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EU seeks repayment of Deutsche Post funds

Thursday, June 20th, 2002

FRANKFURT:

The European Commission cracked down on Deutsche Post AG for the third time in little over a year Wednesday by ordering the repayment of what it said was Û572 million ($540 million) in illegal state aid.

The commission’s anti-monopoly authorities found that the national post office, which is majority owned by the government, used state funds from 1994-1998 to undercut rivals in its unprofitable package-delivery business. While domestic mail delivery remains a monopoly in Germany, parcel services have been open to competition for years.

“This decision is a victory for fair competition and customer choice,” said Anton van der Lande, an executive in Brussels for a rival delivery firm, United Parcel Service. UPS instigated the commission’s investigation when it filed a legal complaint in 1994.

Deutsche Post, based in Bonn, said it would appeal the action in the European Court of Justice. But it also announced that it would put Û850 million into reserves in its 2002 accounts as a provision. The commission said the penalty was one of the biggest in years.

In a separate ruling in March of last year, the commission forced Deutsche Post to separate its parcel services from its domestic monopoly mail operations. The package delivery service, established as a legally independent company, was cut off from state subsidies.

At the same time, in a separate ruling, the commission levied a Û24 million fine on Deutsche Post for abusing its dominant position in Germany to undercut rivals in parcel delivery.

Europe’s national governments are sorting out the new ground rules as Brussels liberalizes the Continent’s EUR 80 billion postal market and slowly injects competition into national monopolies.

Brussels already has scrutinized the incumbent postal flagships in Ireland, France and Italy and is expected soon to finish an inquiry into Sweden’s carrier as well.

Each investigation has focused on whether the old government agencies used predatory pricing or allowed governments to shore them up against more nimble private-sector competition, said Michael Tscherny, a commission spokesman.

The commission’s decision “also sets a clear precedent for other postal operators who have embarked on a strategy of international acquisitions,” van der Lande said.

Shares of Deutsche Post plunged Wednesday to their lowest level since the Sept. 11 attacks in the United States but rebounded late to close up 24 cents at EUR 13.85.

Deutsche Post is the second of the country’s two big showcase privatizations to draw criticism and shareholder disenchantment. Debt-laden Deutsche Telekom AG, which once was twinned to Deutsche Post under the same federal agency, posted losses and saw its shares plunge this week.

At the time of their respective public share offerings, the government promoted each stock sale as the “people’s shares.” The German government has two months to propose to the commission how it will recover the money that the post office used “unlawfully” in the commercial sector, the commission said.

The commission found that Deutsche Post had EUR 572 million in losses in its parcel operations during the four-year period, which the government offset with state aid.

Source: International Herald Tribune

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