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How to invest in projects without giving state aid

Two men sat down looking at documents Print publication

14/05/2014

Any investment of public money in a private undertaking has the potential to be unlawful state aid if it gives that undertaking an economic advantage over its competitors. Unlawful state aid can be clawed back, so naturally, public bodies are keen to make sure that their investments are lawful. One way of doing this is to act as a “market economy operator”; in other words, to act as a private sector investor operating under the relevant market conditions.

Dublin local authorities have shown that this can be done. They put out a tender for a Waste to Energy plant to be built on the Poolbeg peninsula in Dublin. The preferred bidder is Dublin Waste to Energy Limited. The facility will be a combined heat and power system using municipal solid waste as fuel to generate electricity for the general public. The Dublin authorities intend to participate in the project through a series of measures, such as a waste revenue guarantee, a waste and electricity revenue sharing mechanism and a profit sharing schedule. The European Commission investigated these measures and found them to be ones that a private investor operating in a market economy would have accepted, and indeed the Dublin local authorities see the project as a business opportunity with a fair return on investment. There was therefore no state aid. The detail of the final decision has not yet been published, but the press release (which has links to the final decision when it becomes available) is here.

The recent draft Notion of State Aid (see Links above) has more information on the market economy operator principle at section 4.2. In particular it states that “the decisive element is whether the public authorities acted as a market economy operator would have done in a similar situation“, leaving aside policy considerations. It is important to bear this in mind to avoid any scheme being found to be unlawful state aid.