EU state-aid rules may force some markets to open

In their new rules restricting state aid to troubled companies, European Union regulators could require governments to open protected markets in exchange for approving some corporate bailouts. The EU announced new guidelines yesterday aimed at forcing companies to pay back state aid. But the initiative doesn’t stop at demanding cash or the selloff of assets in return. It also gives governments the alternative of fostering more competition as a way to gain EU approval for aid to companies in distress. But experts say the rules could magnify differences within Europe over the pace at which governments permit competition in protected sectors. France and Germany, which have been outspoken about protecting their industrial giants, already accuse the European Commission of jeopardizing jobs and stability by moving too quickly to liberalize markets. The commission’s new guidelines “could be an outright obligation to privatize and are very far-reaching,” said Michael Schuette, a Brussels-based state-aid partner at law firm Freshfields Bruckhaus Deringer. Mr. Schuette also said it is likely that some governments and companies will sue regulators by arguing they are taking a tougher approach to public ownership than private ownership — potentially violating EU treaty agreements that require equal treatment. The rules take effect in October and envision that companies will foot large parts of the bill for their restructurings by taking out loans at market rates or selling assets. An alternative way to get approval under the new rules would be for governments to agree to implement more aggressive liberalization measures. Regulators “can oblige the member state concerned” to “open certain markets directly or indirectly linked to the activities of the beneficiary,” the new guidelines say. Experts say regulators are most likely to demand such measures in so-called network industries — energy, railways, telecommunications and postal services — where new entrants can’t afford to build parallel networks and complain that they are overcharged by former monopolies to use existing infrastructure. “Either the company can hive off certain activities, opening up the market to competition, or the company is submitted to greater competition because the member state has dismantled certain barriers to entry,” said EU state-aid spokesman Tilman Lueder. Among the precedents for regulators is the case of French engineering titan Alstom SA, the maker of high-speed trains. The EU yesterday gave final approval for new Alstom financing of €2.5 billion ($3.09 billion) in exchange for divestments and allowing partnerships in the company’s transport and energy divisions. Regulators already won a pledge from France in May to open the rail market to more competition as part of the bailout. At the time, EU Competition Commissioner Mario Monti said France would bolster competition in the market for rail equipment by making ‘access to public tendering systems in that area much easier.’