The European Commission said this week it had launched an “in-depth investigation” into the UKgovernment’s funding of public postal operator Royal Mail.
Following complaints last year from Royal Mail’s competitors, the Commission said it would beexamining GBP 2.65 billion (EUR 3.93 billion) of funding to see if it breaches state aid rules. Themoney in question is from government loans dating back to 2001 and offset pension contributions.
It does not concern subsidies given to maintain the national network of post offices,authorised by the Commission in February last year.
“I take the complaints received very seriously,” said EU competition commissioner NeelieKroes. “The postal sector is increasingly open to competition, and it is important to reassurecompetitors that the advantages of that opening are not neutralised by illegal state subsidies.
“At the same time I want to be clear in that the Commission will also make sure that anynecessary financing intended to compensate the provision of the public service is not called intoquestion.”
Kroes added: “We will look at each of the UK’s measures carefully to see whether what theyhave done represents state aid and whether they have a lawful or unlawful purpose”.
The Commission will be examining the terms of each of the funding measures to determinewhether they constitute state subsidies, or whether they meet legal “market-investor” conditions.If the EU executive finds funds granted to Royal Mail are incompatible with state aid rules, it canorder the UK government to recover them.
The Commission is looking at four different funding facilities made available to Royal Mail:a GBP 500 million loan granted in 2001, repayable in 2021, to finance overseas acquisitions; a GBP1 billion loan made in 2003, GBP 900 million of which was not used and is to be extended after2007; a GBP 300 million loan announced on 8 February this year in the latest round of governmentfunding of Royal Mail; and, the placing of GBP 850 million in an escrow – third party trust –account to reduce the group’s pension contributions.
Royal Mail announced an 86% fall in profits earlier this month due to the group’s wideningpension deficit, now GBP 6.6 billion.
