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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