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Borenius & Kemppinen successfully represented the
Finnish Ministry of Transport and Communications in the
European Commission's formal state aid investigation
regarding the liberalisation of the Finnish road construction
market.
The Commission gave its decision on 11 December 2007 and
found that the vast majority of the government's measures
were compatible with the Common Market. The Commission's
decision sets out the key principles that have to be taken into
account in the European liberalisation processes. Furthermore,
the decision takes clear position on public utilities' tax
privileges. However, the Commission accepted that the state is
allowed to compensate costs that were related to the obligation
to overtake the entire workforce of the road production of the
former road service. This financial burden was compensated
through the negotiated contracts.
In March 2000, the Finnish authorities decided that the Road
Service's production activities would be divested as a
State Enterprise while the Road Administration would function
as the customer agency in road maintenance. This was done in
order to split the roles of the customer for buying maintenance
and construction services and of the provider of these
services. As a result of the reform, the design, construction
and maintenance of State roads were fully opened up to
competition by the end of 2004.
The Commission received a complaint by two Finnish
associations in autumn 2002 regarding potential violations of
public procurement law by the Finnish Government and of
potential illegal state aid to the Finnish Road Enterprise.
The Commission concentrated on several benefits the Finnish
Government had granted the Finnish Road Enterprise: an
interest-reduced long-term loan, the transfer of land and
gravel sites from the State to the Finnish Road Enterprise,
special provisions for staff transfer between the Road
Administration and the Finnish Road Enterprise, special
arrangements for redundant workers, negotiated contracts at a
price above the market price for road works, and special
treatment under tax and bankruptcy laws.
After almost two years of intense communication with our
competition team, the Commission closed its investigation and
stated that all aid provided on a transitional basis by the
Finnish government to facilitate the Road Enterprise's (now
Destia) adaptation to its new competitive environment were
compatible with the Common Market. As for Destia's tax
privileges and special treatment in bankruptcy law, the
solution has been found in the incorporation of Destia.
The Commission's decision sets out guidelines that have
to be taken into account in the liberalisation processes of
national markets. For example, the Commission took hard and
rapid stance on tax privileges that benefit public utilities.
However, the Commission accepted a number of temporary
advantages that were given to Destia. For example, the
Commission accepted that Destia received a number of public
contracts without open tendering processes. The Commission
acknowledged that Destia was required to overtake the entire
workforce of the road production of the former road service.
Destia was prohibited from any lay-offs during the transition
period 2000 - 2004. This financial burden was compensated
through the negotiated contracts. A procedure was organised in
order to limit risks of overcompensation. The annual
expenditure adjustment procedure was in place. The negotiated
contracts existence was linked to the gradual nature of the
liberalisation process.
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