A nominal price may be charged for genuine non-economic services as long as it supports the achievement of the non-economic objective and covers only a small part of total costs.
Introduction
Germany notified two measures of support for nature conservation in Saxony-Anhalt. Measure 1 [SA.45645] concerned projects of nature conservation and landscape maintenance.[1] Measure 2 [SA.46073] concerned aid to associations of natural parks, nature conservation associations and landscape maintenance associations.[2]
The Commission’s assessment of these two measures provides useful guidance on how public support for nature conservation can be designed in such a way so as not to be State aid.
First of all, nature conservation can be a public policy objective that promotes the general good. Second, any commercial transactions which are the by-product of or related to conservation must be clearly separated to prevent cross-subsidisation of economic activities. Third, services offered within the context of nature conservation should be provided for free or should be priced at a nominal rate.
“Nominal” means a symbolic price whose aim is to encourage savings and discourages waste rather than to recover all costs. A price that covers costs would contradict the claim that such services have a non-economic character. After all, this is how the market functions. It covers its costs.
Hence, the lesson to be drawn is that absence of profit is not a good indicator that an activity is not economic, as long as costs are covered. Conversely, charging a price is not a good indicator that the activity is indeed economic. This is because, as explained in these two decisions, charging a price may not be intended to be cost-recovering.
Measure 1
The purpose of the measure was to contribute to the development of habitats and nature landscapes in the context of the Rural Development Programme for Saxony-Anhalt.
The measure aimed to support basic services in rural areas linked to nature conservation and landscape maintenance. As defined in the Commission decision [paragraph 5], the specific objectives of the measure were:
“(a) conservation of natural, semi-natural and man-made habitats and species occurring in them for the purposes of preservation of biodiversity;
(b) implementation of the requirements of national and international agreements on biodiversity and of Natura 2000;
(c) contribution to environmental education and information of the general public on the protection of biodiversity.”
The positive impact on the environment had already been demonstrated in the approved Rural Development Programme for Saxony-Anhalt 2014-2020.
The measure would remain in force until 31 December 2023 and had an overall budget of EUR 46.7 million. The budget would be co-financed at a 75% rate by EU funds [EAFRD]. The remaining 25% would be contributed by national funds of the Land Saxony-Anhalt. The aid would be delivered in the form of non-repayable grants.
The number of beneficiaries was estimated to be between 11 and 50. The eligible beneficiaries were
“(a) non-profit private-law legal entities, in particular associations and nonprofit foundations;
(b) public bodies;
(c) the State Office for Environmental Protection;
(d) Harz (Saxony-Anhalt) National Park, Middle Elbe Biosphere Reserve, Karstlandschaft Südharz Biosphere Reserve, Drömling Nature Reserve;
(e) Saxony-Anhalt Forestry Department;
(f) the State Forestry Centre.” [Paragraph 12].
The measure contained the “standard” exclusions from State aid schemes other than for the purpose of rescue and restructuring firms; i.e.:
(a) undertakings in difficulty,
(b) undertakings subject to an outstanding order for recovery of incompatible aid.
Eligible expenditure was limited to the following:
- establishing and updating conservation and management plans,
- investment (including planning services),
- study expenses,
- staff costs,
- costs of educational, advisory and information-providing services,
- training,
- public relations,
- capital expenditure and
- network expenditure [paragraph 18].
With respect to investments, the following expenditure was eligible:
“(a) the construction, acquisition or improvement of immovable property (land purchase not being eligible);
(b) the purchase or lease purchase of machinery and equipment up to the market value of the asset;
(c) the general costs linked to expenditure referred to in points (a) and (b) above, such as architect, engineer and consultation fees, fees relating to advice on environmental and economic sustainability, including feasibility studies; feasibility studies remain eligible expenditure even where, based on their results, no expenditure under points (a) and (b) above is incurred” [paragraph 19].
The allowable aid intensity varied between 80% and 100%. The latter rate applied to expenditure linked to Natura 2000 projects.
None of the supported projects would generate any “net revenues”. Aid was to be granted on condition that it supported only “non-economic nature protection purposes”. Renting, leasing or any other transfer for use on payment was not allowed [paragraph 24].
“(25) According to the German authorities, no economic activities take place and no goods or services are offered on a market within the supported projects. The projects within the notified scheme are not aimed at commercial exploitation. All activities (brochures, guides, trainings, meetings etc. are offered) must in principle be accessible free of charge. Only in exceptional cases (for example, for certain expensive material for promotion and education developed and produced within a project, e.g. expensive brochures, films and the like) a nominal fee (“Schutzgebühr”) is required, which never cover the costs actually incurred and which must be completely accounted for in the project. The imposition of a nominal fee is intended to ensure that such material is used properly and in the longer term. The results of the projects under the notified scheme are fully used for the public good and will be available to the public. Any payment-based use of supported projects’ elements is excluded. The granting authority (and hence the Land Sachsen-Anhalt) secures, through a relevant ancillary provision in the grant decision, their right of use of the results of the project and of the copyright protected parts of project results.”
In order to prevent cross-subsidisation of economic activities, in case beneficiaries of the notified measure offer goods or services on a market, the following would be required:
“(a) the objective of the aid is stipulated in detail in the aid application and in the granting decision;
(b) the financing of the project is governed by mandatory costs and a financial plan, so that the correct use of subsidies is ensured already before the start of the project;
(c) payments are made by way of a reimbursement procedure, i.e. prior to the disbursement of funding all invoices are checked, the beneficiary must pay in advance and an inspection also takes place in order to check whether the invoices submitted fit to the supported project, with the aim to ensure that subsidies cannot be used for any other projects;
(d) beneficiaries keep separate accounts for the supported non-economic activities on the one hand and the other, economic activities on the other hand;
(e) any items acquired when implementing the notified measure may only be used for non-economic purposes;
(f) the results of the projects under the notified measure will be available to the public and the granting authority will keep the right of use of the results of the project and of the copyright protected parts of project results” [paragraph 26].
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Absence of State aid
“(31) […] The Commission considers that public funding of a heritage conservation activity, including nature conservation, accessible to the general public free of charge can be considered as fulfilling a purely social and cultural purpose which is non-economic in nature. [At this point the decision refers to the precedent established by the measure SA.44011: Germany (Thuringia) Aid for projects for development of nature and landscape.] […] [U]nder the supported projects, nature protection activities must in principle be accessible to everyone free of charge and only in exceptional cases a nominal charge is required. The fact that participants in a nature conservation activity open to the general public are required sometimes to pay a monetary contribution that only covers a fraction of the true costs does not alter the non-economic nature of that activity, as it cannot be considered genuine remuneration for the service provided. […] [O]utside of the projects supported under the notified scheme, beneficiaries can carry out economic activities. In any case, public funding they receive will only cover the costs linked to the supported nature-protection activities. Moreover, there must be a clear division between economic and non-economic activities, so that cross-subsidisation is excluded. […] [Since] beneficiaries use separate accounts for supported and non-supported activities, it is ensured that costs and revenues are allocated in an appropriate way and it is excluded that public funding benefits any economic activities in which beneficiaries may engage outside of the supported projects.” [The decision cites the following seminal judgments on the notion of economic activity and the concept of undertaking: Case Commission v Italy, 118/85, paragraph 7; Commission v Italy, C-35/96, paragraph 36; Pavlov and Others, Joined Cases C-180/98 to C-184/98, paragraph 75].
On the basis of this assessment the Commission concluded that the measure did not constitute State aid in the meaning of Article 107(1) TFEU.
Measure 2
The purpose of measure 2 was similar to that of measure 1. It aimed at the development of nature and landscape through:
(a) support of the coordination of voluntary nature conservation activity and
(b) implementation of the declared objectives of nature parks.
This measure too would stay in force until 31 December 2023. However, its overall budget was lower at EUR 7.5 million and would be financed solely from resources of the Land Saxony-Anhalt.
The beneficiaries were estimated to be between 11 and 50 and would cover:
“(a) associations supporting the nature reserves in Saxony-Anhalt;
(b) nationally recognised nature conservation associations of the Land of Saxony-Anhalt, with the exception of the State Association for the landscape maintenance;
(c) landscape maintenance associations in Saxony-Anhalt” [paragraph 9].
The same exclusions applied as under measure 1.
The aid would be provided in the form of a grant and the aid intensity would vary between 80% and 90%.
Eligible expenses were:
“(a) coordination of the association activities of the eligible beneficiaries;
(b) implementation of concrete measures of natural reserves’ maintenance and development concepts [such as restoration of habitats of wild species of fauna and flora indigenous to the area, protection of endangered species, guidance for visitors and visitor information, publications, exhibitions, etc]” [paragraphs 13-14].
Interestingly, land purchase was excluded from eligible costs.
Aided projects would not generate “net revenues”. Renting, leasing or any other transfer for use on payment was not allowed [paragraph 18]. In addition, no goods or services were to be offered on a market and the projects were not aimed at commercial exploitation. All activities (brochures, guides, trainings, meetings etc) were in principle free of charge. Only in exceptional cases (for example, for certain expensive material for promotion and education developed and produced within a project, e.g. expensive brochures, films and the like) a nominal fee (“Schutzgebühr”) was required, which would never cover the costs actually incurred and which had to be completely accounted for in the project. The imposition of a nominal fee was intended to “ensure that such material was used properly and in the longer term.” The results of the projects were to be “fully used for the public good and would be available to the public”. Any payment-based use of the elements of the projects was excluded.” The Land Sachsen-Anhalt retained the copyright of any protected results [paragraph 19].
In order to prevent cross-subsidisation between economic and non-economic activities, measure 2 contained safeguards similar to those of measure 1.
Absence of State aid
“(23-24) The objectives of the notified measure are to support nature conservation and landscape maintenance […] The activities under the scheme are to the benefit of the general public and are not meant for commercial exploitation […] The Commission considers that public funding of a heritage conservation activity, including nature conservation, accessible to the general public free of charge can be considered as fulfilling a purely social and cultural purpose which is non-economic in nature […] nature protection activities must in principle be accessible to everyone free of charge and only in exceptional cases a nominal charge is required. The fact that participants in a nature conservation activity open to the general public are required sometimes to pay a monetary contribution that only covers a fraction of the true costs does not alter the non-economic nature of that activity, as it cannot be considered genuine remuneration for the service provided […] outside of the projects supported under the notified scheme, beneficiaries can carry out economic activities. In any case, public funding they receive will only cover the costs linked to the supported nature-protection activities […] there must be a clear division between economic and non-economic activities, so that cross-subsidisation is excluded […] beneficiaries use separate accounts for supported and non-supported activities, it is ensured that costs and revenues are allocated in an appropriate way and it is excluded that public funding benefits any economic activities in which beneficiaries may engage outside of the supported projects.”
The Commission again concluded on the basis of the above considerations that measure 2 did not contain State aid.
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[1] The full text of the Commission decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/264734/264734_1879795_113_2.pdf.
[2] The full text of the commission decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/265402/265402_1879791_103_2.pdf.
