The European Commission's decision of 6 March 2017.
In 2014, the European Commission launched an investigation into the financing of two nuclear reactors in Hungary following the publication of several related press articles.
After various exchanges, Hungary notified in May 2015 to the European Commission the financing of this investment to be carried out by the company Parks II. The notification, which was made for the sake of legal certainty, concerned a measure considered not to constitute State aid under the principle of the private operator in a market economy.
Nevertheless, the Commission decided in November 2015 to open the formal investigation procedure due to its doubts about the qualification of the measure.
In its decision of 6 March 2017, the Commission finally concluded that the Hungarian public funding of EUR 12.5 billion in favour of Paks II constituted State aid but declared it compatible with the internal market pursuant to Article 107(3)(c) TFEU. According to the Commission, the measure in question aims at promoting nuclear energy, pursues an objective of common interest enshrined in the Euratom Treaty while contributing to the security of electricity supply, and any potential distortions are limited and outweighed by the common highlighted objective.
To obtain the Commission's approval, Hungary must comply with the following three commitments in order to limit any potential distortion of competition:
- The profits acquired by Paks II will be paid to Hungary to repay its investment or will be used to cover the normal operating costs of Paks II.
- A functional and legal separation between Paks II and the operator of the Paks nuclear power plant and its successors must be established in order to avoid concentration in the market.
- To guarantee market liquidity by ensuring that Paks II will sell at least 30% of its total electricity production on the power exchange. The rest will be sold in an objective, transparent and non-discriminatory manner at auction.
Austria's action for annulment
Austria filed an action for annulment against the Commission's decision on 21 February 2018.
First, the applicant argued that the direct award of the construction of the new reactors, constituting investment aid to the company JSC NIAEP without Public Procurement procedures having been carried out, violated Union rules, specifically Directives 2014/24/EU and 2014/25/EU, and de facto vitiated the Commission's decision.
In Austria's view, it is irrelevant whether this is an inseparable or even a modality of the aid, since in general, State aid that violates general provisions or principles of Union law cannot be declared compatible with the internal market.
Austria also argues that such aid is incompatible with the internal market in that its allocation produces disproportionate distortions of competition and unequal treatment, which lead to the exclusion of renewable energy producers from the liberalised internal electricity market.
EU General Court's assessment
In its judgment of 30 November 2022, the General Court concludes that the Commission is right to note that the legality of its State aid decision does not depend on compliance with the Public Procurement Directives 2014/24/EU and 2014/25/EU where the selection of another company for the construction of the reactors would not change the assessment of the public financing project under the state aid rules. It was not demonstrated that other bidders could have supplied the two reactors on better terms or at a lower price than JSC NIAEP.
However, even if the use of a tender procedure could have altered the amount of the aid, this circumstance would not in itself have had any effect on the advantage that the aid constituted for the beneficiary, namely the provision of two new reactors free of charge for operation by Paks II.
Moreover, the Court confirms that no provision of the abovementioned Directives was infringed, since Hungary's compliance with them was assessed in the context of a separate infringement procedure.
An obligation on the part of the Commission to adopt a definitive position, irrespective of the link between the type of aid and the purpose of the aid in question, in the context of an aid procedure, as claimed by Austria in its pleadings, would be contrary, first, to the procedural rules and guarantees, which are specific to the procedures specifically provided for the monitoring of the application of those provisions and, second, to the principle of autonomy of administrative procedures and the remedies available.
Regarding the pleas put forward by Austria concerning the existence of disproportionate distortions of competition and unequal treatment leading to the exclusion of renewable energy producers from the liberalised internal electricity market, the General Court reminds that the CJEU already ruled in the case Austria v Commission of 22 September 2020 that a Member State is free to determine the composition of its energy mix.
As the Commission rightly pointed out, the threat of a certain distortion of competition is inherent in any aid. It is accepted up to a certain point in the assessment of the compatibility of aid intended to facilitate the development of certain activities with the internal market within the meaning of Article 107(3)(c) TFEU, the limit being exceeded if such aid adversely affects trading conditions to an extent contrary to the common interest.
In confirming the Commission's reasoning, the General Court concludes that any negative effects resulting from the aid in question are at least offset by the objective of common interest pursued.
This case is interesting in several respects.
Firstly, it should be noted that actions for annulment brought by Member States against aid granted by other States are exceptional. It is useful to recall that Austria is historically one of the most anti-nuclear Member States of the EU. Moreover, the proximity of the future power plants to Austrian territory certainly motivated its decision to challenge this project before the Court.
Secondly, this judgment confirms the wide margin of appreciation available to the Commission in assessing the compatibility of an aid project with the common market. Annulments of decisions authorising State aid are indeed rare and generally justified by a lack of reasoning.
Finally, this judgment definitively settles the issue of the legality of State aid in the event of non-compliance with the European framework for Public Procurement. The overlap between these two legal frameworks is regularly raised in practice, but this is the first time that the General Court has addressed it so explicitly. The violation of Public Procurement rules does not therefore have an impact on the legality of the aid if the selection of another company for the project concerned does not change the assessment of the public financing project with regard to State aid rules.