What is the approach to the distribution of the state funds in Cyprus through the Office of the Commissioner for State Aid Control? Who are the beneficiaries? Who is eligible? We discuss these and other matters with Commissioner for State Aid Control, Stella Michaelidou.
How does the Commission in Cyprus operate? What are the main areas of your work?
The European Commission together with the national competition authorities directly enforces the EU competition rules in line with Articles 101-109 of the Treaty of the Functioning of the EU (TFEU), to make EU markets work better by ensuring that all companies compete equally and fairly on their merits. This benefits consumers, businesses, and the European economy as a whole. Within the Commission, the Directorate General (DG) for Competition is primarily responsible for these direct enforcement powers.
The Commission in Cyprus is in charged with the implementation of competition rules as to ensure that the competition in the single EU market is not disrupted. The company that receives government support gains an advantage over its competitors. Therefore, the Treaty generally prohibits state aid provision. To ensure that this prohibition is respected and exemptions are applied equally across the EU, the European Commission and each National Commission are in charge of ensuring that state aid distribution complies with the EU rules.
The DG for Competition and each National Commission administer the system for notification and approval, and deal with the state aid policy and decisions in most sectors.
The majority of requests are submitted by the ministries and/or other relevant authorities to our office for evaluation and/or approval and/or instructions for further actions.
The Commission determines whether the requested aid violates the Treaty standard, and can order the member state to end it and the recipient of illegal aid to return it.
The substantive criterion is whether the aid distorts, or threatens to distort, the competition by favouring some products or enterprises over others.
A measure that falls within the formal category of ‘state aid’ must be notified to and approved by the Commission in advance. Thus, the first issue is to determine whether a programme or an action constitutes state aid. To then assess whether aid is compatible with the common market, the Treaty describes permissible purposes such as redressing underdevelopment and unemployment and dealing with serious economic disturbance and important Projects of Common European Interest. Aid for other regional development and for promoting culture and preserving heritage is permitted only where it does not adversely affect trading conditions to an extent contrary to the common interest.
State aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities. Therefore, subsidies granted to individuals or general measures open to all enterprises are not covered by this prohibition and do not constitute state aid. Examples here may include general taxation measures or employment legislation. To be state aid, a measure needs to have all the following features:
i) There has been an intervention by the state or through state resources which can take a variety of forms (e.g. grants, tax reliefs, guarantees, government holdings of all or part of a company, providing goods and services on preferential terms, etc.).
ii) The intervention gives the recipient an advantage on a selective basis.
iii) The intervention is likely to affect trade between member states.
Despite the general prohibition of state aid, in some circumstances, government interventions are necessary for a well-functioning and equitable economy.
Therefore, the Treaty leaves room for a number of policy objectives for which state aid can be considered compatible. There is legislation that stipulates these exemptions. The General Block Exception Regulation (GBER) allows the Commissioner to approve state aid for certain sectors under specific conditions. Also, according to De Minimis Regulation, state aid is granted within the authority of ministries with less bureaucracy compared to the GBER, with the maximum limit of €200,000 over a period of three years except for certain sectors, given that a specific declaration is signed by the entrepreneurs but under the administration of our office. The laws are regularly reviewed to improve efficiency and respond to the European Council’s calls for less but better targeted state aid, to boost the European economy.
Does this approach include semi-governmental organisations?
Under specific circumstances and through the relevant Ministries, semi-governmental Organizations can also be included in this approach.
What were some of the major decisions taken by the Commission in 2020/2021?
The Commission’s recovery package of 27 May 2020 reiterates the importance of the European Green Deal as ‘the EU’s growth strategy’. The communication accompanying the package reflects the need to prioritise green investments. It will thus help balance the sometimes considerable differences in support levels across member states in the area of green aid.
In addition, 30% of the EU budget for 2021-2027 will be spent on climate investments while additional funding will be provided under Horizon Europe reflecting the crucial role of research and innovation in driving the shift towards a clean, circular, competitive, and climate-neutral economy.
In the context of the vast investments the EU needs to become climate-neutral by 2050, the state aid rules will enable member states to steer investment towards objectives of common interest such as environmental protection and energy, governed by the relevant guidelines.
Given the above, during the second half of 2021 the GBER will be reviewed to bring it in line with the European Green Deal.
The GBER allows member states – without the European Commission’s approval – to provide considerable support for environmental protection and energy-saving initiatives, as well as other horizontal objectives of common interest. It thus shortens the lead-time for investments in support of the European Green Deal targets, which will facilitate the recovery.
For Cyprus, an important decision in 2020 was the decision of the European Commission about the construction of a liquefied natural gas (LNG) terminal in Vassiliko Bay.
Another important decision was taken regarding the public transport for Nicosia and Larnaca in 2020, and for Famagusta in 2021. Our Commission approved various decisions in the Agriculture sector as well as decisions related to disabled people veterinary services and also in Technology and Innovation.
What are the Commission’s main priorities for the nearest future?
Being one of the EU National Commissions, it is essential for us to contribute to the success of the Strategic plan 2020-2024 of the DG for Competition, which contains the overall strategy of the Directorate.
Part I sets out how the EU competition policy contributes to the headline ambitions outlined in the President’s Political Guidelines, her Mission letter to Executive Vice-President Margrethe Vestager sent on 1 December 2019, as well as in the Commission’s proposal for the Recovery package adopted on 27 May 2020 and endorsed by the European Council conclusions of 17-21 July 2020.
The purpose of the strategic and management plans is to help the Commission departments align their work with the Commission’s overall policy objectives, and plan and manage activities to make the most efficient use of resources.
In their strategic plans, the Commission departments describe their contribution to the six political priorities of the Commission. They define the five-year specific objectives as well as the indicators to help them track progress. All departments report on progress each year in their annual activity reports.
Europe’s actions in the coming years will be guided by the legislative priorities set out in the Joint Declaration for 2021 and the Joint Conclusions on policy objectives and priorities for 2020-2024. The three institutions have agreed to deliver an ambitious political and legislative agenda for recovery and renewed vitality between now and 2024.
Specifically, in 2021 the institutions are focusing on:
- Implanting the European Green Deal
- Shaping Europe’s Digital Decade
- Delivering an economy that works for people
- Making Europe stronger in the world
- Promoting free and safe Europe
- Protecting and strengthening our democracy and defending common European values.
It is important for our Office to follow the European Commission’s directions to implement as constructively as possible the national Recovery and Resilience plans in line with EU state aid rules either through a possible extension of the General Block Regulation or through the Commission’s Guidelines. We will continue with the implementation of the State Aid Temporary Framework in order to mitigate the economic effects on the ongoing crisis and enable the economy to bounce back.
Our office’s target is to be one of the best agents for the EU and apply the DG for Competition’s policy for the benefit of our country and its citizens. It is important for our office to further develop a state-aid culture within the relevant authorities and according to the priorities set. We have already started a campaign to make use of the GBER at a much higher level.
The GBER contains measures that can be used to provide lawful state aid without going through the normal notification and approval processes. It was published by the European Commission in 2008 with the aim of consolidating and simplifying the existing state aid regulation. As such, we are aiming to increase the usage of the GBER from 55% to a higher level, hopefully to 70% through 2021.
Also, within the next few weeks, we will be ready to establish and operate the General Registry for Cyprus for de minimis state aid, which will allow us to have better follow-up and more accurate information regarding state aid under de minimis program.
The development of a state-aid culture in the community is essential and thus our office wants to contribute towards this direction for the betterment of the economy.
Speaking from a point of view of a regular citizen’s rights, what would be the Commission’s role?
The mission of the DG for Competition is to enable the Commission to make markets deliver more benefits to consumers, businesses, and the society as a whole, by protecting competition on the market and fostering a competition culture in the EU and worldwide.
The DG for Competition and our Commission do this by enforcing competition rules and through activities aimed at ensuring that regulations take competition duly into account among other public policy interests.
Competition policy is an indispensable element of a functioning internal market. It ensures that all companies compete equally and fairly on their merits, thereby making markets more competitive and resilient while generating higher productivity and growth.
The Commission protects competition from market distortions whether originating from member states, companies, or mergers that would significantly impede effective competition in the internal market. National competition authorities also apply the EU antitrust law. There is therefore a need to ensure that their enforcement action is carried out in an effective manner and in compliance with the principles of legal certainty and a uniform application of the EU competition rules.
The main beneficiaries of the EU competition policy are European citizens, businesses operating in the EU, and the society as a whole. Our Commission provides guidance about the competition rules and their enforcement to improve legal certainty for its stakeholders in particular companies, associations of companies, and member states. It also strives to ensure transparency and predictability for its stakeholders, and private enforcement of the EU competition law.
For citizens it is essential to know the benefits of competition to exploit their opportunities as consumers. In turn, it enables businesses to compete on merit and policymakers to come up with initiatives that support smart, sustainable, and inclusive growth, as well as to be efficient and non-distortive market operators.
Same is true for de minimis state aid. The European Commission considers that public funding to a single recipient of up to €200,000 over a three-year fiscal period, except for certain sectors, has a negligible impact on trade and competition and does not require notification. This aid can be given for most purposes including operating aid, and it is not project-related.
Also, the Temporary Framework for Covid-19 provides support to the business through various schemes given certain parameters.
People must also know about the GBER which, as said earlier, contains measures that can be used to provide lawful state aid.
Citizens can always apply to the relevant ministries or websites to get information about the existing government schemes in any sector.
Is there anything you would like to say to the Russian-speaking residents and citizens of Cyprus? How can they relate to and benefit from the state aid provisions?
State aid is a term that refers to forms of public assistance using taxpayer-funded resources given to undertakings on a discretionary basis, with the potential to distort competition and affect trade between the EU member states.
In general, state aid is banned because of its anti-competitive effects. For example, without the state aid rules member states might be put out of business because their competitors received unfair state subsidies.
However, various categories of schemes are approved because their positive effects are considered to outweigh their negative impact, such as schemes to promote regional development (IDA grants, tax-break schemes), or training, or research and development and innovation (RDI) in industry.
Article 107 (a) of the Treaty establishing the European Community sets out the criteria, all of which must be met for a state aid to be present:
(1) Granted by the state or by state resources
(2) Confers an advantage to an undertaking
(3) Selective, favouring certain undertakings
Aid that targets particular businesses, locations, types of firms, is considered selective. A general measure affecting the whole of the state’s economy, such as nation-wide fiscal measures is not considered state aid.
(4) When it strengthens the position of the beneficiary relative to other competitors or potential competitors, then this criteria is likely to be met. The potential to distort competition does not have to be substantial or significant, and this criterion may apply to small amounts of aid and to firms with insignificant market share. Most interventions have the potential to distort competition.
(5) Activity tradeable between member states. The Commission’s interpretation of this is broad. It is sufficient that a product or a service is subject to trade between member states even if the aid beneficiary itself does not export to the EU. Consequently, most activities are viewed as tradeable.
If one or more of these conditions is not met, then the matter is not a state aid.
Our Russian-speaking friends, citizens and residents of Cyprus would be expected to understand the concept of state aid and be familiar with it as analysed above. They are most welcome to visit the relevant authorities and/or ministries to get further information about the special schemes applied and their potential benefits in areas like energy, entrepreneurship among young people and women, etc.
It is crucial that public bodies fully consider the state aid implications of a proposal at the earliest stage possible. This allows the measure to be designed to fit within the state aid rules and thus avoid potential serious problems at a later stage.
We invite the community to use de minimis state aid if necessary needed and get all the advantages of the GBER by applying to the relevant authorities to get the maximum possible benefit.
With specific projects, we can always apply to the European Commission for notification and approval.
Strovolos Avenue 200, 1st Floor, 2048 Strovolos, Nicosia, CYPRUS