State aid: Commission approves Danish public financing of Fehmarn Belt fixed rail-road link

The European Commission has concluded that the public financing model of the Fehmarn Belt coast-to-coast infrastructure between Denmark and Germany is in line with EU State aid rules.

Executive Vice-President Margrethe Vestager, in charge of competition policy said: “The Fehmarn Belt fixed link will contribute to the cross-border integration of the two regions it will connect. It will be key to complete the main North-South route connecting central Europe and the Nordic countries to the benefit of the European economy. Following an in-depth investigation, we concluded that the Danish measures to support this project of common European interest are in line with EU State aid rules, as the positive effects of the project clearly outweigh any potential distortion of competition.”

The Fehmarn Belt fixed rail-road link is a key element to complete the main North-South route connecting central Europe and the Nordic countries. It includes an undersea tunnel between Rødby on the island of Lolland in Denmark and Puttgarden in Germany. The tunnel will be approximately 19 kilometres long and consist of an electrified, double-track railway and a four-lane motorway.

Based on an intergovernmental agreement between Denmark and Germany, Denmark will be the sole owner and will bear the full risk for the financing of this tunnel, as well as for the upgrading of the Danish on-land road and rail (“hinterland”) connections. In Denmark, two public undertakings have been entrusted with the planning, construction and operation of the project: A/S Femern Landanlæg for the Danish hinterland connections and Femern A/S for the coast-to-coast infrastructure.

The financing of the Danish hinterland connections were previously confirmed to involve no State aid and were therefore not part of this investigation. As Germany is responsible for the financing and upgrading of its own hinterland connections, those were also not part of the investigation.

In July 2015, the Commission approved the public financing model of the Fehmarn Belt fixed rail-road link between Denmark and Germany under EU State aid rules.

Following an appeal against the Commission’s 2015 decision by Scandlines and Stena Line, in December 2018 the General Court partially annulled the Commission’s decision on procedural grounds (Judgments T-630/15 and T-631/15). The General Court confirmed the Commission’s decision with respect to the financing granted to Femern Landanlæg for the hinterland connections. However, it found that the Commission should have opened a formal investigation under EU State aid rules to assess the measures granted by Denmark to Femern A/S before adopting its decision.

The Commission investigation

In June 2019, to comply with the General Court’s December 2018 judgment, the Commission opened an in-depth investigation into the measures granted by Denmark to Femern A/S in support of the fixed link.

The investigation confirmed that the capital injections, the State guarantees on loans and the State loans granted by Denmark to Femern A/S constitute State aid under EU rules in view of the economic character of the coast-to-coast infrastructure. Furthermore, the Commission concluded those measures constitute individual aid as opposed to an aid scheme and that they qualify as investment aid.

The Commission found that the project qualifies as an Important Project of Common European interest (IPCEI) and assessed the measures under the Communication on IPCEI. The Commission concluded that all the compatibility criteria set out by the Communication are met.

With respect to the proportionality of the measures in question, following the opening of the in-depth investigation, the Danish authorities submitted up to date financial figures to the Commission.

Furthermore, following discussions with the Commission, the Danish authorities implemented certain changes to the financing structure of the project. These changes include, among others, limiting the public financing to the minimum necessary to make the investment happen. More specifically, they limited the use of State guarantees and State loans up to a maximum debt amount of €9.3 billion and to maximum the first 16 years of operations.

Based on the updated figures submitted by Denmark and the changes to the financing structure, the Commission concluded that the public measures are proportionate, in line with EU State aid rules.

The Commission concluded that the measures are necessary and that the positive effects of the project clearly outweigh any potential distortion of competition, in line with the requirements of the Communication on IPCEI.

On this basis, the Commission concluded that the capital injections, the State guarantees on loans and the State loans granted by Denmark to Femern A/S are in line with EU State aid rules.

The Commission also assessed certain other measures such as tax measures and concluded that they do not constitute State aid within the meaning of EU State aid rules.

Background

Traditionally, public support for the construction and operation of infrastructure projects was considered not to involve State aid. However, there have been important market developments, which led to increasingly commercial use of such infrastructures. The EU Court of Justice confirmed that public funding of infrastructure investment projects is subject to EU State aid rules when the infrastructure is intended to be commercially exploited (Joined Cases T-443/08 and T-455/08 Leipzig Halle). Therefore, public funding for projects like the Fehmarn Belt fixed link must be assessed under EU State aid rules to the extent they are confirmed to be economic in nature.

EU State aid rules allow Member States to grant support for such infrastructure investments to stimulate economic growth, subject to certain conditions – this includes in particular the need to avoid overcompensation and to ensure that there is a level playing field in the market.

The non-confidential version of the decision will be made available under the case number SA.39078 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.