Objectives of the mission: the Belgian authorities consider it particularly important to ensure a wide distribution of the written press throughout Belgium in order to enhance the level of information and diversity of opinion, and to foster public participation in the political debate.

Specific operational conditions are set out in the contract: the specific press distribution service giving rise to compensation imposed on DPLP goes beyond the conventional distribution service included in the universal service. It is subject to a set of stringent quality and performance requirements in terms of time of delivery (e.g. before 07:30), frequency, delivery options for publishers, flexibility for publishers as regards volume, and continuity of service (including a narrow definition of force majeure).

Specific pricing: the tariffs of the press distribution mission giving rise to compensation are fixed in tripartite negotiations (Belgian State/DPLP/press sector) and, unlike the universal public service tariffs, do not require the approval of the regulator. While the universal public service tariffs are geared to costs, the tariffs of the specific press distribution mission giving rise to compensation are much lower, so that the specific objectives of the mission can be attained.

The reform of the pension arrangements applicable to DPLP was an important stage in adapting the undertaking to progressive liberalisation and with a view to the full liberalisation of the Belgian postal market, which plays an important role in the Lisbon strategy for growth and employment.

In the La Poste Decision, the Commission stated that the liberalisation of the postal sector could be made more difficult if plans to reform pension schemes (comparable to that implemented in Belgium) were not approved.

The Commission also considers that the measures in question, even though they do not concern special arrangements for the benefits paid to pensioners, introduce sustainability into a financing mechanism that past developments had rendered obsolete. The Commission considers that the measures are, therefore, to be seen in the more general framework of pension system reform in Member States, which has the support of both the Council and the Commission.

The negative effects of the measure appear limited since, given DPLP’s history and its activities, it is evident that a large proportion of its pension liabilities relate to activities in the reserved sector, where the distortion of competition is by nature limited.

Even if the measure in question could, in theory, enable DPLP to retain a dominant position, the Commission regards this as a low risk since the measures simply align the contributions paid by DPLP with those paid by its competitors.

It follows from the foregoing observations that the negative effects of the aid granted to DPLP have been limited in comparison with the positive effects of the measure.

Since the measures are limited to what is strictly necessary to establish a level playing field for social security contributions and put an end to a distortion of competition that was a disadvantage for DPLP, they do not affect trading conditions to an extent contrary to the common interest.

Consequently, the Commission is of the opinion that the 1997 pension waiver can therefore be declared to be compatible aid within the meaning of Article 107(3)(c) TFEU since DPLP is not in a better situation than other operators as regards the social security costs of its statutory personnel.

In the present case, these criteria, in particular the fourth criterion, are not fulfilled: DPLP was not chosen by means of a public procurement procedure. Moreover, the Belgian authorities have not proved that the level of compensation was determined on the basis of an analysis of the costs which a typical, well-run undertaking with adequate means would have incurred in discharging the public service obligations entrusted to it, nor is there any indication or information available to the Commission that would suggest that the fourth criterion is met.

Since the annual compensation benefited only one undertaking and provided additional funds to that undertaking, the measure conferred a selective advantage on DPLP.

1997 capital injections: the Belgian authorities have acknowledged that the 1997 capital injections of EUR 62 million were in fact a delayed payment of SGEI compensation for 1996. Therefore, they should be assessed on the same basis as the annual compensation. Since not all the Altmark conditions are fulfilled, the measure conferred a selective advantage on DPLP.

The corporate tax exemption, while likely to confer an advantage on DPLP by possibly reducing the amount of tax it would otherwise have paid, did not produce any concrete advantage because, from 1992 to 2005, when the tax exemption was abolished, DPLP’s cumulated result after tax was negative. While DPLP’s net result in some years was positive, the tax credit carried over from one year to the next would have resulted in no tax payments even if DPLP had been liable for corporate tax. Consequently, this exemption is not examined in any more detail in this Decision.

The property tax and local tax exemptions, by contrast, place DPLP in a more favourable position than that of other undertakings by relieving it of obligations it would have normally have had to bear. These tax exemptions therefore confer a selective advantage on DPLP.

The Belgian authorities have argued that the transfer of buildings was part of an internal reorganisation of State property since at the time DPLP was fully State-owned. However, the transfer of buildings made available to DPLP new assets which had previously belonged to the State. DPLP had already been using the buildings while they belonged to the State, but was not the legal owner of them. The transfer of the legal title of ownership gave DPLP, an undertaking separate from the State, property rights over the buildings. DPLP therefore obtained additional resources compared with the situation before the transfer. The measure therefore conferred a selective advantage on DPLP.

Without the State guarantee, DPLP could not have obtained a loan on the same terms. The Belgian authorities have estimated that market rates would have been up to 40 basis points higher, whereas the premium paid to the State was 25 basis points.

The measure therefore conferred a selective advantage on DPLP, which amounts to the difference between the interest rate DPLP would have had to pay in the absence of the State guarantee and the actual interest rate plus the premium paid for the guarantee. Therefore the advantage obtained was 15 basis points on the capital outstanding each year. The advantage can therefore be estimated at EUR 1,5 million over the duration of the loan.

The annual SGEI compensation was financed from the national budget, as specified in the successive management contracts between DPLP and the Belgian State. According to the information provided by Belgium, the 1997 capital injections are de facto SGEI compensation and are therefore included in this part of the Decision.

The tax exemptions have decreased the State’s tax revenue by reducing the income it would have received in the absence of the tax exemptions. They involve, therefore, a transfer of State resources in the form of a loss of tax revenue for the Belgian State.

The buildings transferred to DPLP were previously State property. The State surrendered ownership to DPLP, thereby reducing its own assets and increasing those of DPLP. The measure therefore constitutes a transfer of State resources.

The loan guarantee was granted by the State, which assumed the associated risks from its own budget without a consideration, and therefore constitutes a State resource in the form of foregone revenue.

In the first management contract (1992-1996), the SGEI compensation covers all public services. The provisions of this contract do not apportion the compensation between the different public services according to whether or not they are eligible for compensation under the provisions of the contract.

Accordingly, the compensation provided for in the contract has to be understood to cover the additional costs of discharging all the public service missions without distinction. Checking potential overcompensation in this period will therefore encompass all the public service measures: the universal postal service (USO), press distribution and other missions entrusted to DPLP.

By contrast, under the clauses of the second, third and fourth management contracts, the aided activities are limited to certain SGEI missions specified therein. The SGEI missions entitled to be compensated are: the distribution of newspapers and periodicals, and other public services listed in recital 33. The clauses determining the scope of the aided activities are contained in the management contracts: Article 7 of the second management contract, Article 15 of the third management contract, and Articles 12 and 13 of the fourth management contract.

The universal postal service, by contrast, does not receive any compensation under the management contracts, with the exception of the first management contract.

Paragraph 18 of the SGEI Framework specifies that the reasonable profit ‘should be taken to mean a rate of return on own capital that takes account of the risk, or absence of risk, incurred by the undertaking by virtue of the intervention by the Member State, particularly if the latter grants exclusive or special rights. This rate must normally not exceed the average rate for the sector concerned in recent years. In sectors where there is no undertaking comparable to the undertaking entrusted with the operation of the service of general economic interest, a comparison may be made with undertakings situated in other Member States, or if necessary, in other sectors, provided that the particular characteristics of each sector are taken into account. In determining what amounts to a reasonable profit, the Member State may introduce incentive criteria relating, among other things, to the quality of service provided and gains in productive efficiency.’

The appropriate level of reasonable profit is thus to be chosen taking into account a number of parameters, in particular the average rate for the sector concerned, the risk associated with the undertaking’s activities and, where applicable, incentive criteria relating to the company concerned.

In order to establish a level of reasonable profit, the Commission has based itself on several expert studies, which are set out in more detail below. Based on the studies and on the level of risk of each management contract, the Commission has determined a range of reasonable levels of profit for DPLP for mail delivery, on the one hand, and press distribution, on the other, for each of the four management contracts. These studies all attempt to identify sets of companies which are sufficiently comparable in terms of activities and risk profile to the postal incumbent in question and to establish a benchmark profit level for the latter on the basis of the observed levels of profit of the comparator firms.

As regards risk in particular, the Commission wishes to underline that DPLP, during the entire period under investigation, has faced little or no competition in the vast majority of its operations since it either enjoyed a legally protected monopoly (this applies to most mail services), or a dominant position characterised by very high market shares and barriers to entry through the subsidisation of below-cost prices (e.g. press distribution). In the Commission’s opinion, this aspect has to be borne in mind in all analyses involving benchmarking with companies that, while providing similar services to DPLP, had to operate in a competitive environment.

Furthermore, the extent to which a postal incumbent is exposed to risk depends essentially on the characteristics of the regulatory mechanism established by the public authority.

Likewise, in the context of press distribution activities (USO financed through financial compensation), it makes a substantial difference whether the compensation is based on actual net costs (i.e. net costs actually incurred) or whether it is based on projected net costs over a long period. For instance, if the compensation takes the form of a fixed lump-sum payment covering expected net costs over a long period, it leaves the operator exposed to all variations in revenues and costs. In such a case, the operator faces a higher degree of risk than when it is compensated in full on the basis of ex-post costs and revenues.

Where the contract between the operator and the public authority is such that the public service is connected with a certain degree of risk, for instance because it leaves the incumbent exposed to significant variations in revenues and costs, the reasonable profit allowed to the incumbent should be commensurate with the corresponding level of risk involved. By contrast, where the contract between the incumbent and the public authority is such that the public service is not connected with substantial risk, the reasonable profit allowed should be low as well.

The Commission would also point out that the degree of risk incurred by the company and the extent to which the company is entitled to compensation for efficiency gains are closely intertwined. For instance, a public authority can set in advance a fixed level of compensation which anticipates and incorporates the efficiency gains that the undertaking can be expected to make over the lifetime of the entrustment act. By exposing the company to all variations in costs and revenues, the contract gives it incentives to improve performance and become more cost efficient. At the same time, it results in more risk for the company. To some extent, therefore, risk and efficiency incentives go hand in hand. Likewise, an ex-ante price cap over a long period normally provides stronger incentives for efficiency improvements, but is also more risky for the company involved.

In order to address the question of a reasonable rate of profit for DPLP, the Commission bases itself on several expert studies:

Regarding the composition of the benchmark group, WIK concludes that there is a trade-off between the comparability of companies in the sample and the size of the sample. WIK argues against including European postal incumbents in the sample because their prices have been regulated in a market which has been foreclosed to competition in most countries over the entire period under investigation. For the same reason, the number of companies in direct competition with the postal incumbents is rather limited. Mostly, these are smaller companies. In order to obtain a balanced set of comparable companies, WIK includes both the direct competitors on national markets and big multinational players, such as large international express parcel companies (e.g. UPS, FedEx, DHL), which run a more capital-intensive and riskier business than a postal incumbent on a protected national market.

1. (a)

   benchmark group I: 25th percentile equal to -0,42 %, 75th percentile equal to 6,72 % and median (50th percentile) equal to 3,86 %;

2. (b)

   benchmark group II: 25th percentile equal to 0,45 %, 75th percentile equal to 6,77 % and median (50th percentile) equal to 3,48 %;

3. (c)

   benchmark group III: 25th percentile equal to 0,64 %, 75th percentile equal to 5,57 % and median (50th percentile) equal to 2,59 %.

WIK concludes that the broader parcel sector, or benchmark group II, is the best benchmark because the results obtained are relatively stable over time compared with the alternative benchmark (narrow parcel sector) and because this sector is functionally closer to letter and parcel activities than the other alternative benchmark (land transport sector).

A further adjustment is made to obtain an upper limit for the reasonable profit for DP on the basis of the analysis of DP’s entrepreneurial risk relative to the benchmark group. On this basis WIK proposes the median benchmark II ROS of 3,48 % as an upper limit for a reasonable profit for DP. WIK chooses the median instead of the 75th percentile as the upper value of reasonable profit to reflect the fact that the companies in the sample bear higher risk than postal incumbents since they do not benefit from special rights.

On 14 Dec 2011, the Belgian authorities presented to the Commission a document summarising DPLP’s views on the risks faced by postal operators and proposing a methodology with a view to developing a tool to measure the risk premium which, together with the risk-free return on sales, would provide a reasonable ROS rate.

The document does not explain how the risk-free return on sales (expressed in terms of ROS) could be determined in the present case and does not provide a clear view of what precisely the reasonable ROS should be on the basis of the proposed methodology. Instead, the analysis focuses on the assessment of the various risks and the calculation of a risk premium that reflects all types of risks.

Moreover, examples are provided to illustrate that DPLP faces above-average risks. Thus, the Belgian authorities maintain that DPLP faces higher volume risk as it derives a higher proportion of its revenue from its mail segment and is characterised by higher cost rigidity on account of a higher-than-average proportion of fixed costs. Another type of risk which is considered higher for DPLP is security risk. According to the analysis, this is because DPLP is one of the few European postal operators to deliver cash payments of pensions to households.

On the basis of the assessment of the different risks, the Belgian authorities conclude that the fourth management contract shows a high level of all three risk types, while the first, second and third contracts are characterised by medium-level risk (the only exception being sectoral risk, which is considered low for the first contract). The Belgian authorities provide further examples of how the above ranking of the different risks can be converted into a risk premium on the basis of different values for the ‘maximum risk premium’.

1. (1)

   both studies use the same methodology to search financial databases for comparable companies in terms of functions and risks;

2. (2)

   both studies propose ROS as the most relevant benchmark for profit benchmarking (because of data limitations and differences in accounting treatment between different companies);

3. (3)

   finally, universal postal service providers are excluded from the set of comparable companies because they mainly operate on regulated markets and benefit from exclusive rights.

In particular, Deloitte considers that companies in the parcel and postal sector that operate large, complex collection and delivery networks can be reasonably compared to DP. The economies of scale, scope and density prevalent in postal networks and the high proportion of operating costs relative to capital costs, as well as the associated risks (for example, volume risk, risk of e-substitution), mean that large multi-product businesses in the postal and parcel sector are more relevant comparators than small mail businesses. Freight transport and logistics companies would also be – to a more limited degree – suitable comparators because they employ similar assets.

Deloitte also examines the advantages and disadvantages of several alternative profitability measures. It dismisses the use of the IRR in the case in question because of the practical difficulties in obtaining adequate cash-flow data. It also rejects the use of the ROCE or the ROE because of, for example, differences among companies in the accounting treatment of costs and in the capital structure (the latter being important for the ROE). ROA is also deemed inappropriate because it focuses on total assets. Thus, Deloitte proposes to use the ROS but emphasises that, as the ROS is not a direct measure of return on capital, it can be relied upon for benchmarking purposes as long as the companies compared have similar capital intensity.

Deloitte nevertheless calculates the ROCE (as well as the market-value ROCE and the ROA) for a small subsample of six companies, but concludes that the range and variation of the ROCE might reflect a number of factors, which requires cautious interpretation and undermines its usefulness as a benchmark. Among these factors Deloitte emphasises the importance of capital intensity. Deloitte argues that, in terms of capital intensity, DP’s universal service is more similar to that of, for instance, UPS and Fedex than to that of freight operators like Kuehne&Nagel or Wincanton.

Deloitte further highlights the significant variation in companies’ profitability over time, as well as within and between the different sectors. This variation, in Deloitte’s view, would warrant the use of ranges of reasonable profit rather than a single average figure. Such an approach would also be appropriate because of the need to avoid penalising above-average performance as a result of efficiency gains.

1. (a)

   for the postal and parcel sector, during the period 1998-2007, the average annual mean ROS is 8,1 %, the average annual median ROS is 7,4 %, the average annual 25th percentile is 4,8 % and the average annual 75th percentile is 12 %;

2. (b)
   for all sectors, during the period 1990-2007, the average annual mean ROS is 6 %, the average annual median ROS is 5,4 %, the average annual 25th percentile is 3,6 % and the average annual 75th percentile is 8,1 %96.

In general, the Commission considers that, where the contract between the incumbent and the public authority is such that the public service is connected with a significant degree of risk, the reasonable profit allowed to the incumbent should be commensurate with the corresponding level of risk involved. By contrast, where the contract entails little risk, the level of reasonable profit should be low.

In the previous section, the Commission explained its approach for establishing a default reasonable profit range of [5,4-7,4 %], which is considered appropriate for contracts involving a significant degree of risk. It is difficult to quantify the appropriate benchmark in terms of a range of reasonable ROS, but it is clear that such an ROS range should be on the left-hand side of the sample distribution of observed profit levels. The Commission is of the opinion that it is justified from this perspective to adopt a reasonable profit range based on the first quartile (25th percentile) instead of the median.

The use of the 25th percentile as a benchmark for low-risk contracts leads to a range for reasonable ROS of [3,6-4,8 %] based on the different Deloitte samples.

As before, a comparison with the CRA results for postal incumbents may be a further useful cross-check. The average annual 25th percentile calculated by the Commission is […] %. The Commission concludes that these figures fall within the range of [3,6-4,8 %], thus supporting the claim that this range can be viewed as reasonable.

In general, the Commission concludes that a default range of [3,6-4,8 %] would appear to constitute an appropriate benchmark profit range for the periods when DPLP faced a low level of risk.

As explained in the introduction to this section, the risk borne by DPLP depends on the compensation mechanism applied by Belgium. This mechanism is reflected in the different management contracts concluded between DPLP and the Belgian State, and varies over time. Therefore, it is reasonable to consider different ranges for the ‘reasonable ROS’ depending on the compensation mechanism in place, which determines the degree of risk faced by DPLP, but also the extent to which DPLP is incentivised to improve productivity.

In this context, the Commission wishes to underline that the risk characterisation of the contracts is not only dependent on the mere existence of risk in DPLP’s management contracts, or even the absolute level of risk, but above all on the extent to which the risk is greater or smaller than that faced by the companies in the same sample groups. The same applies to the extent to which DPLP is incentivised to achieve efficiency gains. Given that these sample groups are composed of firms operating in a competitive environment, they normally face significant risk and strong incentives to become more efficient.

The Commission is of the opinion that the fourth management contract (2006-2010) clearly provides for mechanisms involving long-term price and funding commitments based on ex-ante parameters. This applies both to DPLP’s mail delivery and press distribution activities.

Specifically, as regards press distribution, Article 9 of the fourth management contract specifies that, over the contract period (standard five years), the weighted average of tariffs for the provision of services belonging to the ‘small users package’ will not increase more quickly than allowed by a price cap mechanism based on the ‘health index’ (a specific consumer price index) and a quality bonus reflecting the percentage of mail items delivered on time. In the Commission’s view, fixing the tariffs over the entire contract period in this way reflects all the characteristics of an incentive contract, exposing the company to a significant degree of risk.

Consequently, in the Commission’s view, the fourth management contract (2006-2010) cannot be characterised as involving low risk, but should rather be deemed as involving a significant degree of risk. Overall, the default range of [5,4-7,4 %] would appear appropriate for both types of activities provided for under the fourth management contract.

By contrast, the earlier management contracts (up to 2005) seem to have been largely based on price and compensation mechanisms involving a low degree of risk for DPLP.

As a result, the Commission is of the opinion that the range of [3,6-4,8 %], which was deemed reasonable in the absence of significant contract-specific risk, should be applied to both press distribution and mail delivery for the period covered by the first three management contracts.

The Commission concludes that a default range for return on sales (ROS) of [5,4-7,4 %] is an appropriate benchmark range for determining reasonable profit for the periods when DPLP faced a significant degree of risk and for taking account of the strong efficiency incentives.

The Commission also concludes that an ROS range of [3,6-4,8 %] is an appropriate benchmark range for determining reasonable profit for the periods when DPLP did not face a significant degree of risk.

In order to take into account the efforts to achieve efficiency gains which the Belgian authorities claim DPLP made, the Commission has decided to take a prudent approach by using the upper bounds of these two ranges for fixing the reasonable profit to be included in the costs of the public service. This approach is also emphasised by the Deloitte study (see recital 293), according to which it is appropriate to use ranges because of the need to avoid penalising above-average performance resulting from efficiency gains.

The Commission considers that the first three management contracts (1992-1996, 1997-2002 and 2003-2005) are low risk and a reasonable profit rate of 4,8 % ROS can be applied to them, both for mail delivery and for press distribution. The fourth management contract (2006-2010), on the other hand, is deemed to involve considerably more risk and a reasonable profit rate of 7,4 % ROS can be applied to both mail delivery and press distribution.

The first management contract specifies that the annual State compensation is intended for all public service missions.

The potential overcompensation is therefore to be calculated by adding together all revenues and costs of all the public service missions.

The annual State compensation for the public service missions is to be included in revenue. The total amount of annual compensation received by DPLP under the first management contract is EUR 1,5 billion.

Transfer of buildings

The first management contract also provided for a transfer of buildings from the State to DPLP. This transfer of buildings, worth EUR 112,2 million, which did not include the payment of any consideration, is to be included in DPLP’s revenue for the calculation of overcompensation for the period covered by the first management contract. DPLP did not pay any consideration to the State for the use of the buildings in the period preceding the transfer.

For the three subsequent management contracts, the calculation of overcompensation will take into account only the revenues and costs of the SGEIs that, under the provisions of those contracts, could be subject to public service compensation. The corresponding revenues and costs of the other SGEIs that, according to the provisions of these contracts, were not entitled to aid are not taken into consideration. As the universal postal service is not part of the aided activities, its potential net cost will not be taken into account and is to be fully financed by DPLP from its own resources in accordance with the public service mission entrusted to it under the management contracts. The activities that, in accordance with the management contracts, are entitled to the level of compensation established in each contract, include, in particular, press distribution (newspapers and periodicals) and the other public services listed in recital 33 above.

On account of the low tariffs charged for press distribution, the aided SGEIs are loss-making overall.

As potential overcompensation of one service may be used to finance the net costs of other undercompensated public service missions, the calculation will add together all revenues and costs of the SGEIs eligible for aid under the management contracts.

The total amount of annual compensation received by DPLP under these three management contracts is EUR 3,5 billion.

Apart from the compensation provided for in the management contracts, DPLP benefited, throughout the relevant period under investigation, from exclusive rights granted by the State for the provision of reserved postal services. Although the potential net surpluses from this reserved area do not constitute State resources for the purposes of State aid control and cannot as a result be subject to a recovery order in case of overcompensation, they can and must be taken into account under the State aid rules when assessing the necessity and proportionality of any other State aid granted to the same operator as public service compensation. Therefore, when assessing the compatibility of the compensation granted to DPLP under the different management contracts in the light of Article 106(2) TFEU, the excess profits generated by the Belgian postal operator in the reserved area will be deducted from the costs of any SGEI entitled to public service compensation in accordance with the provisions of those contracts.

Therefore, any excess profit earned in the reserved area as a result of the exclusive right must be taken into account when assessing the necessity of the SGEI compensation granted to DPLP.

Accordingly, any profit from the reserved area (USO R) above the level of reasonable profit is included in the analysis of the SGEI overcompensation.

However, since the reserved area is first and foremost meant to finance the universal service, any loss in the other domains of the universal service will reduce the contribution of the reserved area to the costs of other linked SGEIs.

Furthermore, in order to determine the genuine excess profit generated by the reserved area, it is necessary to take account of costs incurred as a result of the universal service obligation that are borne by activities outside the scope of the universal service. In line with the Chronopost case law, the costs of the retail network are apportioned in DPLP’s cost accounting among the activities using the retail network, which includes products both within and outside the scope of the universal service. In particular, the obligation imposed on DPLP to maintain a retail network of a certain size and density to provide a universal postal service at an adequate level of quality as defined by the Belgian authorities leads to losses in commercial activities outside the scope of the universal service because a share of the retail network costs is allocated, in line with the Chronopost case law, to the commercial products using the retail network.

1. (a)
   the general requirement to operate a network enabling the provision of the universal service and other public services entrusted to DPLP124;
2. (b)
   the requirement to operate at least 1 300 outlets (post offices and points poste125);
3. (c)

   the requirement to operate at least 589 post offices;

4. (d)

   additionally, the maximum road distance from each outlet with a basic range of services to a post office offering a complete range of services must not exceed 10 km.

The Belgian authorities consider that the specific requirements concerning the number and type of outlets in the DPLP retail network constitute a separate, territorial coverage obligation imposed by the State beyond the requirements linked to the USO. On this basis Belgium considers that all the net costs of that specific territorial coverage obligation should be compensated by the State.

Quantifying the network constraint: in order to determine the net costs for DPLP arising from the obligation to operate a retail network composed of at least 1 300 outlets, of which a minimum of 589 must be post offices, the Belgian authorities have compared the actual retail network, in which the density and type of outlets are imposed by the State, with a hypothetical retail network that DPLP would operate in the absence of specific constraints. In other words, the hypothetical retail network is what DPLP would have chosen to operate under commercial terms in the absence of the public service obligations imposed by the State.

As can be seen from table above, DPLP’s actual retail network fulfils the requirements of the State: the total number of outlets and the number of post offices are both above the required level. By contrast, the hypothetical network that DPLP would operate if it were allowed to choose its retail network on a purely commercial basis would be significantly different: the total number of points poste would increase, but there would no longer be post offices run by DPLP.

Reality of the network constraint: it should be pointed out that the State-imposed constraint on DPLP is not clearly established.

First, the actual network operated by DPLP is larger than that required by the State. Both the total number of outlets and the number of post offices is higher than the minimum required by the State. This could imply that DPLP is not actually constrained by the obligations, but instead chooses freely to operate a network of the current size.

The Belgian authorities justify this excess number of post offices by the 10 km distance requirement, the need to have a safety margin in case of unexpected closures of points poste, and their intention to increase the required minimum number of post offices to 650 in the next management contract, which would make it counter-productive to close offices to come down to the level currently required, only to re-open them again later. The Belgian authorities argue that, for these reasons, it has not been feasible for DPLP to further decrease the number of post offices to move it closer to the minimum requirement of 589. According to the Belgian authorities, the current network of 713 post offices is therefore de facto constrained by the State requirements despite the nominal excess in the numbers of outlets.

Second, the method chosen by the Belgian authorities relies upon backward projection of retail network costs from 2009 to 1992. Such backward projection inevitably entails methodological uncertainties. The business model of the points poste has not necessarily been available since 1992. Furthermore, in the past, DPLP’s workforce was mainly composed of civil servants, whose payroll costs were very rigid. As the points poste are not run by DPLP personnel, the DPLP statutory employees no longer working in post offices would have remained on DPLP’s payroll. It is therefore doubtful whether, in the early part of the period under investigation, the potential closure of post offices would have entailed savings in direct payroll costs. By contrast, in 2009, when the workforce was composed to a higher degree of contractual workers, such cost savings could have materialised to some extent. With the gradual transition towards less rigid staffing and the successive improvements in the cost accounting system, the accounting data from more recent years can be considered free from this type of distortion. However, given that there are still over 20 000 civil servants working for bpost, who can neither be employed in points poste nor be dismissed, the replacement of all post offices by points poste remains a purely theoretical and unrealistic option even today.

The Belgian authorities underline, however, that potential redundancy costs in the past would have been offset by savings in operating costs and the sale of unnecessary buildings. As regards the reliability of the data for the years 1992-2002, the Belgian authorities state that the costs of the retail network have probably been underestimated, as some items that could have been considered network costs have been grouped in other cost centres. Consequently, the weaknesses in the backward projection method would be offset by the other, conservative assumptions made by the Belgian authorities when calculating the cost in the past years.

The Commission cannot find any of these elements in the management contracts between the State and DPLP. The Belgian authorities and DPLP are in fact trying artificially to justify a posteriori the existence of a distinct territorial mission by arguing that the territorial coverage set out in the management contracts is necessary on two counts: both for USO purposes and for an alleged territorial mission beyond the USO. However, the relevant contracts lack any provisions on the alleged separate territorial mission requiring DPLP to operate a larger network than that laid down for universal service provision.

It should be noted that the artificial nature of the claims made by the Belgian authorities and DPLP is further evidenced by their own reasoning. The Belgian authorities, with a view to diminishing the level of potential overcompensation, would like the Commission to take into consideration, as part of the costs of an additional territorial mission beyond the scope of the USO, the difference between the real cost of a fully-fledged office and the cost of a hypothetical point poste that would replace it. This reasoning does not rely upon a hypothetical larger network that DPLP would operate to meet its territorial objectives, but only identifies the extra cost of the universal service coverage, which is not entitled to aid under the management contracts. This absence of a territorial objective is confirmed by the fact that the Belgian authorities would have to substantially increase the number of points poste to provide the universal service since it is not possible to do it with an equivalent number of points poste.

Nevertheless, it can be observed that, although it does not appear possible to accept the claim by the Belgian authorities of a real and distinct territorial coverage obligation, the network constraint imposed by the Belgian State to operate a network capable of delivering the universal service and the other public services not only concerns those services, but also induces additional costs for the commercial services.

In line with activity-based costing and in accordance with the Chronopost case law, all the activities using the retail network contribute towards its common costs, as explained in recital 354. Consequently, all the products, including the commercial products, contribute to the network costs. The costs deriving from the State-imposed requirement to operate post offices are a burden on the commercial products, which appear to be consistently loss making as a result, even though they are sold at market price. DPLP sells its commercial services through the network because they finance a share of the fixed costs of the network and therefore contribute indirectly to the universal service.

From an economic viewpoint, it would seem sensible, when assessing overcompensation to DPLP, to take into account the losses on commercial products induced by the USO and other public services obligations. While DPLP has an economic incentive to sell commercial products through the retail network, the consequence, from a cost-accounting perspective, is that a proportion of the network costs that would otherwise be charged to the public service is instead allocated to the commercial products, which appear loss making as a result.

The compatibility of the 1997 capital injection should be examined as part of the assessment of the compatibility of the annual SGEI compensation since it was not a separate recapitalisation, but a payment related to compensation for the public service missions for the period 1992-1996.

As the 2003 capital injection does not constitute State aid within the meaning of Article 107(1) TFEU, the issue of compatibility of the aid does not arise.

As the 2006 capital injection does not constitute State aid within the meaning of Article 107(1) TFEU, the issue of compatibility of the aid does not arise.

It is worth noting that the State guarantee is not included in the management contract as a form of compensation for the public service obligations, and therefore its compatibility cannot be assessed in the light of Article 106(2) TFEU. As no other basis for compatibility has been brought forward by the Belgian authorities nor detected by the Commission, the measure constitutes operating aid that is incompatible with the internal market and, consequently, must be recovered.

As already mentioned, the corporate tax exemption has not conferred an advantage on DPLP and therefore does not constitute State aid within the meaning of Article 107(1) TFEU.

The property tax and local tax exemptions constitute State aid within the meaning of Article 107(1) TFEU, but are to be considered existing aid as they were established before the entry into force of the Treaty. In addition, it is to be noted that these fiscal measures are not included in the management contracts as a form of compensation for the public service obligations.

Consequently, the tax exemptions do not affect the calculation of overcompensation, which is based on the actual costs borne by DPLP (which already include the effect of those tax exemptions).

The Commission observes that, since all three management contracts before 2005 result in undercompensation, the pooling of all years would have no consequence on the amount of overcompensation to be recovered.

The Commission concludes that DPLP has been overcompensated by the amount of EUR 415 million for discharging its public service mission, notably during the period of application of the fourth management contract. Since overcompensation constitutes incompatible aid, it must be recovered.