EFTA SURVEILLANCE AUTHORITY DECISION

No 390/09/COL

of 7 October 2009

on the establishment of Mesta AS (Norway)

THE EFTA SURVEILLANCE AUTHORITY (1),

HAVING REGARD to the Agreement on the European Economic Area (2), in particular to Articles 61 to 63 and Protocol 26 thereof,

HAVING REGARD to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (3), in particular to Article 24 thereof,

HAVING REGARD to Article 1(2) of Part I and Articles 4(4), 6 and 7(3) of Part II of Protocol 3 to the Surveillance and Court Agreement (4),

HAVING REGARD to the Authority‘檚 Guidelines on the application and interpretation of Articles 61 and 62 of the EEA Agreement (5), in particular the section on State aid in the form of public service compensation,

HAVING REGARD to the Authority‘檚 Decision of 14 July 2004 on the implementing provisions referred to under Article 27 of Part II of Protocol 3 (6),

HAVING CALLED on interested parties to submit their comments pursuant to those provisions (7) and having regard to their comments,

WHEREAS:

I. FACTS

1. PROCEDURE

By letter dated 30 August 2004 the Authority received a complaint against the Norwegian authorities in relation to the establishment of Mesta AS which was created to take over the production activities carried out within the Public Road Administration in Norway (8). The letter was received and registered by the Authority on 2 September 2004 (Event No 291537).

Following various exchanges of correspondence (9), the Authority informed the Norwegian authorities by letter dated 18 July 2007 that it had adopted Decision No 350/07/COL to initiate the procedure laid down in Article 1(2) of Part I of Protocol 3 to the Surveillance and Court Agreement in respect of measures taken in the context of establishing Mesta AS (the ‘極pening Decision‘�.

By letter submitted on 7 December 2007 the Norwegian authorities forwarded comments (Event No: 456844). The Opening Decision was published in the Official Journal of the European Union and the EEA Supplement thereto and called on interested parties to submit their comments (10). The Authority received comments from four interested parties on 29 January as well as on 4, 21 and 27 February 2008 (Event Nos: 461463, 463234, 466015 and 467170). Additional comments were received on 4 April 2008 (Event No: 472381). By letters submitted on 21 February and 7 April 2008 (Event Nos: 463245 and 472529) the Authority forwarded these to the Norwegian authorities which were given the opportunity to react. By letter dated 23 May 2008 (Event No: 478082) the Norwegian authorities submitted comments.

During the autumn of 2008 and spring of 2009, the Authority and the Norwegian authorities have had informal contact via both telephone and electronic mail regarding the case. Information received by the Authority in this context has been consolidated by the Norwegian authorities in a letter submitted electronically on 6 July 2009 by the Ministry of Government Administration and Reform (Event no: 523766) (11).

2. BACKGROUND FOR THE EXISTENCE OF THE ALLEGED AID

2.1. THE COMPLAINT ALLEGING THE INVOLVEMENT OF STATE AID

The Public Road Administration in Norway is in charge of the construction and maintenance of national and county municipality roads, bridges and tunnels. Prior to 1 January 2003 the Norwegian Road Administration operated in-house production departments (hereinafter collectively referred to as ‘the Production Department‘� via district offices which carried out the construction work on behalf of the Public Road Administration. However, in 2001‘�002 the Norwegian authorities decided to carry out an overall restructuring of the in-house production activities. In this regard the Government proposed that the Parliament should separate the production activities from the Public Road Administration and transfer them to a limited liability company owned by the State (12). The administrative functions consisting of planning future construction activities, including the organisation of public tenders, remained within the state administration.

As a result, on 1 January 2003, the production activities of the Production Department within the Public Road Administration was separated from the State and transferred to a newly established company, Mesta AS. All assets, rights and obligations pertaining to the Production Department were transferred to Mesta AS as contributions in kind (13). The assets included machinery and equipment as well as service contracts entered into between the Production Department and the Public Road Administration. In return the State received shares in the new company. Currently, Mesta AS carries out construction and maintenance activities in competition with other operators active on this market.

The complainant has argued that Mesta AS has received State aid contrary to Article 61(1) of the EEA Agreement on four accounts: (i) the State has financed the restructuring costs; (ii) the fixed assets transferred to Mesta AS have been assessed at below market value in the opening balance; (iii) Mesta AS has been cross-subsidized as a result of the takeover by the company of the Production Department‘檚 previous contract portfolio; and (iv) Mesta AS has not paid document and registration duties normally falling due in the case of transfer of ownership of real estate.

The following describes the facts relevant for assessing whether each of these alleged measures involve State aid.

2.2. RESTRUCTURING AND OTHER REORGANISATION MEASURES

It appears from preparatory legislative work that about 4 750 of all employees (totalling approximately 5 000) previously employed in the Production Department were to be transferred to the newly established company, Mesta AS (14). Upon transfer to Mesta AS, the employees would loose their status as civil servants. As the employees were entitled to refuse such a transfer it was necessary to give incentives to employees in order to encourage them to accept the transfer (15). In addition, in order to ensure the establishment of a commercially viable company it was necessary to reduce the workforce by approximately 1 700 to approximately 3 050 (16).

The preparatory legislative work sets out different ‘榬estructuring‘�measures foreseen by the Norwegian authorities. Four measures consisted of (i) temporary maintenance of civil servant pension rights (17); (ii) maintenance of the right to a special retirement age (18); (iii) early pension packages; and various other measures involving (iv) moving, commuting, maintenance of salary and renovation of machines (19). These are referred to as the ‘榬estructuring measures‘�and are financed by direct grants. Initially a further cost item (v) compensation for salary, was foreseen to be financed through direct funding (20). However, immediately prior to fixing the opening balance of Mesta AS the Norwegian authorities decided that the relevant costs should instead be covered by a capital contribution to Mesta AS in the form of equity.

The total cost of the four restructuring measures financed by a direct grant was initially estimated at NOK 1 468 million (discounted to present values) and foreseen to be reimbursed by the State to Mesta AS in instalments over a three-year period from 2003 to 2005 (21). These restructuring costs were not included in the opening balance of Mesta AS since the restructuring costs were to be funded by the State via the State budget for the three years of 2003, 2004 and 2005 (22).

It appears from the State budget for 2006 that Mesta AS has received a total of NOK 993,6 million from the State to cover restructuring costs (23). By 30 June 2008 Mesta AS had spent NOK 879,6 million of this amount while total restructuring costs were estimated to amount to NOK 1 097,8 million (until the year of 2013) (24). The Norwegian authorities have explained that although it was initially foreseen that the State should cover all restructuring costs (implying that if the original estimate of the restructuring costs of NOK 1 468 million would be insufficient the State would grant additional funds), the State budgets for 2007 and 2008 make it clear that Mesta AS will not be granted further restructuring funds than the amount already received of NOK 993,6 million (25).

The Norwegian authorities have explained that although very unlikely, if, at the end of the period, the restructuring costs should turn out to be less than the amount received by Mesta AS, the surplus amount must be repaid to the State.

In terms of regulation, the Norwegian authorities adopted an Act on the transformation of the production activities of the Public Road Administration to a State owned limited liability company which regulates some of the rights of employees who were transferred from the Public Road Administration for employment in Mesta AS (hereafter referred to as the ‘楳esta Act‘� (26).

2.2.1. General

The Norwegian authorities have explained that the main challenge with respect to transferring employees from Production Department to Mesta AS was to enable the new company to operate on terms similar to that of its competitors and thereby create a level playing field. The Norwegian authorities decided to transfer the work force to Mesta AS and let Mesta AS (as opposed to the Road Administration) be in charge of implementing the measures involved in the transfer and reduction of the work force. These issues and their resolution formed part of and were a pre-requisite for the liberalisation and opening of the national road network market. The Norwegian State would not have opened this market without being able to establish a new company with sufficient staff. The Norwegian authorities have explained that this formed the background for the State‘檚 negotiations with the trade unions on the transfer of employees from the Production Department to Mesta AS. The negotiations resulted in an ‘榰nderstanding‘�between the parties on 4 June 2002 on a temporary continuation of certain civil servant rights and the possibility to offer measures, such as early pension, aimed at reducing the work force (27). The specific elements of this understanding are set out in the sub-sections below (28).

Prior to 1 January 2003 an interim board of directors of Mesta AS (the ‘業nterim Board‘� was established to represent the future company. The Norwegian authorities have explained that the Interim Board was not a party to any of the negotiations regarding the employees. However, the right to compensation for salary was included in the Mesta Act (29). By contrast, there was no law or other legal instrument regulating other civil servant rights.

Prior to describing the terms of the understanding it is useful to briefly outline the status of the employees in the Production Department prior to their transfer to Mesta AS: The Norwegian authorities have explained that the employees in the Production Department were employed by the State. It follows from Norwegian law that State employees hold the status of civil servants (30) and that for such employees membership of the State pension fund (‘�span class="italic">Statens pensjonskasse