PostNord to repay illegal State aid

The European Commission’s decision of 10 September 2021 in the PostNord case

Reason for capital injections in PostNord

It was incompatible with the EU State aid rules when Denmark and Sweden in 2017 injected almost DKK 490 million into PostNord. That was established by the European Commission in September.

The case involves two capital injections of approximately DKK 195 million and DKK 295 million made by the Danish and the Swedish States, respectively. The injections were to ensure that PostNord, which is owned by the Danish and the Swedish States, would maintain its investment grade (indicating a positive credit rating). The European Commission found it unlikely that a private investor would have accepted making a capital injection on the same terms, inter alia because it had not been proved with sufficient certainty that the injections were necessary for PostNord to maintain its investment grade, or that the loss suffered from a lower credit rating would exceed the costs of the capital injections. The injections therefore constituted incompatible State aid, which must now be recovered from PostNord.

Capital injection to Post Danmark

In the same period, PostNord made an internal capital injection of approx. DKK 2.34 billion to Post Danmark, a wholly owned subsidiary of PostNord. The capital injection was part of a modernisation process and was intended to help Post Danmark implement a new production model in response to a strong increase in digital communications in the market.

The European Commission found that the internal capital injection involved public funds that could be imputed to the Danish and Swedish States, because it, together with Denmark’s and Sweden’s capital injections to PostNord, was the result of an agreement concluded in 2017. Given that the expected return on the new production model for PostNord outweighed the costs of the capital injection, the European Commission found, however, that PostNord had operated on market terms. Thus, a private investor would have acted in the same manner. Unlike the capital injections in PostNord, this injection did not constitute State aid.

Implications

The PostNord case illustrates that the European Commission has great focus on the State aid rules when it comes to State-owned companies. It also shows that the risk of complaints should be taken seriously, since a complaint process may be both lengthy and complex. What is crucial is to ensure (and to be able to prove) market consistency no matter which support instrument is used.

Incidentally, the decision follows the General Court’s judgment of 5 May 2021 in the ITDC action (T-561/18), which had been brought by ITD and others against the European Commission, and which also involved PostNord.

Read the European Commission’s press release in the PostNord case here.