EU orders Deutsche Post, bpost to hand back millions in state aid

The EU Commission has ordered Deutsche Post and bpost to hand back hundreds of millions of euros in state aid. The order came today as the European Union’s executive branch also approved billions in state aid given to the two postal services from the 1990s onwards, along with new state aid for France’s La Poste and Hellenic Post.

Financial assistance from European national governments for even state-run postal services is regulated by the Commission to restrict the advantages that monopoly operators have against competitors in liberalised postal markets within the EU.

Some leeway is offered in governments providing aid in the light that monopoly operators must provide a universal postal service across their national territory, and for supporting posts weighed down by legacy pension costs arising from periods when they were still part of their national governments, and staff were therefore classed as civil servants who therefore enjoyed bigger pensions.

The Commission said today that Deutsche Post could hold on to EUR 5.6bn in aid provided by the German government to support the universal postal service from 1990 to 1995.

But, it said the postal service privatised in 1995 would have to hand back between EUR 500m and a billion euros of “incompatible” aid provided to Deutsche Post in the form of wrongly-assessed pension relief subsidies and the regulatory approval of “high” postal rates.

Deutsche Post is intending to appeal the order regarding the aid judged to be incompatible.

For Belgium’s bpost, the Commission said it would allow EUR 3.8bn in government help for pension liabilities that came with Belgium pension reforms in 1997, since the aid helped to bring bpost in line with pension contributions generally paid in the private sector.

However, bpost would have to pay back EUR 417m in aid related to the “overcompensation” the Belgian postal service received for its public service mission from 1992 to 2010.

bpost said today that it would consider making an appeal, believing the Commission decision was “debatable”, but also appeared to want to draw a line under a “long period of uncertainty” and move on.

The other EU state aid approvals that came today related to EUR 1.9bn in French government support for La Poste to support its periodical delivery services to citizens living in remote areas from 2008 to 2012, and EUR 52m for Hellenic Post to support the modernisation of its postal services up to 2021 and broaden services particularly in peripheral regions.

Joaquín Almunia, the EU Commission Vice-President in charge of competition policy, said: “These decisions further shape the Commission’s state aid policy in the postal sector. Our ultimate aim is to prevent distortions of competition which would hinder citizens and businesses from enjoying the benefits of full market opening that will soon be completed in all Member States.”

Deutsche Post

Deutsche Post has actually benefited from pension subsidies totalling EUR 37bn since 1995, the Commission said today, allowing it to make comparatively lower contributions to its staff pensions than its private sector competitors.

However, the EU officials, who have been investigating the matter since complaints from competitors including UPS that stretch back to the mid-1990s, decided the German post should hand back only EUR 500m to EUR 1bn related to 2003 onwards.

Deutsche Post said it would be paying the money to the German state within the next few months, assuming that the actual repayment would be “at the lower end” of the EUR 500m-1bn range stated.

But, the company confirmed today it will be filing an appeal with the European Court of Justice, seeking a return of the funds from the Commission, plus interest.

Frank Appel, the company’s CEO, insisted the ruling on the repayment was “incomprehensible and has no basis in fact”.

“If you examine the state air rulings on other European postal service providers, it becomes quite clear that here the Commission has applied double standards. We are absolutely confident that the decision will have no validity in court.”

Appel advised investors that earnings would be unaffected by the repayment of state aid, although liquidity would be “temporarily affected” until the appeal was resolved.

bpost

Belgium’s bpost has been under investigation since 2009 for its aid provided between 1992 and 2010, but that investigation is now closed, the Commission said today.

The officials found that EUR 5.2bn in state aid from the Belgian government to support newspaper and magazine delivery services had exceeded the net cost of providing those services. bpost had made “substantial profits” from its monopoly services until 2010, said the Commission, requiring recovery of EUR 417m.

bpost, in which the government has a controlling 50% stake and since 2006 the private equity group CVC Capital Partners has a minority 50% stake, will be paying back the money to Belgium in the first half of 2012.

Yet it said today it was “disappointed” with the Commission’s ruling, and was considering an appeal, but also now wanted to focus on the future.

Johnny Thijs, the bpost CEO, said the Commission had for the most part accepted the company’s arrangements for pensions and the need for improving the efficiency, quality and profitability of its postal services, but had not followed his company’s arguments in relation to support given before the Belgian market was fully liberalised, on 1st January 2011.

“The Commission has not followed our legal and economic arguments on this point, and on that we are disappointed. Legally, we believe that the decision was debatable on a number of points,” he said.

“The board of directors of the company will consider whether an appeal against the decision should go before the European Court,” said Thijs, adding that the appeal was about a refund, not a penalty.