The ‘public assistance’, under EU state rules, will help Post Office Ltd (POL) fund its network of post offices for one year, starting from 1 April 2011.

The Commission also authorised the continuation, over the same period, of existing loan facilities funding the provision of cash services at post office counters.

In a statement, the Commission “concluded that the aid is compatible with EU rules because it does not over-compensate the net costs of the important public service tasks entrusted to Post Office Ltd. and so does not give the Post Office Ltd any unfair competitive advantage”.

Commenting on the news, Joaquín Almunia, vice president in charge of competition policy at the Commission, said: “The aid will enable the UK post office network to continue performing its fundamental social and economic role and important public service tasks, without unduly distorting competition.”

POL, a subsidiary company of Royal Mail Group, currently has around 11,500 post office branches.

Despite Royal Mail being primed for privatisation under the terms of the Postal Services Bill, the UK government confirmed that POL will remain a public company. Discussions have also been held that could transform POL into mutual organisation or co-operative by 2015.

The Commission said that the measures “would prolong by one year a “Network Subsidy Payment” of £180m to keep open unprofitable offices… and a “Working Capital Facility” up to a ceiling of £1.15bn, which enables POL to hold enough cash to carry out its public service obligations”.

The previous agreement expires on 31 March 2011.

The UK authorities also notified the terms of the Post Office Card Account (POCA) contract signed between POL and the Department of Work and Pensions (DWP) on 5 March 2009.

POCA is a basic current account run by POL on behalf of DWP which is used for paying social benefits to people who do not have any other bank account.

The Commission concluded that the continuation of the Network Subsidy Payment and the Working Capital Facility, as well as any aid contained in the terms of the POCA contract is, until 31 March 2012, compatible with the EU’s Internal Market (Article 106(2) of the Treaty on the Functioning of the European Union (TFEU)).

It said the aid “did not exceed the cost for fulfilling the services liable to be compensated under the framework and the net cost for providing access to universal postal services for Royal Mail constitutes an ‘unfair financial burden’ for POL in the meaning of Annex I of the Postal Directive”.

Earlier this month, the UK government announced that POL had lost its contract to provide welfare payments to Citibank.

Source: Post&Parcel / European Commission

Tags: EU, European Commission, Post Office, Royal Mail, State Aid, UK