robust and conservative. Irrespective of this adjustment, the Commission concluded that the compensation paid to Post Danmark does not exceed the cost of the public service and therefore Post Danmark is not overcompensated.

On this basis, the Commission approved the Danish measure under EU State aid rules.

Background

Post Danmark is the main postal operator in Denmark. The Danish postal market has been liberalised since 2011 in accordance with the Postal Directive, and Post Danmark now operates in full competition with other relevant postal service providers.

Under EU state aid rules on public service compensation, adopted in 2011, companies can be compensated for the extra cost of providing a public service subject to certain criteria. This enables Member States to grant State aid for the provision of public services whilst at the same time making sure that companies entrusted with such services are not overcompensated, which minimises distortions of competition and guarantees an efficient use of public resources.

For more information

The non-confidential version of the decision will be published in the State aid register on the competition website under the case number SA.57991 once possible confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition weekly e-News.