On 27 March 2014 the European Commission reached the conclusion that a German subsidy scheme that awards direct subsidies for the development and revitalisation of plots of land does not constitute state aid. The Commission found that site preparation of plots of land by the local authorities is part of their public duty. As such these activities do not fall under the European state aid rules.

The German subsidy scheme
The object of the German subsidy scheme is to facilitate the preparation of plots of land by ensuring that these plots are connected to utilities (water, gas, sewerage and power) and transport networks (road and rail). Building construction and property management are explicitly not eligible for subsidy.

Assessment by the Commission
The Commission determined that the contractors that will perform the site preparation of the plots of land will be selected by means of a transparent and non-discriminatory public tendering procedure. Furthermore, after the site preparation is completed, the separate plots are sold, in accordance with the Commission’s Notice on the sale of land, either via a call for bids or after appraisal by an independent expert. This ensures that the site preparation takes place under market conditions and that the buyers of the plots buy the land at a price that is in line with the market. Since the measure does not confer any advantage on the contractors or the buyers, there is no state aid involved, according to the Commission.

Significance of the decision
In the Leipzig Halle airport case the Court of First Instance and the Court of Justice ruled that the construction of infrastructure may not be seen in isolation from the later use of that infrastructure. If the later use is economic in nature, then the construction of the infrastructure is also economic in nature. As a consequence, the state aid rules must be taken into account in relation to the construction. These judgments have had major consequences for the assessment of the financing of the construction or renovation of infrastructure projects.

Following on these judgments, there was uncertainty as to whether the site preparation of plots of land must also be considered an economic activity. The decision discussed here puts an end to this uncertainty, however. The Commission has explicitly confirmed that the preparation of plots of land by the local government is a public duty. It is not an economic activity therefore. Of course this does not alter the fact that the local government must take the state aid rules into account. A price that is in line with the market must be paid for the site preparation work. The plots of land must also (in principle) be sold at a price in line with the market after the site preparation is completed.

By: Eric Janssen