Wednesday, October 17, 2012

La Poste

This has to be some kind of conspiracy: No sooner had I advocated for the greater use of EPICs than the CJEU declared them unlawful. On September 20, the 6th Chamber of the General Court, with Judge Wahl acting as rapporteur, upheld the Commission's State Aid Decision again France over La Poste, the French Postal Services.

So where did it go wrong?

Well, maybe the problem is already here:
(155) The Commission concludes that:
— unlike the creditors of undertakings governed by commercial law, creditors of La Poste (which is not subject to the ordinary law rules governing the compulsory administration and winding up of firms in difficulty) are not in danger of seeing their claim cancelled in whole or in part following court liqui­dation proceedings;
— the fact that La Poste has legal personality is no bar to a state guarantee to La Poste; and
— in the absence of any express limitation on the State’s liability in respect of La Poste, La Poste’s creditors may legitimately act on the principle that the State will bear the debts of La Poste, even though La Poste possesses legal personality
Then again, it is hard to argue against these findings of fact.

The better view is probably that the problem is here:
(308) Lastly, the unlimited state guarantee in favour of La Poste cannot be considered to be compatible on the basis of Article 106(2) TFEU. This exemption provides that undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly are to be subject to the rules contained in the Treaty, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Union.
(309) French law has imposed public service obligations on La Poste. On that basis, the postal operator may receive financial compensation or enjoy certain prerogatives derogating from certain generally applicable rules of law. However, such financial measures or prerogatives must be limited to what is necessary to offset the addi­tional costs incurred by La Poste by virtue of its public service obligations.
(310) The Community framework for State aid in the form of public service compensation sets out the conditions under which the Commission considers such compen­sation to be compatible under Article 106(2) TFEU. In particular, the compensation paid cannot exceed the cost of providing the public service, taking into account the relevant receipts and a reasonable profit for discharging the obligations.
(311) In the present case, such an analysis would presuppose a market valuation of the unlimited state guarantee in favour of La Poste in order to verify that its value does not exceed the net cost of providing the universal postal service. However, this analysis is impossible to carry out, which rules out application of the exemption provided for in Article 106(2) TFEU.
Let me see if I got this: The Commission spends a great deal of time talking about the interest rate advantage La Poste supposedly obtains because of this state guarantee, including a detailed discussion of the various ratings agencies' methodologies (par. 263 - 274, in particular), but they think it is too much trouble to estimate the Euro value of this advantage in annual interest expense terms? If so, how can we know whether this advantage is even big enough not to be de minimis? Much as I agree that there is an advantage, I am far from convinced that the transformation of La Poste from an EPIC to a private-law SA has made a difference of more than a few basis points. At the very least, such a difference seems like the kind of thing the Commission would have to prove. And I don't see why this calculation should be so "impossible" to carry out, at least not once the Commission, in its infinite wisdom, has estimated the number of basis points that La Poste would pay extra if it were a private law company. (Not a private company, mind. Either way it will be state-owned.)

The non-banking part of La Poste had a total debt at the end of 2011 of € 4,5 bn, so each basis point of additional interest expense corresponds to an additional interest expenditure of € 450.000. If the Commission cannot say how many basis points, approximately, we are talking about, they have no business bringing this case. And if they can put a number on it, it should be fairly easy to compare this number to the value of the Public Service Obligation imposed on the company. (As it happens, the net financing costs of the company are up 4,3%, from € 166 million in 2010 to € 173 million in 2011, while total debt is down from € 4,8 bn to € 4,5 bn, implying an increase in average borrowing costs of 39 bp. But that could be for a variety of reasons.)

The French government does not seem to have taken this particular approach, either in its communications with the Commission or in its arguments before the Court. Instead, it argued mostly about the existence of a guarantee and the existence of an advantage in general, without pressing particulars. The General Court, predictably, replied that the Commission had adduced sufficient evidence to show an advantage (par. 121-123).

Then there is another question that the French do not seem to have asked. Why did the Commission find it necessary to order France to turn La Poste into a Société Anonyme instead of permitting France to resolve the problem through less drastic means? Why not let France enact an explicit denial of guarantee? The answer is probably that France was already planning to convert La Poste into an SA anyway (cf. par. 318-323 of the Commission's Decision).

For the future, however, this is a possibility worth considering. After all, I am told that it is highly likely that this precedent will be applied to SNCF, the French railways. If so, the French might consider asking the Commission to do their job more carefully.

No comments: