(1)

On 18 January 2018, the Czech authorities pre-notified compensation to Czech Post for the provision of the universal postal service obligation (‘USO’) over the 2018-2022 period. On 8 March 2019, following pre-notification discussions in particular on the net avoided cost (‘NAC’) methodology, the Czech authorities withdrew this pre-notification.

(2)

On 20 August 2019, the Czech authorities again pre-notified compensation to Czech Post for the provision of the USO over the 2018-2022 period (‘the measure’). Compared to the pre-notification of 18 January 2018, the measure was amended in particular as regards the calculation of the NAC.

(3)

On 8 and 22 November 2019, the Commission received two formal complaints from two competitors of Czech Post, Zásilkovna s.r.o. (‘Zàsilkovna’) and První Novinová Společnost a.s. (‘PNS’, former ‘Mediaservis’). The complaints were registered under numbers SA.55686 (2019/FC) and SA.55497 (2019/FC) (1) respectively.

(4)

The complaints were forwarded to the Czech authorities on 4 December 2019. The Czech authorities replied by letter dated 31 January 2020.

(5)

On 28 January 2020, the Czech authorities notified compensation to be granted to Czech Post for the provision of the USO over the 2018-2022 period.

(6)

On 12 March 2020, the Commission requested additional information from the Czech authorities, which replied by letter dated 24 April 2020.

(7)

By decision dated 23 June 2020, the Commission informed the Czech authorities that it had decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union (‘TFEU’) in respect of the aid (2) (‘the opening decision’). The Commission requested the Czech authorities to submit their comments and to provide all such information as may help to assess the aid, and also invited all interested parties to submit their comments on the aid.

(8)

The Commission received the comments on the opening decision from the Czech authorities and from Czech Post by letter dated 24 July 2020.

(9)

The Commission received comments from Zàsilkovna on the opening decision by letter dated 2 October 2020 and from PNS by letter dated 3 October 2020.

(10)

The Commission forwarded the comments from all third parties to the Czech authorities on 9 November 2020.

(11)

The Czech authorities provided their observations on the comments from third parties by letter dated on 3 February 2021.

(12)

On 9 July 2021, the Commission’s services sent a letter to Zàsilkovna and PNS informing them that cases SA.55686 (2019/FC) and SA.55497 (2019/FC) would be closed and that the formal investigation procedure would be jointly processed under case number SA.55208 (2020/C). As a result, the comments and the information provided with the complaints in cases SA.55686 (2019/FC) and SA.55497 (2019/FC) would be examined in the context of the formal investigation procedure SA.55208 (2020/C).

(13)

On 12 November 2021, the Commission requested additional information from the Czech authorities. The Czech authorities replied by letter dated 10 December 2021.

(14)

On 2 December 2021 Zàsilkovna sent further comments to the Commission.

(15)

On 17 February 2022 and 29 March 2022, the Commission requested clarification on the information that the Czech authorities submitted by letter of 10 December 2021. The Czech authorities replied by letters of 16 March 2022 and 1 April 2022, respectively.

(16)

Czechia exceptionally agrees to waive its rights deriving from Article 342 TFEU, in conjunction with Article 3 of Regulation No 1/1958 (3) and to have this Decision adopted and notified in English.

(17)

The sole beneficiary of the measure is Czech Post, which is the main postal operator in Czechia.

(18)

Czech Post is wholly owned by the State and was founded in 1993 by the Ministry of Economy of the Czech Republic, in accordance with the State-owned Enterprises Act (4). Its legal and ownership statuses are regulated by the State-owned Enterprises Act (5).

(19)

Besides postal services, Czech Post also provides a number of other services, such as financial services (banking services, cash handling services, and services related to the payment of pensions).

(20)

Despite the liberalisation of the Czech postal market on 1 January 2013, competition in the letter market did not develop significantly. The most important competitors of Czech Post in the letter market are PNS and Česká distribuční and, in the parcel market, are PPL CZ (Professional Parcel Logistic), Direct Parcel Distribution CZ (DPD), General Logistics Systems Czech Republic (GLS) and Zásilkovna.

(21)

By decision of 12 December 2017 of the national postal regulator, the Czech Telecommunication Office (‘CTO’) (6), Czech Post has been entrusted with the USO from 1 January 2018 to 31 December 2022.

(22)

The scope of the USO entrusted to Czech Post is set out in national legislation, namely Section 3, paragraph 1, of the Postal Services Act (7), and includes:

(23)

As a universal service provider, Czech Post is obliged to ensure accessibility to all universal postal services, at affordable prices, throughout the whole territory of Czechia, and at least once every working day.

(24)

The legal basis for the provision of the USO is the following:

(25)

Czech Post is also entrusted with the provision of the data boxes information system (‘DBIS’) over the 2018-2022 period. On 2 February 2018, the Commission adopted a decision (10) concluding that compensation for the amount of CZK 2,3 billion (EUR 85,1 million) to be granted to Czech Post for the delivery of DBIS over the period 2018-2022 constitutes State aid compatible with the internal market under the 2012 SGEI Framework (11).

(26)

DBIS is an electronic channel for internal communication within the public administration and for secured communication between the public administration and citizens and companies, which, in some cases, replaces conventional postal services such as registered post.

(27)

The notified measure concerns the public financing for the provision by Czech Post of the USO as defined by the Czech authorities (see recital 22) over the period 2018-2022, to be granted on the basis of the Postal Services Act. Pursuant to Article 34e(3) of the Postal Services Act, the CTO may not transfer funds to pay for preliminary net costs or net costs representing an unfair financial burden until the Commission has taken a decision on the compatibility of the compensation with the internal market.

(28)

The compensation to be granted to Czech Post will depend on the net costs of the USO, as defined by the Czech authorities, as verified by the CTO, and is limited to a maximum amount of CZK 1 500 million (EUR 55,5 million (12)) each year (see recital 33).

(29)

Pursuant to Section 34c of the Postal Services Act, the level of the USO compensation for each year is not set in advance, but is calculated and paid annually in three steps.

(30)

For the provisional net costs incurred in a given year, Czech Post may submit a request for reimbursement to the CTO from 1 July until 31 December of that year (year t), in accordance with Section 34c of the Postal Services Act. In such cases, the CTO will issue a decision establishing the provisional net costs as equal to 50 % of the net costs calculated (using the method described in Section 8.2.8) for the preceding year (year t-1) for which the amount has been verified. Within 30 days from the date on which the decision becomes final, Czechia will reimburse Czech Post in respect of the provisional net costs via the CTO.

(31)

For the actual net costs incurred in a given year, Czech Post may submit a request for reimbursement to the CTO by 31 August of the following year (year t+1), in accordance with Section 34d of the Postal Services Act. The CTO will perform the verification of the net cost calculated by Czech Post using the NAC methodology. The CTO will establish, by means of a decision, the net costs equating to the amount of the net costs verified in accordance with Section 34b of the Postal Services Act. For reimbursing net costs, the CTO will deduct the provisional net costs already reimbursed to Czech Post. If the provisional net costs paid are higher than the net costs incurred in a given year, Czech Post will reimburse the difference to the State.

(32)

The CTO verifies the origin and amount of the net costs in the manner specified in Section 34b of the Postal Services Act. If following this verification it results that the net cost calculation is correct, Czech Post will be legally entitled to the reimbursement of the net costs.

(33)

The CTO verifies the net cost of the USO as defined by the Czech authorities in accordance with Section 34b of the Postal Services Act. The net cost is reimbursed up to the maximum amount of CZK 1 500 million for each year, in accordance with Section 34d of the Postal Services Act, based on the analysis of the unfair burden of the USO.

(34)

Zàsilkovna, a competitor of Czech Post active in the parcel delivery market, contends that Czech Post has benefited from unlawful aid since ‘at least’ 2013. The complaint lodged by Zàsilkovna is summarised below.

(35)

Zàsilkovna considers that the entrustment act is not in line with the SGEI Framework, because the method to determine the amount of compensation for Czech Post is not objective and transparent. Zàsilkovna argues that neither the Czech authorities nor Czech Post has explained or published any details about the net cost calculation on the basis of which the amount of compensation was determined.

(36)

Zàsilkovna also considers that Czech Post has received excessive financial resources as compensation for the USO, as defined by the Czech authorities, from 2013 to 2017, and that this will be ‘all the more so’ the case for the 2018-2022 period. In that respect, Zàsilkovna points out that the annual unfair burden limit for the period 2018-2022 has increased threefold, to CZK 1 500 million, compared to the amount accepted in the Commission decision covering USO compensation for the 2013-2017 period (the ‘2018 USO Decision’) (13). Zàsilkovna considers that Czech Post uses that excessive compensation to cross-subsidise its non-USO services, notably on the parcel market (14).

(37)

In particular, Zàsilkovna considers that Czech Post receives excessive compensation because it allocates the full cost of its delivery and transportation network to the USO, and it therefore does not properly attribute a share of those costs to its ‘Balíkovna’ service (the delivery of parcels to pick-up outlets other than post offices) and hence cross-subsidises this service from its allegedly excessive USO compensation. According to Zàsilkovna, the Balíkovna service is offered ‘substantially below cost’. Zàsilkovna seems to consider that Czech Post has misallocated costs since at least 2013.

(38)

Zàsilkovna substantiates its argument concerning Balíkovna’s prices by reference to its own prices and those of other private competitors for the delivery of parcels to pick-up points (which are all, allegedly, higher). In addition, Zàsilkovna notes that the prices for Czech Post’s parcel deliveries to post offices, a service that according to Zàsilkovna is very similar to Balíkovna’s service because they both have a high amount of common costs and the same level of process efficiency, are between two and three times higher.

(39)

PNS alleges that Czech Post will be overcompensated for the provision of the USO, as defined by the Czech authorities. PNS claims that the counterfactual scenario of the NAC is not credible, as the reduction in the number of post offices would have a significant influence on the revenues generated by Czech Post from non-USO services. PNS claims that the counterfactual scenario would involve the loss of all revenues generated through non-USO services, amounting to CZK 4,25 billion (EUR 157,3 million) annually, which is allegedly not properly accounted for by the calculations of the Czech authorities and Czech Post.

(40)

PNS also alleges that Czech Post has wrongly categorised certain services as non-USO services and by so doing has artificially lowered the revenues generated by the USO. This leads, according to PNS, to an artificially higher net cost to be compensated.

(41)

PNS also notes in that respect that the Postal Services Act has been amended to significantly increase the limits for net cost compensation to CZK 1 500 million (EUR 55,5 million) per year, from CZK 500 million (EUR 18,5 million) per year originally. PNS points out that, in the 2018 USO Decision, the Czech authorities had estimated the net cost of the USO at maximum CZK 984 million (EUR 36,4 million) per year, significantly below that increased ceiling.

(42)

PNS also considers that Czech Post has violated the transparency requirements set out in Directive 97/67/EC of the European Parliament and of the Council (15), and in particular Annex 1, part C, subparagraph 1, thereto as well as Article 7(5) thereof, by publishing only the amount of the compensation, and not the calculations of the NAC.

(43)

PNS claims that the calculation of Czech Post’s net costs is not in line with Annex 1, Part B, subparagraph 5, to Directive 97/67/EC. The latter provides that ‘the calculation is to be based on the costs attributable to elements of the identified services which can only be provided at a loss or provided under cost conditions falling outside normal commercial standards’. PNS also considers that Czech Post violates Section 33 of the Postal Services Act, which obliges it to offer services within the scope of the universal service at cost-oriented prices.

(44)

PNS claims that Czech Post offers ‘immense’ discounts of up to 60 % to large senders, leading to ‘extraordinarily’ low prices, below cost. According to PNS, this is the result of Czech Post’s own pricing policy and should not be understood as falling outside normal commercial standards within the meaning of Directive 97/67/EC, i.e. the USO, as defined by the Czech authorities, does not oblige Czech Post to charge prices below cost. The calculation of Czech Post’s compensation therefore cannot take any losses resulting from that practice into account.

(45)

To support this argument, PNS has provided another example and notes that prices for hybrid post (16) have increased by almost 20 % in 2019, meaning, in the view of PNS, that either the new price is too high and exceeds a reasonable profit margin or the previous, lower, price was not cost-oriented as it would have been too low to cover costs.

(46)

On 23 June 2020, the Commission opened the formal investigation procedure regarding the USO compensation for Czech Post for 2018-2022 due to its doubts as to the compatibility with the internal market.

(47)

In the opening decision, the Commission first expressed its doubts on the scope of the USO, as defined by the Czech authorities. Indeed, the USO entrusted to Czech Post, as described in recital 22, is wider than the services described in Article 3 of Directive 97/67/EC. In particular, the Commission noted that the USO includes postal money orders, which are not listed in that Article and are referred to in Directive 2008/6/EC of the European Parliament and of the Council (17) as additional or complementary services. In addition, the Commission considered that the public was not specifically consulted on the inclusion of postal money orders in the scope of the USO for the notified period. As a result, it concluded that that there were doubts that the USO as defined by Czechia in the Postal Services Act (or at least that post money orders) could qualify as a genuine SGEI.

(48)

Second, and related to the doubts on the scope of the USO, as defined by the Czech authorities, the Commission also expressed doubts as to the compliance with EU public procurement rules as regards the direct award of the USO. Indeed, designating a USO provider under Article 4(2) of Directive 97/67/EC is possible if the scope of the activities carried out by the USO provider can be considered a universal service as defined in Article 3 of that Directive.

(49)

Third, the Commission expressed doubts in the opening decision on the amount of compensation to be granted to Czech Post. In this regard, the Commission expressed doubts as to the plausibility of the design of Czech Post’s counterfactual scenario. In particular, the Commission had doubts that Czech Post would have closed, under the counterfactual scenario, more than a 1 000 offices that it had been operating voluntarily up to the end of 2015. The Commission noted that the mere entry into force of an implementing decree in 2016 preventing the closure of certain post offices does not, in itself, render the operation of those post offices a burden and that Czech Post could have closed them at any point before the entry into force of the implementing decree, but chose not to do so.

(50)

In addition, the Commission expressed doubts as to the quantification of the impact of the changes Czech Post proposed to its postal infrastructure and delivery frequency in the counterfactual scenario. As regards the quantification of the demand effect in the counterfactual scenario stemming from the reduction in infrastructure (18), the Czech authorities carried out a survey which indicated among others that 29 % of respondents would stop using Czech Post for financial services if the post office they were currently using would close, while postal services would also be strongly affected since 20 % of respondents would stop using Czech Post to send registered letters. Even though the demand responses from the surveys should not necessarily lead to corresponding decreases in demand, according to the Czech authorities, in the counterfactual scenario, revenues from non-USO services would decrease by only 4 %, whereas demand for registered letters would decrease by only 1,1 %. In light of the above, the Commission expressed doubts that the demand effects of post office closures have been quantified correctly.

(51)

As regards the quantification of the demand effect in the counterfactual scenario stemming from the reduction in delivery frequency (19), the Czech authorities carried out another survey asking a sample of 1 002 citizens that had used Czech Post to send letters in the past six months, whether they would consider it ‘acceptable’ that letters they send would be delivered within two working days, as opposed to the next day. According to the survey, [70-95] % of respondents would consider it acceptable, [2,5-15] % of respondents would consider it unacceptable, and another [2,5-15] % would consider it neither acceptable nor unacceptable. According to the Czech authorities, as a consequence of the reduction in the delivery frequency, volumes for non-registered letters would decrease by [5-15] % in the counterfactual scenario. Considering the aforementioned, the Commission expressed doubts, firstly, that this survey permits any firm conclusions regarding the precise demand effects of reducing the delivery frequency, since whether a respondent finds a change in Czech Post’s delivery rates acceptable or not does not necessarily illustrate how demand would be affected. Secondly, the Commission was doubtful that the Czech authorities quantified that demand effect correctly, given the discrepancy between the results of the survey and the reduction in volumes.

(52)

Finally, on the NAC of the USO the Commission expressed doubts that the Czech authorities correctly took into account the net cost for the provision of the DBIS. Indeed, when calculating the NAC of the USO, any double counting with the NAC calculated for the DBIS for which Czech Post has been entrusted for the same period (‘the DBIS decision’) (20) must be avoided. In the present case, the Czech authorities have calculated that the NAC (USO+DBIS) is equal to CZK 15,2 billion (EUR 562,6 million) over 2018-2022. The NAC (DBIS) is equal to CZK 5,2 billion (EUR 192,5 million) for the same period (21). This results in an NAC (USO) of CZK 10,0 billion (EUR 370,1 million). The Czech authorities conclude however that the NAC (USO) is CZK 12,3 billion (EUR 455,3 million), or an average of CZK 2,5 billion (EUR 92,5 million) per year. As a result, the Czech authorities would appear to have committed a methodological error.

(53)

In light of the above, the Commission concluded it had doubts as to the estimation of the NAC of the USO for 2018-2022. The Commission noted that, despite the cap at CZK 7,5 billion (EUR 277,6 million), whereas the NAC has been estimated at CZK 12,3 billion, the uncertainties in the NAC were too significant to exclude that the NAC could potentially be even lower than the anticipated compensation cap and that Czech Post may potentially be overcompensated for the USO.

(54)

Fourth, the Commission expressed doubts on the efficiency incentive. Indeed, the maximum amount of compensation of Czech Post for the period 2018-2022 is laid down in the Postal Services Act, and that amount is fixed over the entrustment period. To the extent that Czech Post’s compensation ceiling is lower than the NAC, the Commission would consider that approach acceptable to ensure the existence of an efficiency incentive. However, taking into account the uncertainties mentioned in recital 53 above, the Commission also expressed doubts as to whether the USO complied with the efficiency incentives requirement set out in paragraph 39 of the 2012 SGEI Framework (22).

(55)

Fifth, the Commission expressed doubts that the transparency requirements set out in paragraph 60 of the 2012 SGEI Framework were met. Indeed, the Commission considered that the public consultation referred to in recital 47, if it had been necessary, should have been published.

(56)

Zàsilkovna shares the doubts that the Commission raised in the opening decision and has put forward additional comments with respect to the compatibility of the measure.

(57)

In particular, Zàsilkovna takes the view that the USO, as defined by the Czech authorities, or at least the parcel-delivery services, can be performed by private operators as is the case in Germany, the Netherlands and Sweden on a commercial basis without any State aid. To this end, it argues that the current market conditions do not correspond to a market failure for the provision of the USO on a commercial basis and thus that the USO cannot be regarded as a genuine SGEI.

(58)

Zàsilkovna explains that its postal parcel network meets the requirement of at least 3 200 post offices as laid down in Government Order N.178/2015 Coll. It also explains that its postal network meets all basic quality criteria to ensure sufficient availability and the vast majority of criteria to ensure sufficient density. Zàsilkovna’s postal network could very quickly fulfil also the remaining criteria to qualify as a nationwide postal network required for the provision of the USO as laid down in Decree No 464/2012.

(59)

Zàsilkovna claims that the depreciation periods for the assets for the provision of USO, as defined by the Czech authorities, for the purposes of entrustment period are unfounded, since it is not clear: which of the assets listed in Table 1 of the opening decision are intended to be financed from the USO compensation; when they were purchased or when are intended to be purchased; or whether their depreciation period has lapsed. The list also lacks any substantiation as regards the necessity of the assets for the provision of the USO. In Zàsilkovna’s view, such a list is completely not transparent and cannot be used as evidence.

(60)

According to Zàsilkovna, the USO compensation is not in line with the financial transparency requirements set out in the SGEI Framework. In Zàsilkovna’s view, Czech Post has already formally included part of the compensation in the 2019 annual report prior to Commission’s approval and payment of the compensation. In addition, Zàsilkovna claims that Czech Post voluntarily subsidises the below-cost prices for its non-USO services with the USO services, increases its losses and allocates them to USO activities, as defined by the Czech authorities.

(61)

Zàsilkovna also claims that the Czech authorities infringed the public procurement rules set out in Article 4(2) of Directive 97/67/EC, since the relevant criteria were set up by the regulator (i.e. CTO) in a discriminatory manner as they were tailor-made for Czech Post. It argues that: (i) the PMOs were intentionally included in the scope of the USO, conferring, in this way, an advantage on Czech Post, which was the only postal operator that could offer such services (i.e. infrastructure, network, special logistics, etc.); and (ii) the evaluation criteria/points were set in a manner that allowed Czech Post to collect the majority of the awarding points.

(62)

According to Zàsilkovna, the notified NAC amount leads to overcompensation of the USO, as defined by the Czech authorities, due to several reason such as:

(63)

Finally, Zàsilkovna is of the view that the cross-subsidisation of purely non-USO activities mentioned in recital 60 constitutes a stand-alone State aid issue which the Commission should assess separately. According to Zàsilkovna, Czech Post has been cross-subsidizing the below cost prices for its non-USO activities. Moreover, Czech Post is able to provide these services for below-cost prices by not properly sharing the costs for the infrastructure and network operation between USO and non-USO activities.

(64)

PNS takes the view that the entrustment of the USO, as defined by the Czech authorities, is not in line with paragraph 13 of the 2012 SGEI Framework according to which Member States cannot attach specific public service obligations to services that are already provided or can be provided satisfactorily by undertakings operating under normal market conditions. In that respect, PNS argues that there are several competitors, PNS being one of them, which are not only ready and willing to discharge the USO in Czechia, but which actually already are discharging services that are interchangeable with the services falling within the scope of the USO across the entire Czechia, which could ensure the provision of these USOs to the same extent and in the same quality as Czech Post and at much lower net cost compensation, if at any at all.

(65)

According to PNS, PMOs go beyond the definition of the USO as set out by Article 3 of Directive 97/67/EC. This provision of the Postal Services Act therefore represents a direct contradiction with Directive 97/67/EC. PNS also claims that the inclusion of PMOs into the USO does not make any sense economically since PMO services could be easily provided by banks as well as other professional money institutions without any additional cost and surely cheaper than Czech Post. With respect to the NAC of the PMO, PNS considers that it must be excluded from the USO, meaning a reduction of at least CZK 200 million (approximately EUR 8 million) annually (23).

(66)

PNS also takes the view that the entrustment of Czech Post with the USO, as defined by the Czech authorities, by way of direct award violates procurement rules. In that respect, PNS argues that the tender for the USO had been discriminatory to operators other than Czech Post. In PNS’s view, PMOs were intentionally included in the scope of the USO, conferring in this way an advantage to Czech Post, being the only postal operator that could offer such services (i.e. infrastructure, network, special logistics, etc.), and the evaluation criteria/points were set in manner that allowed Czech Post to collect the majority of the awarding points.

(67)

According to PNS, the mere entry into force of an implementing decree in 2016 preventing the closure of certain post offices does not in itself render those post offices a burden – Czech Post could have closed them at any point before the implementing decree entered into force, yet it chose not to do so.

(68)

According to PNS, the USO compensation is based on an unrealistic counterfactual scenario of closed postal offices, which does not reflect any standard or market-oriented behaviour of an ordinary market player, while the number of closed postal offices is chosen intentionally to support the new net cost compensation set from 2018, so that it is higher than the previous one for 2013-2017. The closure of postal offices is against the market trend since major competitors of Czech Post, such as PNS and Zásilkovna, are each operating over 3 000 postal offices without USO.

(69)

According to PNS, the NAC for the USO is contrived and calculated incorrectly, without taking into account: (i) a proper quantification of the net cost stemming from the operation of offices to close in the counterfactual scenario; (ii) the savings generated by the new, less frequent delivery scheme of Czech Post; and (iii) the voluntarily losses of Czech Post’s non-USO services which must be deducted from the NAC amount.

(70)

PNS also claims that Czech Post does not separate its accounts properly, and that it wrongly allocates the costs related to non-USO services to the USO services, as defined by the Czech authorities, and then requires the compensation of such artificially increased net costs of the USO while it cross-subsidises the losses of the non-USO items. It argues that the regulator, CTO, regularly concludes that Czech Post complies with the requirements of the national law on the separation of accounts, but it does not in fact investigate whether the allocation keys are materially correct. In PNS’s view, the auditor only confirms that Czech Post has correctly inserted numbers into the prepared tables, while no material evaluation of the methodology on the separate accounts has been performed, neither by the CTO nor by an auditor, ever since the CTO has adopted this methodology of separation of accounts more than 7 years ago.

(71)

Furthermore, PNS points out that several facts suggest that Czech Post does not discharge its USO in an efficient manner as a well-run undertaking. For instance, a non-profit organisation Hlídač státu (‘State Watchdog’), whose mission it is to shed light and transparency onto the functioning of the Czech government, and any handling of public finances, lists Czech Post in the second place in a blacklist of the allegedly least transparent entities indicating that the risk of corruption is extremely high. PNS is also of the view that Czech Post’s finances are being spent unreasonably, purposelessly and inefficiently. All expenses of this kind must be accordingly eliminated from the NAC calculation, as these costs are irrelevant for both the provision of USO and non-USO services, since they are spent unnecessarily (24).

(72)

Finally, PNS brings to the Commission’s attention the contract between Czech Post and the Czech Statistical Office (Český statistický úřad) regarding the 2021 census, which was awarded to Czech Post without any public tender, despite the fact that this contract is worth CZK 876 859 000 (approximately EUR 33 million). PNS urges the Commission to evaluate this contract awarded to Czech Post carefully, as the remuneration for Czech Post under that contract could actually be non-notified State Aid for Czech Post, in breach of Article 108(3) TFEU.

(73)

Czech Post takes the view that the inclusion of the PMO in the USO was subject to a public consultation and, even if the Commission would not regard the consultation which took place as a ‘proper public consultation’, Czech Post considers that it represents ‘[another] appropriate instrument’ by way of which it was verified that the inclusion of the PMO in the USO was necessary in view of interests of the users. Czech Post considers that the public was consulted on the USO in general, including PMO, through the following instruments:

(74)

According to Czech Post, the PMO service has a positive effect on the amount of net costs of the USO, as defined by the Czech authorities (namely, it decreases the amount of those costs). The PMO service thus covers its own costs and contributes to covering the costs of other components of the USO. The provision of the PMO service by Czech Post thus requires no payments from public funds. There is therefore no need for the conditions of the SGEI Framework (including the requirement for a public consultation) to be met with regard to this service, as Czech Post receives no State aid for it.

(75)

Czech Post disagrees with the Commission’s assertion that imposing an additional or complementary service within the meaning of recital 30 of Directive 2008/6/EC rules out direct award pursuant to Article 4(2) of Directive 97/67/EC since it had been properly verified that there existed a public interest in ensuring that the obligation to provide PMO services was imposed on the USO provider and, at the same time, it had been verified, through the procedure under the Postal Services Act, that Czech Post was the only entity capable of providing the USO, as defined by the Czech authorities.

(76)

As regards the doubts the Commission expressed on the counterfactual scenario (recital 107 of the opening decision), Czech Post submitted that, while there was no formal obligation to maintain a certain (higher) number of post offices until 2016, on the basis of the available information and political discussion of the time, there was no doubt that the theoretical option of reducing the number of post offices to 2 100 was only temporary, since Czech Post would be required by law to reopen any post offices it had closed. Such a procedure would be absolutely irrational in economic terms. Furthermore, Czech Post argues that nothing can be inferred from this in relation to the counterfactual scenario, which models a situation in which Czech Post was not bound by the USO, as defined by the Czech authorities, and the closure of certain post offices was therefore not just temporary.

(77)

Czech Post claims that the Commission’s doubts concerning the quantification of the demand effect of closing post offices in the counterfactual scenario is unfounded because:

(78)

Czech Post also claims that the Commission’s doubts concerning the quantification of demand effect of reducing the delivery frequency in the counterfactual scenario is unfounded for two reasons. First, from the customer’s point of view, it is only a matter of a reduced likelihood that their consignment will be delivered the next day, where, as in the vast majority of cases, the customers would not notice the change in the manner of delivery unless they were explicitly advised about it. Second, the counterfactual scenario assumes that no other adequate substitute product (28) is offered for postal consignments with a guaranteed time of delivery, which could contribute to corresponding revenue losses.

(79)

Czech Post is of the view that it is, by far, not compensated for the total costs of the USO, as defined by the Czech authorities, and thus constantly motivated to increase the efficiency of the USO services.

(80)

Finally, Czech Post claims that paragraph 60 of the SGEI Framework concerning transparency requirements was also complied with. To this end, Czech Post argues that: (i) the results of the CTO Review of 2016 (29) and the public consultation organised by the CTO in 2016 were published on the CTO’s website (30); (ii) the results of the public consultations carried out within the preparation and enactment of the Amendment to the Postal Services Act in 2011 and 2012 are published, as part of the explanatory memorandum on the amendment (31), in the eKLEP library for the public (32) and on the website of the Chamber of Deputies; and (iii) the results of the individual stages of the legislative process are available, together with the stenographic records of each of the sessions of the Chamber of Deputies and of the Senate where the draft Amendment to the Postal Services Act was discussed (33).

(81)

The Czech authorities take the view that the PMO service qualifies as an SGEI and therefore should be included in the scope of the USO. First, they consider that there are no services similar to the PMO provided on a commercial basis (34). Second, the PMO has the nature of a public service in the interest of satisfying the needs of the public (especially vulnerable groups of the population). Third, the scope of the USO was the subject of discussions and consultations with the general public and interested parties when preparing the amendment to the Postal Services Act in 2012. Lastly, the intention to impose the USO, including the PMO, for the 2018-2022 period was based on the conclusions drawn from an extensive review of the quality and manner of providing and assuring the USO and its general availability in the territory of Czechia, conducted by the regulator, CTO. The review concluded that both the postal services and PMO services included in the scope of the USO could not be provided by the market.

(82)

The Czech authorities explain that the obligation to provide and arrange for the USO is imposed under Section 22 of the Postal Services Act on the basis of a tendering procedure. The conditions of this tendering procedure were set so that any party interested in providing the USO, as defined by the Czech authorities, could participate and that the applicable requirements for transparency, equal treatment and non-discrimination would be complied with. Prior to the announcement of the tendering procedure, the CTO had been informally advised that several operators would be interested in participating; however, only one candidate eventually registered for the tendering procedure – Czech Post. Due to non-compliance with one of the conditions for participating in the tendering procedure, its application was dismissed.

(83)

With a view to ensuring continuous provision of the USO in line with the applicable quality requirements throughout the territory of Czechia, the Czech authorities imposed the USO on Czech Post as it best met the evaluation criteria. In doing so, the Czech authorities applied the procedure laid down in Section 22(9) of the Postal Services Act stipulating that the CTO may impose, by virtue of a decision on granting a postal licence, the obligation to provide and arrange for the universal services set out in the announcement of the tendering procedure on the operator who best meets the evaluation criteria. For this reason, the CTO initiated ex officio administrative proceedings with Czech Post on granting a postal licence for the period from 1 January 2018 to 31 December 2022, as Czech Post best met the criteria set out in the announcement of the tendering procedure. Considering the aforementioned in recitals 81 and 82, in the Czech authorities’ view, all applicable requirements for transparency, proportionality, equal treatment and non-discrimination were complied with in the process of imposing the obligation to provide the USO, as they follow from Directive 97/67/EC and the public procurement rules, thus also meeting the requirements of paragraph 19 of the SGEI Framework.

(84)

As regards the plausibility of the counterfactual scenario, the Czech authorities clarify that, in that scenario, reception and delivery of registered letters and parcels will be offered not only in post offices but also in PostPoints along with delivery of express parcels currently falling outside the scope of the USO, as defined by the Czech authorities, (e.g. the services Balík Do ruky, Balík Na poštu, Balík Do balíkovny) as well as in Balíkovna network (i.e. a network of pick-up points offering only one service - ‘Parcel to a Parcel Pick-up Outlet’, in Czech ‘Balík do Balíkovny’) by adding third-party branches and thereby creating an external network of pick-up points operated similarly to that used by the competitors on the Czech parcel market. Czech Post will thus offer postal services in PostPoints and the Balíkovna network, but will not offer commercial non-postal services (e.g. bank services, sale of lottery tickets) at these points. Finally, the Czech authorities explain that what the other providers consider as ‘post offices’ in their own branch networks, are just sales points (e.g. newspaper stands) and pick-up points (third party commission-based service points) that cannot be regarded equivalent to post offices within the meaning of Postal Services Act as they do not meet the relevant requirements to offer the full range of USO services. Czech Post’s post offices offer more services and are thus more costly than the sales points and pick-up points of the competitors.

(85)

According to the Czech authorities, the obligation to ensure the availability of the USO at a minimum of 3 200 post offices was already imposed before the designation of the universal service provider for the notified period (2018-2022). This obligation would apply to any designated Universal Service Provider in Czechia. For this reason, the Czech authorities consider the number of post offices where Czech Post offered its services in the 2013-2015 period irrelevant to the assessment of the plausibility of the counterfactual scenario as regards the closure of post offices. However, the Czech authorities explain that it made sense economically for Czech Post to maintain voluntarily 1 118 (non-mandatory) loss-making post offices for the 2013-2015 period, since it was known in advance at the time that that these offices would re-open in 2016.

(86)

The Czech authorities also explain that, on the basis of the financial data, the estimated revenue losses due to the closure of the post offices in the counterfactual scenario would be limited since the closed offices generate only a small fraction ([15-35] %) of the total revenues generated by the entire postal network while some of the revenues from the post offices to be closed would be transferred to Postpoints. The revenue loss is inferred not only from the results of a relevant survey, but also from other facts, such as the distance to the nearest post office and availability of a similar service on the market.

(87)

With regard to the doubts expressed by the Commission on the use of the survey results for the quantification of the demand effect of the downsizing of the post office network in the counterfactual scenario, the Czech authorities explained that they took into account the survey results (35) indicating that 23 % of respondents would stop using Czech Post for financial services not falling within the scope of the USO as defined by the Czech authorities if the post office they are currently using were to close. This percentage of loss of demand was applied only to the revenues from financial services realised only on closed post offices in the counterfactual scenario (not to all revenues from financial services realised on all post offices provided by Czech Post). However, financial services are only a marginal business activity of Czech Post, since the income from financial services represents less than [5-20] % of Czech Post's total income. Therefore, the respective loss of demand in the counterfactual scenario would also be marginal. The lost demand of registered letters was calculated in the same way. Since approximately only [20-45] % of registered letters are sent by customers from post offices, a rather limited loss of demand would be expected in the counterfactual scenario in that respect.

(88)

With regard to the quantification of the remaining demand migrated from the closed offices to the remaining ones in the counterfactual scenario, the Czech authorities explained that they did not assume that the remaining demand of the closed offices would be the same in percentage terms for all closed offices and for all kind of postal services (i.e. irrespective of the proximity to the remaining post office and presence of competition). In particular, the percentage of the loss of revenues of letters depends on the distance that customers must travel to the nearest post office (e.g. for standard letters, up to 3 km, [0,5-2] %, up to 5 km, [1-3] %, up to 10 km, [2-6] % and over 10 km, [3-8] %). A different approach was applied for parcels, where the Czech authorities used a different percentage (i.e. [30-55] %) of the loss of demand regardless of distance between the closed office and the nearest remaining open post office. This approach was based on the fact that the parcel market is highly competitive in Czechia, the competitors' services are available all over the country, therefore they did not consider a different impact to demand depending on distance from nearest post office. In their view, the transfer of the remaining demand to the nearest 3 post offices most closely simulates the actual shift of customers to the remaining postal offices, based on the probability of customer movement. Finally, the Czech authorities explained that they carried out a targeted survey in order to quantify the aforementioned assumptions.

(89)

With regard to the impact of the downsizing of the post office network in the counterfactual scenario on the overall operation of Czech Post, the Czech authorities explained that Czech Post carries out a collection from post boxes, sorting and delivery independently of postal offices. Therefore, a reduction in the number of postal offices does not cause an increase in sorting costs.

(90)

Contrary to the Commission’s doubts expressed in recital 114 of the opening decision, the Czech authorities claim that the demand effect of the reduction in delivery frequency has been quantified correctly since the CTO took into account the offer of substitution services that could have affected the change in demand, along with the market survey mentioned in recital 113 of the opening decision (‘the market survey’). The Czech authorities explain that Czech Post changed the delivery frequency in February 2020 and offers ‘economy consignments’ with D+n (36) delivery and ‘priority consignments’ with D+1 (37) delivery. Economy consignments are CZK 7 cheaper than priority consignments (this difference applies to both standard and registered letters). Data (38) corresponding to a limited period from February to May 2020 seems to indicate that the demand effect of the reduction in delivery frequency would be rather limited in the counterfactual scenario.

(91)

Furthermore, the Czech authorities explained that they estimated the plausible additional capacity required in order for Czech Post to continue operating in the counterfactual scenario. First, they estimated how much capacity is needed to transfer from every closed post office, then they transformed the diverted volume (in work-hours) to the remaining post offices and finally they tested the new capacity of remaining post offices. The Czech authorities explained that the excessive capacity at the commercial (39) post offices relates to the USO because the demand of services is laid out across all obligatory post offices and therefore these postal offices are not fully utilised and profitable (the demand for postal services does not increase proportionally with the number of post offices, i.e. more post offices does not necessarily lead to higher revenues). The low workload on such commercial postal offices is also caused by the peaks and troughs during the opening hours. Czech Post flexibly changes the number of open counters to adapt to peaks and troughs, but there is a limitation to such adaptation due to the working hours of employees.

(92)

As regards the Commission’s view set out in recital 115 of the opening decision that the Czech authorities may have committed a methodological error in the calculation in the NAC, the Czech authorities assume that this is a misunderstanding and maintain their view that they have considered properly the DBIS NAC in the calculation of the USO NAC. In their view, they did not deviate substantially from the calculation principles used for the 2013-2017 period, but merely redefined the counterfactual scenario to reflect the current situation on the Czech postal market.

(93)

As regards the Commission’s doubts as to whether the requirement under paragraph 39 of the SGEI Framework is met, the Czech authorities argue that setting a maximum permissible amount to cover the net costs is a common tool for ensuring efficiency of the USO provider, which is thus motivated to cut costs and improve the organisation of work with the aim of reducing the costs that will not be compensated. The Czech authorities also consider that the control of the quality (40) of the USO by the CTO can be regarded as another available instrument to exclude overcompensation and ensure efficient provision of the USO.

(94)

Finally, the Czech authorities argue that scope of the USO meets the requirement for transparency set out in the SGEI Framework of 2012, since it was imposed subject to a proper consultation, as explained in recital 81 above, including publication of the results of the consultation.

(95)

Czechia regards as unsound the line of argument by which Zásilkovna uses current data on the market situation to address conclusions made by the CTO as regards the need to impose the USO obligations on completion of the 2016 review, since the situation on the market in 2020 differs from the situation on the basis of which the USO was imposed. The decision to impose USO obligations is based on the outcome of the review carried out in 2016. In assessing the regularity of the approach taken by Czechia when deciding about the need to impose these obligations, it is necessary to evaluate the situation at the moment when such a decision was taken, not the situation as it is today.

(96)

As regards Zàsilkovna’s claim that the USO, as defined by the Czech authorities, should not be regarded as a genuine SGEI since it can be performed by private operators on a commercial basis without any aid, Czechia argues that, when imposing the obligation, it proceeded in line with the requirements of the Postal Services Act, which transposes Directive 97/67/EC. That procedure confirmed that the USO services remain an objective public need which should be imposed as an obligation. The intention to impose an obligation to provide the PMO service was included in the public consultation that formed part of the review and was also presented at a workshop with stakeholders organised on 5 January 2017. However, Zásilkovna made no use of its right to comment and raised no objections regarding this intention in the public consultation.

(97)

As regards Zàsilkovna’s claim that the depreciation periods of assets for the provision of USO, as defined by the Czech authorities, for the purposes of entrustment period are unfounded, Czechia argues that the expected period of depreciation of the assets of Czech Post was submitted to the Commission for the purposes of the State aid notification for the 2018-2022 period. This overview is in line with the expected lifespan of the assets given in the Financial Part of the Annual Report of Czech Post which is verified by an auditor while the audit opinion forms part of the Annual Report. The CTO considers the assets listed as necessary for the provision of USO and regards as reasonable their assumed depreciation periods.

(98)

As regards Zàsilkovna’s argument on the alleged infringement of the financial transparency rules for public undertakings, Czechia argues that the accounting of estimated assets and liabilities is in line with the accounting rules applicable in Czechia while Czech Post accounts have been verified by a competent body (independent auditor). In Czechia’s view, the fact that part of the USO compensation has been recorded in the 2019 accounts does not give rise to a suspicion of infringement of the transparency of financial relations between Member States and public undertakings, but rather suggests that Zásilkovna misunderstood the information stated in the Annual Report.

(99)

As regards Zàsilkovna’s claim in recital 61 that public procurement rules were infringed, Czechia argues that: (i) the tender procedure was cancelled for objective lawful reasons and in a manner provided for by law, since none of the participants fulfilled the eligibility criteria to participate in the tender; (ii) Zásilkovna did not declare its interest in participating in the tender procedure in any event; (iii) before the submission of bids, the CTO allowed all potential applicants to ask questions about the tender conditions and scope, with a view to ensuring maximum transparency and enabling everyone to obtain all necessary information to prepare their bids; and (iv) the CTO began to evaluate the bids after the deadline expired, in line with standard practice. The tender procedure was designed in a way that allowed a number of applicants to take part, even if they do not provide the full portfolio of USO services, as defined by the Czech authorities, and also allowed a number of USO licences for different USO services to be awarded to different universal service providers. There was therefore no need to guarantee the provision of all the requested universal services by a single operator. Considering the aforementioned, in Czechia’s view, the tender procedure was not discriminatory but, on the contrary, it was drawn up in a way that enabled any postal services operator to apply for being designated as the universal service provider.

(100)

As regards Zàsilkovna’s claim that the counterfactual scenario is unrealistic and has been drawn up only for the purposes of creating a sufficient buffer to justify the net costs of CZK 10 billion for the 2018-2022 period, Czechia argues that: (i) the NAC methodology used for the calculation of the net costs is not at the discretion of the postal licence holder, but it is provided for by the Postal Services Act; (ii) the prices of Czech Post’s non-USO services are considered at the same level in both the factual and counterfactual scenarios and the cost-orientation obligation does not apply to them, contrary to the prices of the services part of the USO; (iii) the reimbursement of net costs is limited by the economic loss from the USO recorded in the separate accounts of costs and revenues; (iv) while only 2 108 compulsory postal offices were used for the calculation of the net costs under the factual scenario before Government Order No 178/2015 was issued, since 2016 the obligation has been extended to 3 200 postal offices, and (v) the counterfactual scenario is plausible and is quantified properly (see recitals 82 to 89) while Czech Post operates in line with the market trends. Czechia considers the existing compensation ceiling to be an effective incentive for achieving cost-efficiency while for the above reasons, the claim that the counterfactual scenario was modified to correspond to the increased limit is unjustified.

(101)

As regards Zàsilkovna’s claim that Czech Post overestimated the NAC by not duly taking into account in the counterfactual scenario the launch of economy-class D+n delivery, Czechia argues that this was indeed taken into account as evidenced with the detailed documentation submitted to the Commission on 18 January 2020.

(102)

Finally, Czechia disputes Zàsilkovna’s claims that Czech Post cross-subsidises purely commercial activities by setting up 781 Balíkovna pick-up points and subsequently re-directing parcels and respective revenues from less profitable postal offices to these 781 pick-up points in order to artificially inflate the NAC and, in turn, over-compensate Czech Post. Czechia argues that this is not true since: (i) Czech Post has to look for ways of streamlining its operations and making its services more attractive to customers; and (ii) the NAC calculation takes into account properly the net costs of Balíkovna both in the factual and counterfactual scenarios, thus Balíkovna services do not result in overcompensation and there is therefore no cross subsidization of the non-USO services.

(103)

Similarly to Czechia’s view in recital 95 with respect to Zàsilkovna’s comments, Czechia considers as completely unsound the line of argument in which PNS uses current data on the market situation to address conclusions made by the CTO as regards the need to impose the obligation on completion of the 2016 review.

(104)

Similarly to Czechia’s view presented in recital 96 on whether the USO, as defined by the Czech authorities, can be performed by private operators on the commercial basis without any aid, Czechia argues that, when imposing the obligation, it proceeded in line with the requirements of the Postal Services Act, which transposes Directive 97/67/EC. In the public consultation carried out by the CTO in the context of the 2016 review, PNS (i.e. Mediaservis s.r.o. at the time) expressed its view that the imposition of the USO was at the time still necessary since the market could not provide such services. Czechia adds that, during the 2016 review, no other operators were identified as being able to ensure, on a commercial basis, the discharge of postal services in a manner consistent with the provision of the USO.

(105)

As regards PNS’s claim that the PMO service can be performed by financial institutions in the same manner but cheaper than Czech Post and therefore it should be excluded from the scope of the USO, Czechia argues that the 2016 review, in which PNS did not oppose the inclusion of the PMO in the scope of the USO, concluded that: (i) the PMO service constitutes an objective public need; (ii) no other market service could substitute for a PMO; and (iii) there was a need to include such service within the scope of the USO. Furthermore, Czechia explains that, based on information from separate records of costs and revenues, the PMO service was not loss-making in 2018 or 2019 (profitability in both years exceeded [5-25] %) and no additional net costs are incurred in the provision of this service, as is also asserted by Czech Post in its letter to the Commission of 21 July 2020 (point [18.])

(106)

Similarly to Czechia’s view presented in recital 99 on whether public procurement rules were infringed since, allegedly, the criteria for participation in a tender for the selection of a postal licence holder were designed in a discriminatory manner, Czechia is of the opinion that the tender procedure was not discriminatory but on the contrary, it was designed in a way to enable any postal services operator to apply to be designated as the universal service provider.

(107)

As regards PNS’s claim that Czech Post is overcompensated since the number of post offices which would not be operated by Czech Post if no obligation was imposed, had been intentionally modified to result in a higher NAC, in connection with the increased compensation limit since 2018, Czechia, as per its explanations in recital 100, argues that: (i) the change in the number of post offices to close in the counterfactual scenario stems from the change in the obligation to operate a higher number of post offices; (ii) the closure of post offices has been quantified correctly in the counterfactual scenario; and (iii) the overall operation and development of Czech Post’s network is in line with the market trends.

(108)

As regards PNS’s claim that that Czech Post’s two-speed delivery (priority D+1 and economy D+n) introduced in February 2020 infringes the obligation of guaranteeing postal delivery every working day, Czechia argues that: (i) Czech Post continues to be obliged to guarantee delivery to any address every working day if customers request it; (ii) customers express this request by paying for priority postal delivery and the post item is delivered under the D+1 regime; and (iii) the modification of the services offered by Czech Post in the form of two delivery speeds and the resulting cost savings were duly taken into account when establishing an estimate of the net costs for the purposes of this notification.

(109)

As regards PNS’s claim that Czech Post is misusing the USO compensation to cross-finance the services it provides outside the scope of the USO and offer non-USO services at extremely low prices, Czechia argues that the price comparison example between two services, ‘economy common post item’ vs ‘direct post item’ put forward by PNS in order to illustrate this allegation is not appropriate. While the service of ‘common post item’ (obyčejné psaní) is available to anyone and can be sent by submitting it at any post office of Czech Post or by placing it in a post box, and there is no minimum volume of individual post items (41), the service of ‘direct post item’ (obchodní psaní) is intended for bulk mailers with a minimum volume of a given post item of 500 pieces of identical dimensions and it can be sent only on the basis of a contract with Czech Post and only from selected postal offices, while the post items must be pre-processed (sorted and bundled) according to the requirements laid down in advance in the contract. Moreover, these post items may contain only newspapers, magazines, books, brochures, catalogues, leaflets or printed matter of solely promotional nature, information intended for members of customer and loyalty clubs, as well as communications aimed at raising funds or other resources for activities carried out in the public interest by organisations or individuals. The difference between the prices of the two services reflects the aforementioned differences in quality and company’s resources consumed for the provision of each service. Moreover, Czechia recalls the judgment of the General Court in První novinová společnost (42) which concludes that the SGEI Framework does not in any way preclude a USO operator from being able freely to allocate the compensation paid for that purpose to other services.

(110)

Czechia rejects PNS’s claims that: (i) the costs of non-USO services are incorrectly allocated to the USO, as defined by the Czech authorities, in order to create an impression that the provision of the USO represents a significant financial burden for Czech Post; (ii) the rules governing the allocation of costs and revenues for the purposes of keeping separate accounts are entirely at the discretion of the postal licence holder; and (iii) the CTO does not examine in any way whether the allocation rules (keys) are factually correct. Czechia argues that postal licence holders in Czechia are obliged to submit their allocation rules to the CTO for approval under Section 33a(4) of the Postal Services Act, which also lays down the CTO’s competence to examine and approve these rules. The approved allocation rules include a detailed description of the principle governing the allocation of costs and revenues from financial accounting to the level of detail needed for separate records of costs and revenues as required of postal licence holders by the Postal Services Act and in line with Decree No 465/2012 implementing that Act. Considering the aforementioned, in Czechia’s view, Czech Post accounts are properly separated between USO, as defined by the Czech authorities, and non-USO services.

(111)

Finally, as regards PNS’s allegations presented in recital 71 that Czech Post spends ‘unreasonably, purposelessly and inefficiently’ in the context of ‘dubious contracts, transactions and circumstances’, Czechia argues that whether Czech Post’s expenditure is effective and efficient is monitored by its founder, i.e. the Ministry of the Interior, while in parallel Czech Post has put in place its own internal Corporate Compliance Programme against corruption and other forms of misconduct (43) and where, despite all the measures in place, there are doubts about unfair practices in the award of a particular contract, the issue is addressed by the competent authorities such as the Municipal Court in Prague.

(112)

According to Article 107(1) TFEU ‘any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.’.

(113)

It follows that, in order for a measure to be qualified as State aid within the meaning of Article 107(1) TFEU, the following four cumulative conditions have to be met: (i) the measure has to be imputable to the Member State and granted through State resources; (ii) it has to confer an economic advantage to undertakings; (iii) the advantage has to be selective; and (iv) the measure has to distort or threaten to distort competition and affect trade between Member States.

(114)

In order to be qualified as State aid, a measure must be imputable to the State and granted directly or indirectly by means of State resources.

(115)

The compensation for the provision of the USO, as defined by the Czech authorities, is paid by Czechia from its own budget and is administered by the CTO. The CTO determines the amount of compensation following the procedure set out by the Postal Services Act (see Section 8.2.2).

(116)

Therefore, the compensation granted to Czech Post for discharging its USO is imputable to the State and is granted through State resources.

(117)

Public funding granted to an entity can qualify as State aid only if that entity is an undertaking within the meaning of Article 107(1) TFEU. The CJEU has consistently defined undertakings as entities engaged in an economic activity (44). The qualification of an entity as an undertaking thus depends on the nature of its activity, with no regard to the entity’s legal status or the way in which it is financed (45). An activity must generally be considered to be economic in nature where it consists in offering goods and services on a market (46). An entity that carries out both economic and non-economic activities is to be regarded as an undertaking only with regard to the former (47).

(118)

In the present case, Czech Post offers postal services for remuneration on the Czech Postal market and in competition with other providers. Offering postal services on this market constitutes an economic activity. The State compensates Czech Post for the provision of some services (the USO, as defined by the Czech authorities) and therefore compensates an economic activity. Accordingly, with respect to the activities financed by the measures in question, Czech Post qualifies as an undertaking.

(119)

An advantage for the purposes of Article 107(1) TFEU is any economic benefit which an undertaking would not have obtained under normal market conditions, i.e. in the absence of State intervention (48). Only the effect of the measure on the undertaking is relevant, neither the cause nor the objective of the State intervention (49). Whenever the financial situation of the undertaking is improved as a result of State intervention, an advantage is present.

(120)

The USO compensation is designed to cover all or part of the net cost incurred by Czech Post in performing the USO, as defined by the Czech authorities. Without State intervention, Czech Post would have to bear these costs itself. The measure under assessment relieves Czech Post of some of the costs of its economic activities and improves Czech Post’s financial situation. In consequence, and without prejudice to the question of whether the measure complies with the conditions set by the Court of Justice in its judgment in Case C-280/00 Altmark (50), the measure under assessment prima facie grants Czech Post an advantage.

(121)

Public service compensation granted to an undertaking that complies with the four criteria laid down in Altmark is deemed not to grant any economic advantage and thus does not constitute State aid. Those four criteria, which are cumulative, are the following:

(122)

Concerning the compensation granted to Czech Post during the period under review, the Czech authorities acknowledge that the fourth Altmark criterion is not fulfilled. The Commission also considers that the fourth Altmark criterion is not met since, in the absence of a public procurement procedure which allows for the selection of the tenderer capable of providing the service at the least cost to the community (51), the Czech authorities have failed to demonstrate that the level of compensation was determined on the basis of an analysis of the costs of a well-run undertaking within the same sector, taking into account the receipts and a reasonable profit.

(123)

Due to the cumulative nature of the four Altmark criteria, if any of these criteria are not fulfilled, the compensation will be deemed to constitute an advantage in the meaning of Article 107(1) of the TFEU. Since at least one of the four Altmark criteria is not fulfilled in the present case, the Commission concludes that the compensation for delivering the USO grants an advantage to Czech Post.

(124)

Article 107(1) TFEU requires that a measure, in order to be defined as State aid, favours ‘certain undertakings or the production of certain goods’. The Commission notes that the USO compensation will be granted to Czech Post only. Given that the present case concerns an individual aid measure, the identification of the economic advantage (see recitals 119 to 123) is sufficient to support the presumption that the measure is selective (52). In any event, it does not appear that other undertakings in the same or other sectors in a comparable factual and legal situation benefit from the same advantage. Hence, the measure is selective within the meaning of Article 107 (1) TFEU.

(125)

Public support to undertakings constitutes State aid within the meaning of Article 107(1) TFEU if it ‘distorts or threatens to distort competition’ and insofar as it ‘affects trade between Member States’.

(126)

Concerning the distortion of competition, a measure granted by a State is considered to distort or to threaten to distort competition when it is liable to improve the competitive position of the recipient compared to other undertakings with which it competes (53). For all practical purposes, a distortion of competition is assumed when a State grants a financial advantage to an undertaking in a liberalised sector where there is, or could be, competition.

(127)

Concerning the effect on trade, the case-law of the Court of Justice has established that any grant of aid to an undertaking exercising its activities in the internal market can be liable to affect trade between Member States (54). In the field of State aid, such an effect on trade is not a priori precluded by the local or regional character of the service provided. While there is no strict threshold or percentage below which it may be considered that trade between Member States is not affected, the limited scope of the economic activity, as may be evidenced by a very low turnover, renders the presence of an effect on trade less likely.

(128)

As regards the present case, the Commission observes that Czech Post operates in the Czech postal market, which has been liberalised since 1 January 2013. Czech Post, therefore, operates in competition with other providers.

(129)

Certain competitors of Czech Post, in particular competitors providing parcel-delivery services, are part of international groups which also operate in other Member States (e.g. DPD).

(130)

Therefore, there is trade between Member States in the postal sector and the public service compensation granted to Czech Post strengthens its position vis-à-vis other postal undertakings competing in intra-Union trade.

(131)

The Commission concludes that the compensation granted to Czech Post for the delivery of the USO, as defined by the Czech authorities, is liable to affect trade and distort competition.

(132)

Based on the above, the Commission concludes that the compensation granted to Czech Post for the delivery of the USO over the period 2018-2022 meets the criteria set out in Article 107(1) TFEU and, therefore, the measure constitutes State aid within the meaning of that provision.

(133)

Based on Section 34c and 34d of the Postal services Act, Czech Post has a right to receive a yearly compensation equal to the net costs (capped at CZK 1,5 billion if the net costs are higher than CZK 1,5 billion) once that the CTO has verified the net costs of Czech Post. Indeed, Section 34c(3) of the Postal services Act provides that ‘the State, through the [CTO], shall reimburse the provisional net costs to the postal licence holder […]’. In addition, Article 34d(4) of the Postal services Act provides that ‘the State shall pay, through the [CTO], an amount equal to the difference between the [provisional net costs and the definitive net costs representing an unfair burden] to the postal licence holder […]’.

(134)

Following CTO’s verification of Czech Post’s net costs, Czech Post has already recorded the yearly compensation for the years 2018-2022 in its accounts, even if that compensation is not yet paid (55).

(135)

Therefore, the Commission considers that the USO compensation constitutes unlawful aid within the meaning of Article 1(f) of the Procedural Regulation.

(136)

Insofar as USO compensation benefiting Czech Post constitutes State aid within the meaning of Article 107(1) TFEU, its compatibility with the internal market needs to be assessed.

(137)

The Czech authorities consider that USO compensation constitutes a compensation for carrying out SGEIs. Therefore, the compatibility of such compensation with the internal market is to be assessed on the basis of Article 106(2) TFEU.

(138)

Article 106(2) TFEU provides that: ‘undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Union.’.

(139)

In accordance with this provision, the Commission may declare compensation for SGEIs compatible with the internal market, provided that certain conditions are met. The Commission has laid down the conditions according to which it applies Article 106(2) TFEU in the 2012 SGEI Decision (56) and the 2012 SGEI Framework.

(140)

The Czech authorities have notified compensation up to a maximum annual amount of CZK 1 500 million (EUR 55,5 million). To the extent that the compensation to be granted to Czech Post is above EUR 15 million per year, that compensation does not fall within the scope of the 2012 SGEI Decision, as set out in Article 2 thereof.

(141)

State aid falling outside the scope of the 2012 SGEI Decision may be declared compatible with Article 106(2) TFEU if it is necessary for the operation of the SGEI concerned and does not affect the development of trade to such an extent as to be contrary to the interests of the Union (57). In this regard, the 2012 SGEI Framework sets out the guidelines for assessing the compatibility of SGEI compensation.

(142)

In order to assess the compatibility of the USO compensation granted to Czech Post, the 2012 SGEI Framework describes the relevant conditions that have to be met. These conditions are listed below.

(143)

As indicated in paragraph 46 of the Commission’s SGEI Communication (58), Member States have a wide margin of discretion regarding the nature of services that could be classified as being SGEIs. The Commission’s competence is limited to checking that the margin of discretion is applied without manifest error as regards the definition of the SGEI and to assessing any State aid involved in the compensation. Paragraph 56 of the 2012 SGEI Framework confirms Member States’ wide margin of discretion to define SGEI.

(144)

To demonstrate that the compensation is granted for a genuine SGEI, ‘Member States should show [when granting compensation under the SGEI framework (59)] that they have given proper consideration to the public service needs supported by way of a public consultation or other appropriate instruments to take the interests of users and providers into account.’

(145)

The USO as defined in Article 3 of Directive 97/67/EC is recognised as a genuine SGEI (60). As a result, Member States do not have to prove by way of a public consultation or other appropriate instruments that they have given consideration to public service needs when entrusting a provider with the USO as defined in that Article 3.

(146)

However, the USO entrusted to Czech Post, as described in recital 22, is wider than the services described in Article 3 of Directive 97/67/EC. In particular, the USO , as defined by the Czech authorities, includes the postal services (‘postal SGEI’) as defined in that provision as well as the PMO services, which are not listed in that provision and are referred to in Directive 2008/6/EC as additional or complementary services which may be made available at national level.

(147)

The Czech authorities explained that since PMO services are profitable, the inclusion of the PMO in the scope of the USO does not increase the net cost, but on the contrary has a positive effect on the amount of net costs of the USO (it decreases their amount). The Czech authorities also explained that PMO services do not represent an exclusive right. They are services which are necessary to meet the needs of the public and authorities in relation to certain payments. From the Postal Services Act point of view, PMO services are a part of the USO while the obligation to provide PMO services can be imposed separately or together with other basic postal services.

(148)

The Commission considers that PMO services are not included in the scope of the USO as defined in Article 3 of Directive 97/67/EC. However, according to recital 30 of Directive 2008/6/EC, Member States may decide to make accessible to the public, on their national territory, additional or complementary services, such as PMO, with the exception of those relating to the universal service obligations, as defined in Directive 97/67/EC. Member States may impose obligations to provide such services on the universal service provider.

(149)

The Commission notes that the CTO took the decision to classify the postal services and PMO services, included in the scope of the USO, as genuine SGEIs in 2016, in the context of a regular 5-year review, considering the market conditions at the time, i.e. 2016. Furthermore, in the context of the 2016 review, neither Zàsilkovna nor PNS objected to the public need for such postal and PMO services. Nor did they object to the decision of the CTO to impose those SGEIs on the basis of a market failure.

(150)

With regard to Zàsilkovna’s claims in recitals 57 and 58, as well as PNS’s claims in recitals 64 and 65, that, based on the current market conditions, there is no market failure for both the postal and PMO services, the Commission notes that the Czech authorities have a discretion in organising and ensuring the provision of the SGEIs. To this end, the Czech authorities have established a regular 5-year review of both the postal and PMO services, on the basis of which they assess the public needs along with the market conditions at the time of the review. The review assessing the need to impose the obligation for both services for the current 2018-2022 period, was carried out in 2016 and concluded that there was a market failure for both services, postal and PMO. The current market conditions on the market as well as future possible developments were taken into consideration in the 2021 review concerning the 2023-2027 period.

(151)

As outlined in recitals 4 to 8 of Directive 2008/6/EC, the postal universal services as defined on the basis of Article 3 of Directive 97/67/EC are recognised as a genuine SGEI (61). As the postal services included in the scope of the USO, as defined by the Czech authorities, entrusted to Czech Post correspond to the requirements outlined in Directive 97/67/EC, the Commission considers that Czechia does not have to prove that it has given consideration to public service needs by way of a public consultation or other appropriate instruments. Therefore, the Commission considers that paragraph (14) of the SGEI Framework is complied with as regards these services.

(152)

With regard to PMO services, the Commission considers that Czechia has proven that it has given consideration to public service needs by way of a public consultation or other appropriate instruments, as explained in recitals 73, 81, 95, 96 and 103 to 105. Based on the information provided in the course of the investigation procedure, the Commission considers that the PMO service provided by Czech Post constitutes a genuine SGEI (‘PMO SGEI’). In particular, the Czech authorities explained that similar services available on the market did not meet the requirements in terms of delivery, territorial scope or affordable price. In light of the foregoing, the Commission considers that the requirement of paragraph 14 of the 2012 SGEI Framework insofar as PMO is concerned has been fulfilled.

(153)

As indicated in paragraph (15) of the 2012 SGEI Framework, the provision of an SGEI, within the meaning of Article 106 TFEU, must be entrusted to the undertaking in question by way of one or more official acts. As required by paragraph 16 of the 2012 SGEI Framework, those entrustment acts must specify, in particular:

(154)

Czech Post was designated as the USO provider from 1 January 2018 to 31 December 2022 by a decision of the CTO (see recital 21). Czech Post’s entrustment specifies the content of the public service obligation and the territory concerned (see recitals 22-23). The compensation mechanism and the methodology used to calculate the compensation is set out in the Postal Services Act, as described in Section 2.4.2.

(155)

The Czech authorities have confirmed that there are no exclusive rights as regards postal services assigned to Czech Post in line with Article 7(1) of Directive 97/67/EC. As to the arrangements for avoiding and recovering overcompensation, the compensation mechanism ensures that compensation is calculated and reviewed ex-post, preventing Czech Post from being overcompensated (see Section 8.2.10).

(156)

With regard to the complainants’ claims in recitals 35 and 42 that Czech Post has violated the transparency requirements set out in the SGEI Framework as well as in Directive 97/67/EC by not publishing the calculations of the NAC, the Commission notes that the transparency requirements set out in paragraph (60) of the SGEI Framework concern: i) the results of the public consultation or other appropriate instruments; ii) the content and duration of the public service obligations; iii) the undertaking and, where applicable, the territory concerned; and iv) the amounts of aid granted to the undertaking on a yearly basis. Article (7)(5) of Directive 97/67/EC stipulates that, when a Member State takes a decision to introduce a mechanism to compensate the universal service provider(s) from public funds, such a decision should be based on objective and verifiable criteria and be made public. Therefore, neither the SGEI Framework nor Directive 97/96/EC requires that the calculations of the NAC should be made available to the public. As already explained in recital 155, the mechanism and the parameters used for the calculation of the compensation are laid down in the Postal Services Act and are therefore available to the public. The Commission therefore considers that those claims of the complainants are unfounded.

(157)

The Commission further notes that the USO, as defined by the Czech authorities, entrusted to Czech Post consists of two SGEIs, the postal SGEI, within the meaning of the Directive 97/67/EC, and PMO SGEI. The entrustment act includes the content and duration of the public service obligations; the undertaking and, where applicable, the territory concerned; and the amounts of aid granted to the undertaking on a yearly basis for both SGEIs The Commission considers that the fact that both SGEIs are entrusted with the same entrustment act, does not violate the transparency requirements set out in the SGEI Framework as well as those set in Directive 97/67/EC.

(158)

To conclude, the Commission considers that the entrustment of Czech Post for the period 2018-2022 is in line with the requirements of the 2012 SGEI Framework.

(159)

As provided in Section 2.4 of the 2012 SGEI Framework, ‘the duration of the period of entrustment should be justified by reference to objective criteria such as the need to amortise non-transferable fixed assets. In principle, the duration of the period of entrustment should not exceed the period required for the depreciation of the most significant assets required to provide the SGEI.’.

(160)

Czech Post has been designated by the CTO as USO provider for the period from 1 January 2018 to 31 December 2022, so for a period of 5 years.

(161)

According to the Czech authorities, the period of entrustment was determined in accordance with Article 4(2) of the Directive 97/67/EC, which requires that the duration of the designation provides a sufficiently long period for the return on investment.

(162)

The Czech authorities have explained that the 5-year duration of Czech Post's entrustment can be justified by reference to the expected depreciation period of the most significant assets required to provide the USO. The investments made by Czech Post in fixed assets in order to ensure the provision of the USO have accounting amortisation periods which vary widely (see table 4). The Czech authorities also explained that in Czechia every undertaking must create a plan of amortisation pursuant to Section 28(6) of the Accounting Act (Act No 563/1991 Coll.). The Accounting Act does not determine an exact depreciation period for each asset type; however, the depreciation period should correspond to the period of use, because accounting data must present a reliable picture of reality. The depreciation period is also verified by a financial auditor. The undertakings publish the plan of amortisation in their financial statements and the plan should be updated annually. The data source used to set the expected depreciation period was the financial statement of Czech Post. In any event, the duration of the entrustment period is determined when proceedings for the granting of a postal licence are initiated, i.e. before the postal licence is granted to a particular postal services provider. The 5-year period is the standard period as established by the Czech authorities in the context of their procedures to organise and ensure the provision of the SGEIs, considering the development of the market and societal needs. Finally, the Czech authorities also argue that the duration of entrustment is consistent with the practice in other Member States (62).

(163)

With regard to Zàsilkovna’s claim in recital 59 that the depreciation periods for the purposes of determining the entrustment period are unfounded, since it is not clear which of the assets listed in Table 1 of the opening decision are intended to be financed from the USO compensation, or when they were purchased or when it is intended to purchase such assets or whether their depreciation period has lapsed, the Commission notes that the duration of the entrustment is pre-established, in the context of the procedures that Czechia put in place to organise, and ensure, the provision of the USO and set in advance in the context of the initial tender for the selection of the postal service provider. Thus, before the postal licence holder was known. Furthermore, it is not realistic for the granting authority to know in advance the duration of the depreciation period for all of the assets of all potential postal service providers that may possibly participate in the tender in order to determine the duration of the entrustment. The depreciation period of the assets is used as a reference for determining the entrustment period only. Depreciation costs are not considered in the NAC because they do not represent actual costs, but only non-cash expenses used for tax purposes. According to the case law (63), Czech Post is free to use the USO compensation for any purpose. However, investment costs, such as purchase costs of assets related to the change in operation of Czech Post from the factual scenario to the counterfactual scenario, are not considered in the NAC calculations and therefore they do not have any impact on the USO compensation.

Table 4

Depreciation period for Czech Post's assets (needed for delivery of USO)

(164)

In accordance to Section 2.4 of the 2012 SGEI Framework, the duration of the entrustment period should be justified by reference to objective criteria and, in principle, not exceed the period required for the depreciation of the most significant assets required to provide the SGEI. The Commission considers that an entrustment with the USO for a 5-year period is justified by reference to the depreciation period of the most significant assets required to provide both SGEIs included in the USO. Indeed, Table 4 illustrates that the depreciation period for most of Czech Post’s assets required for the delivery of the USO exceeds 5 years. In addition, the duration of the period of the entrustment is pre-established taking into account depreciation periods normally used for such assets, irrespective of the selection of the USO provider. Therefore, the Commission considers that the Czech authorities have sufficiently justified the duration of the entrustment.

(165)

According to paragraph 18 of the 2012 SGEI Framework, ‘aid will be considered compatible with the internal market on the basis of Article 106(2) [TFEU] only where the undertaking complies, where applicable, with [Commission] Directive 2006/111/EC on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings. (64)’.

(166)

Furthermore, paragraph 44 of the 2012 SGEI Framework requires that: ‘Where an undertaking carries out activities falling both inside and outside the scope of the SGEI, the internal accounts must show separately the costs and revenues associated with the SGEI and those of the other services in line with the principles set out in paragraph 31.’.

(167)

The Postal Services Act provides, in Article 33a thereof, that the postal licence holder must keep separate accounts of costs and revenues associated with the provision of individual services included in the scope of the USO for which it is designated (both the postal SGEI and the PMO SGEI), and of other services. It further foresees that the method for separating accounts are to be laid down in an implementing decree, and that the separated accounts must be audited annually by an independent auditor.

(168)

The implementing decree (65) was adopted by the CTO and it lays down, in Section 1 thereof, that direct costs must be allocated to the service directly related to it, whereas indirect or common costs are to be allocated on the basis of a causal link to the processes, activities or services concerned. As set out in Article 33a of the Postal Services Act, specific rules for common cost allocation, as proposed by Czech Post, must be approved by the CTO.

(169)

In particular, Czech Post’s separate account system and cost allocation method is based on the Activity Based Costing (ABC) method. In a first step, costs are allocated to cost centres, e.g. a post-office, depot, sorting centre, etc. Costs are allocated to cost centres for each activity that can be recorded separately. Czech Post’s accounting system currently has around 5 740 cost centres. Cost items that are not recorded at operating cost centres (e.g. VAT, overhead) are allocated according to pre-approved rules following a calculation at the level of the operating cost centres. The allocation of such costs is proportional to the allocation of direct costs.

(170)

The Czech authorities have explained that the separation of accounts is subject to auditing by an independent professional company. The auditor must verify that the postal licence holder has used the approved rules in accounting practice and the annual results of accounting separation are correct. Moreover, Czechia submitted the independent auditor’s reports for the years 2018, 2019 and 2020 which certify that Czech Post’s internal accounting is in line with Directive 97/67/EC, national law and rules approved by the CTO and thus suitable for quantifying the net costs of the USO entrusted to it.

(171)

PNS claims in recital 70 that Czech Post does not separate its accounts properly and wrongly allocates costs related to non-USO services to USO services, as defined by the Czech authorities, thereby cross-subsidising the losses of the non-USO items. PNS also claims that the CTO as well as the auditor do not effectively investigate whether the separation of accounts has been performed correctly or the allocation keys are materially correct. In this regard, the Commission considers that the Czech authorities have demonstrated that Czech Post's accounting and cost allocation system allows for an allocation of costs and revenues between activities with a sufficient level of adequacy. As the Czech authorities have indicated, costs are allocated based on the proportionality principle, taking into consideration the use of individual elements of the postal network. Furthermore, as explained in recital 171, when certifying that Czech Post’s internal accounting over 2018-2020 is in line with Directive 97/67/EC, national law and rules approved by the CTO, the independent auditor checks the separation of accounts and cost allocation keys and thus suitable for quantifying the net costs of the SGEIs (postal and PMO) entrusted to it. Finally, the Commission recalls recital 139 of the opening decision which clarifies that the alleged misallocation of costs is an accounting matter and would not involve the transfer of any State resources and therefore does not amount to State aid under Article 107(1) TFEU.

(172)

Similarly, with regard to Zàsilkovna’s claim in recitals 37, 38, 60 and 63 that Czech Post voluntarily subsidises the below-cost prices for its non-USO services, such as Balíkovna, and allocates the non-USO activities’ costs and losses to USO activities, as defined by the Czech authorities, the Commission considers, similar to its conclusion in recital 172, that the Czech authorities have demonstrated sufficiently that Czech Post’s accounts have been separated in line with the requirements laid down in Directive 97/67/EC and therefore cross-subsidization of both the postal SGEI and the PMO SGEI through misallocation of costs is excluded. In any event cross-subsidization cannot be regarded as a stand-alone issue since it can take place only if there is overcompensation caused by either misallocation of costs or inappropriate quantification of the counterfactual scenario. Both are not the case in the present measure as explained below in recital 206.

(173)

With regard to Zàsilkovna’s claim in recital 60 that the USO compensation is not in line with the financial transparency requirements set by 2012 SGEI framework because Czech Post has already formally included part of the compensation in the 2019 annual report, the Commission notes that the fact that this item has been recorded in the accounts is not as such related to an infringement of the aforementioned financial transparency requirements concerning separation of accounts.

(174)

The Commission notes that CZ Post’s accounting system is the same as in the previous entrustment period. The issue of the accounting system was also raised by PNS in the appeal against the 2018 USO Decision in Case T-316/18 (66), where the General Court concluded that the Commission conducted a thorough analysis of the accounting system, in particular of its reliability, and therefore, the Commission did not commit a manifest error of assessment in that respect.

(175)

Hence, the Commission concludes that the accounting separation between non-SGEI activities and SGEI activities, as implemented, is appropriate. It follows that Czech Post complies with Directive 2006/111/EC and with paragraph 44 of the 2012 SGEI Framework.

(176)

According to paragraph 19 of the 2012 SGEI Framework, ‘aid will be considered compatible with the internal market on the basis of Article 106(2) [TFEU] only where the responsible authority, when entrusting the provision of the service to the undertaking in question, has complied or commits to comply with the applicable Union rules in the area of public procurement. This includes any requirements of transparency, equal treatment and non-discrimination resulting directly from the [TFEU] and, where applicable, secondary EU legislation. Aid that does not comply with such rules and requirements is considered to affect the development of trade to an extent that would be contrary to the interests of the Union within the meaning of Article 106(2) [TFEU].’.

(177)

The Postal Services Act stipulates that the USO provider shall be designated through a selection procedure. The CTO conducted in accordance with Section 22 of the Postal Services Act the selection procedure for the postal licence holder for the period 2018-2022. The CTO didn't select any provider in this procedure due to non-fulfilment of the participation conditions.

(178)

The Czech authorities have explained that, following the termination of the unsuccessful selection procedure, they initiated an administrative procedure ex officio to impose on Czech Post the obligation to provide the USO, as provided for in Section 22, paragraph 9 of the Postal Services Act.

(179)

With regard to Zàsilkovna’s claim in recital 61 and PNS’s claim in recital 65 that the Czech authorities infringed the public procurement rules set out in Article 4(2) of Directive 97/67/EC by intentionally including the PMO service in the scope of the USO, while setting the evaluation/awarding criteria of the tender procedure in favour of Czech Post, the Commission notes that, as the Czech authorities explained, the tender procedure (67) was designed in a way that allowed a number of applicants to take part, even if they could not provide the full portfolio of services, and also allowed a number of postal licences to be awarded for individual services. There was therefore the possibility to designate different providers for the provision of different services included in the scope of USO, in line with Article 4(2) of Directive 97/67/EC. It was also possible for a bidder to bid for individual postal services part of the USO as defined by the law, excluding the PMO services. Furthermore, the CTO allowed all potential applicants to ask questions on the tender conditions and scope, with a view to ensuring maximum transparency and enabling everyone to obtain all necessary information to prepare their bids. In this regard, Zásilkovna did not declare its interest in participating in the tender procedure. In the Commission’s view, the tender procedure was not discriminatory but, on the contrary, it was drawn up in a way to enable any postal services provider to be designated as the universal service provider.

(180)

The Commission considers that it is only in the case that Member States decide to organise a tendering procedure for the selection of the Universal service provider (‘USP’) that public procurement rules would be applicable and that, therefore, the compatibility of the USO financing with the internal market would depend on whether these rules have indeed been observed. In the present case, following an unsuccessful tendering procedure, the Czech authorities finally opted for the direct designation of the incumbent operator as the universal service provider, as allowed by Article 7(2) of Directive 97/67/EC. In doing so, the Czech authorities applied the procedure laid down in Section 22(9) of the Postal Services Act stipulating that the CTO may impose, by virtue of a decision on granting a postal licence, the obligation to provide and arrange for the universal services set out in the announcement of the tendering procedure on the operator who best meets the evaluation criteria. For this reason, the CTO initiated ex officio administrative proceedings with Czech Post on granting a postal licence for the period from 1 January 2018 to 31 December 2022, as Czech Post best met the criteria set out in the announcement of the tender procedure. It follows that the direct entrustment of Czech Post as the USP of the postal SGEI is in line with paragraph 19 of the 2012 SGEI Framework. The fact that the Czech authorities included the PMO SGEI in the scope of the USO, does not invalidate the lawfulness of the direct entrustment of the postal SGEI, as the Czech authorities carried out a tender procedure which was not successful and only subsequently decided to designate Czech Post as the universal service provider, as it was the provider which met the requirements for the provision of all USO services, as defined by the Czech authorities. In any case, the Commission notes that the Czech authorities may use the negotiated procedure without prior publication where no tenders or no suitable tenders or no requests to participate or no suitable requests to participate have been submitted in a tender according to Article 32(2)a) of Directive 2014/24/EU of the European Parliament and of the Council (68).

(181)

As regards the direct award of the PMO SGEI, the Commission considers that the Czech authorities have examined existing networks of postal and financial institutions (see recital 81 above) and concluded that there was no other operator on the market that would provide PMO services on a commercial basis throughout the territory of the Czech Republic, in a manner required for a universal service, thereby complying with the technical specifications set in the tender. PMO SGEI are so specific in their nature and manner of provision that at the moment of carrying the review of the USO there was no substitute provided on the market on a commercial basis. To provide the PMO SGEI, an operator needs to have a dense and sizeable distribution network as well as daily delivery operations, combined with high security guarantees. Other operators did not possess such capabilities, which are necessary to provide the PMO SGEI in line with Czechia State’s requirements. Moreover, no other operator would have been able to develop these capabilities prior to the period 2018-2022. Only Czech Post's network possessed a network of the density, size and quality, which could serve the objectives of the PMO SGEI. Although it cannot be excluded that competitors will develop such a network in the future, Czech Post is the only provider that can offer the PMO SGEI reliably over the period 2018-2012. This is the reason why the Commission recognizes that Czech Post holds a unique logistic and branch network in terms of density, size and daily delivery operations, which makes it the sole possible provider for the PMO SGEI during this period. On this basis, the Commission considers that the direct award of the PMO SGEI can be covered by the sole provider exemption and be entrusted through a negotiated procedure without prior publication according to Article 32(2)b) of Directive 2014/24/EU (69).

(182)

According to paragraph 20 of the 2012 SGEI Framework, ‘where an authority assigns the provision of the same SGEI to several undertakings, the compensation should be calculated on the basis of the same method in respect of each undertaking.’.

(183)

Since both SGEIs are assigned only to Czech Post, the Commission considers that the requirement of paragraph 20 of the 2012 SGEI Framework is not applicable.

(184)

According to paragraph 21 of the 2012 SGEI Framework, ‘the amount of compensation must not exceed what is necessary to cover the net cost of discharging the public service obligations, including a reasonable profit.’ In this respect, paragraph 24 of the 2012 SGEI Framework establishes that ‘the net cost necessary, or expected to be necessary, to discharge the public service obligations should be calculated using the net avoided cost methodology where this is required by Union or national legislation and in other cases where this is possible.’.

(185)

According to paragraph 25 of the 2012 SGEI Framework, ‘under the net avoided cost methodology, the net cost necessary, or expected to be necessary, to discharge the public service obligations is calculated as the difference between the net cost for the provider of operating with the public service obligation and the net cost or profit for the same provider of operating without that obligation.’.

(186)

Implementing Decree No 466/2012 lays down the procedure used by CTO to calculate the net cost for the provision of the USO, as defined by the Postal Services Act, by Czech Post.

(187)

The NAC methodology used by the Czech authorities is based on four main elements:

(188)

With regard to Zàsilkovna’s claim in recital 62(f) that the cost allocation methodology is more suitable for calculating the NAC, the Commission notes that, according to paragraph 27 of the SGEI Framework, it considers, ‘the net avoided cost methodology as the most accurate method for determining the cost of a public service obligation’. At the same time, Annex I of Directive 97/67/EC also uses the net avoided cost methodology to determine the net cost for the provision of USO.

(189)

In the factual scenario, Czech Post's actual revenues and costs for different elements and all activities are taken into account for the years 2018-2020. An estimate of Czech Post's cost and revenues is considered for 2021 and 2022. The use of actual data for the period 2018-2020 and estimated data for 2021 and 2022 is considered to be reasonable and precise since the actual figures are available for the period 2018-2020. Such input data are considered appropriate and apt to exclude overcompensation since they derive from Czech Post’s accounting system which, as explained in recital 176, complies with Directive 2006/111/EC and with paragraph 44 of the 2012 SGEI Framework.

(190)

The counterfactual scenario considers the behaviour of Czech Post if it were entrusted with neither the USO (postal SGEI and PMO SGEI) nor DBIS. Czech Post has considered the possibilities of business optimisation and made changes in the counterfactual scenario, in comparison to the factual scenario, to the following four elements:

(191)

With respect to the abovementioned four elements, the Czech authorities submit that Czech Post would: (i) stop providing DBIS services, (ii) close a number of post offices and, in addition, convert a number of them into Postpoints (70), (iii) lower delivery frequency for some postal items, and (iv) stop performing or perform to a lesser extent some administrative activities related to the USO requirements. The four elements of the counterfactual scenario are further presented below:

(192)

The introduction of DBIS changed the form of delivery of some postal items, mainly standard and registered letters, (‘cannibalised’ items) from physical to electronic form, for all type of users communicating with the public administration. In the counterfactual scenario, where Czech Post would stop providing DBIS services, the cannibalised postal items would be delivered in the traditional, physical way. On the one hand, Czech Post’s revenues and costs would decrease by DBIS revenues and associated costs and, on the other hand, Czech Post’s revenues and costs would increase due to the recovery of the cannibalised postal items to be delivered physically. The number of postal items in the factual and counterfactual scenarios taking into account the data on the cannibalised items as estimated in recital 152 of the DBIS decision is presented below in Table 5:

Table 5

Number of postal items in the factual and counterfactual scenarios, considering the cannibalised items by data mailboxes (DBIS) as estimated in the DBIS decision

(193)

For the period 2018-2022, Czech Post considers 3 210 post offices to be part of the post office network in the factual scenario. This amount comprises 3 200 obligatory post offices under USO and 10 voluntarily operated situated in special tourist locations (e.g. in the mountains or open-air museums) enabling tourists to send letters or postcards by means of special stamps. Without the USO, Czech Post would operate a less dense network, maintaining only the profitable post offices while taking into account that the postal licence holder is a national postal service provider and deploys its premises in such a way as to ensure the availability of its services throughout the country. Based on its internal accounting system, Czech Post allocates revenues and costs to post offices in order to determine each office’s profitability. Czech Post analysed this information along with a number of operational and accessibility criteria to decide whether a post office would be retained in the counterfactual scenario. Based on Czech Post’s analysis, in the counterfactual scenario, its network would consist of 583 post offices of the obligatory ones that Czech Post operates under the USO, 10 post offices in addition to the obligatory ones and 462 Postpoints. Considering that, in the counterfactual scenario, approximately 80 % of the post offices would be closed, the maximum distance between most (ca. 89%) of the commercial post offices and Postpoints, although it would be longer than that of the factual scenario, it would be less than 10 km. In Czech Post’s view, in such a case the availability of all services offered in post offices (including postal services and PMO services) would be substantially reduced. The number of the obligatory offices to be maintained in the counterfactual scenario is considered constant over the entrustment period and represents the ex ante forward-looking decision for business optimization. Table 6 below shows the post offices network (number of offices) under the factual scenario and counterfactual scenarios:

Table 6

Number of post offices under the factual and counterfactual scenarios

(194)

The Czech authorities have explained that a lower delivery frequency of letters would mean going from five days per week to five days per two weeks. The market of parcel delivery is sufficiently competitive and therefore delivery frequency would not be reduced for parcels. The Czech authorities also explained that, over 2018-2022, changes in the delivery of letters were expected. In the factual scenario, a new regime of delivery was introduced in 2020. Existing D+1 (71) delivery will be extended with D+n delivery and a transfer of majority of demand to D+n delivery is presumed, because customers prefer saving delivery costs over the speed of delivery. In the counterfactual scenario, the offer consists of D+n delivery. The frequency and number of letters delivered at individual premises (i.e. households) were examined by Czech Post, as part of a nationwide monitoring exercise. Table 6a and Table 6b below show the required labour in full-time equivalent (FTE) as well as the number of vehicles required in the factual scenario and in the counterfactual scenario for a delivery of five days per two weeks.

Table 7a

Delivery network in 2018

Table 7b

Delivery network in 2019

Table 7c

Delivery network in 2020, 2021 and 2022

(195)

Czech Post would also stop performing certain administrative activities related to the provision of the USO. The administrative activities related to the provision of the USO that Czech Post would discontinue under the counterfactual scenario are the following:

(196)

As regards the plausibility of a counterfactual scenario in which the post office network would be significantly downsized, the Czech authorities explained that Czech Post operates several types of postal establishments, from small post offices operating a single counter in small municipalities to large post offices with many counters located in large cities. The number of customers served by a specific post office depends on its size. The greatest number of customers is served by large and medium-sized post offices located in densely populated areas. Those post offices are mostly maintained in the counterfactual scenario. On the other hand, small post offices serving smaller numbers of customers would not be maintained in the counterfactual scenario. In the Czech authorities’ view, a simplified assumption that closing 81,5 % post offices (usually smaller and loss-making) will result in a transfer of 81,5 % of the demand to the remaining post offices is incorrect and does not correspond to the situation in Czechia. The financial data show that the 583 post offices which are maintained in the counterfactual scenario generate [50-75] % of revenues (demand) of the total amount of revenues recorded at the post offices in 2018. The total of 2 155 post offices to be closed generate only [15-35] % of revenues in 2018, and the ratios is similar in other years. Some of the revenues from post offices to be closed are transferred to Postpoints, because this is to where the customers’ demand for registered letters and parcels is shifted, the remaining part of the demand will be lost by Czech Post because some of the customers will stop using its services, including PMO. As regards PMO, [30-55] % of the revenues generated in the closed offices would get lost . Finally, the overall impact on the demand was estimated not only on the basis of the results of a survey but also from other facts, such as the distance to the nearest post office and availability of a similar service on the market.

(197)

As regards the demand effect of reducing the delivery frequency, the Czech authorities explained that CTO took into account several circumstances that could have affected the change in demand, and not only the market survey (see recital 90). For example, the extent to which services substitutable to letter delivery are available was another important element. While delivery of express parcels is offered by several providers in Czechia, guaranteed delivery of letters under a D+1 model is offered only by courier services. It is expected that individual customers will generally not make the switch to courier services or electronic communication in order to obtain D+1 delivery. Instead, they would switch to D+n delivery service. Individual customers can use courier services or electronic communication, but the reason for using those services instead of sending letters will likely be different and unrelated to a change in the delivery frequency from D+1 to D+n, because even a consignment delivered under the D+1 model cannot compete with electronic communication in terms of speed and price; moreover, courier services are much more expensive. Czech Post changed the delivery frequency in February 2020 and offers ‘economy consignments’ with D+n delivery and ‘priority consignments’ with D+1 delivery. Economy consignments are CZK 7 cheaper than priority consignments (this difference applies to both standard and registered letters). According to Czech Post’s data on the ratio of economy and priority consignments for the period from February to May 2020, presented in Table 7, most customers prefer lower prices to faster, but more expensive, delivery (approximately [93-96] % of customers choose the economy model for standard letters and approximately [82-87] % for registered letters), which corresponds to the survey results.

Table 8

Ratio of priority and economy consignments (all customers)

(198)

With regard to PNS’s claim in recital 67 that Czech Post decided to voluntarily operate a number of post offices until 2016, the Commission notes that Czech Post’s decision to voluntarily operate a number of offices over 2013-2015 does not necessarily lead to the conclusion that Czech Post should have opted for the same approach over 2018-2020. Furthermore, as the Czech authorities explained in recital 85, the decision of Czech Post to maintain temporarily these post offices made sense economically in view of the at the time imminent political decision to increase the number of obligatory offices to 3 200. The Commission also notes that, in principle, Member States are not obliged to use the same counterfactual scenario in every notification of USO compensation but they have discretion to adapt it according to market developments. Such market developments are realistically reflected in the cost and revenues of each post office as those have been considered in the analysis determining which office should close and which should remain open in the counterfactual scenario. In any event, the deciding factor however is whether the selected counterfactual scenario has been quantified properly, in a realistic manner, as explained in recitals 205 and 206 below.

(199)

With regard to Zàsilkovna’s claim in recital 62, and PNS’s claim in recitals 71 and 72, that Czech Post is not a well-run undertaking since it does not precisely explain and justify the necessity of all costs required to discharge the obligation in an efficient manner, the Commission notes that Czech Post’s expenditure is monitored by the Ministry of the Interior, while in parallel Czech Post has put in place its own internal Corporate Compliance Programme against corruption and other forms of misconduct and where, despite all the measures in place, there are doubts about the award of a particular contract, that issue is brought to the attention of the competent authorities such as the Municipal Court in Prague. Therefore, the Commission considers that Zàsilkovna has not demonstrated that Czech Post is not a well-run undertaking. Furthermore, the Commission reiterates its conclusion in recital 175 that the accounting separation between non-SGEI activities and SGEI activities as implemented complies with Directive 2006/111/EC and with paragraph 44 of the 2012 SGEI Framework. Thus the NAC calculation indeed factors in only the necessary Czech Post’s costs to discharge the obligation. In addition, the net cost methodology does not take account only costs, which a typical undertaking, well-run and adequately provided within the same sector would incur, as this would imply that the measure in question would not provide an advantage for the undertaking in question (the fourth Altmark criterion would be also met – recitals 120 and 121). Finally, the Commission notes that the direct award of the 2021 census to Czech Post, referred to in recital 72, is not covered by the scope of the present decision.

(200)

With regard to Zàsilkovna’s claim in recital 62, and PNS’s claims in recitals 44, 45 and 69, that Czech Post does not subtract from the final NAC losses, which it voluntarily incurred by providing its non-USO services for prices below cost, the Commission notes that, in principle, discounts can be granted even for USO services. Directive 97/67/EC provides, in Article 12 thereof, that prices should be cost-oriented. However, products falling outside the scope of the universal service are not covered by the cost-orientation obligation and Czech Post is free to determine their prices, based on demand and supply. In any event, in addition to the complainants’ claims regarding non-USO products, the Commission assessed the discounted prices also of the USO products and found that based on information submitted by the Czech authorities, the voluntarily discounted prices of the USO products are higher than their respective average variable costs and, as such, do not have any undue impact on the NAC. Finally, the Commission notes that the allocation of the costs, either fixed or variable, to the various products are not related to the price of each product, being either discounted or not. Since the costs of each product are resource-consumption-oriented and not price-oriented, the cost allocation methodology and respective allocation keys are the determinant elements for the allocation of the costs to each product. However, as explained in recitals 169 to 172, the Commission found that the cost allocation methodology and respective allocation keys are in line with Directive 97/67/EC, national law and rules approved by the CTO, as certified by an independent auditor for the period 2018-2020. The Commission therefore concludes that Czech Post does not allocate unduly costs of non-USO products to costs of USO products in order to increase the NAC.

(201)

With regard to Zàsilkovna’s claim in recital 62, and PNS’s claim in recital 69, that the massive reduction of post offices is completely unrealistic and against the market trends, and that it has not been quantified properly, the Commission reiterates its comments in recital 197 that in the counterfactual scenario the estimated demand effect not only of the USO business, as defined by the Czech authorities, but also of the non-USO business, is reliable. Moreover, in response to the rapid development of the pick-up outlet segment (the segment is growing year on year by 70 – 100 % and currently makes up approximately 20 % of the distribution of goods from online shops), Czech Post introduced a similar low-cost product called Balík Do balíkovny (Package Delivery to Package Pick-Up Outlet), which shows that the conversion of the post offices into Postpoints is in line with the development of the market.

(202)

With regard to Zàsilkovna’s claim in recital 66, and PNS’s claim in recital 72, that the reduction in delivery frequency is the actual situation of Czech Post which has not been taken into account in the quantification of the respective demand effect, the Commission notes that, even with the new two-speed delivery system, Czech Post continues to be obliged to deliver every day when this is requested and paid for by customers. In the counterfactual, such deliveries will not take place anymore. In any case, the Czech authorities distinguished, in the NAC calculations, the periods before and after the introduction of the two-speed delivery, while the quantification of the respective demand effect was based on a proper market survey and supported by recent observations concerning customers trends.

(203)

With regard to Zàsilkovna’s claim in recital 36 that Czech Post has been overcompensated for the USO from 2013 to 2017 and used the excessive compensation to cross-subsidise its commercial activities, the Commission notes that the USO compensation from 2013 to 2017 was approved with the 2018 USO Decision which was upheld by the General Court in Case T-316/18 (72). As this decision was not appealed, the Commission’s findings in that decision stand and are final.

(204)

The Commission notes that, in the course of the formal investigation procedure, Czechia reviewed the notified NAC calculations by considering more conservative assumptions in the counterfactual scenario (i.e. lowering the NAC). In particular, Czechia assumed: (i) higher capacity enhancement in the remaining commercial post offices to process the diverted demand from the closed offices; and (ii) higher revenue losses due to a more conservative interpretation of the results of the market surveys. Czechia also took into account in the factual scenario, where available, actual data, instead of forecasted data, which rendered the NAC calculations more realistic; demonstrated with proxy calculations that Czech Post would make additional cost savings in its collection/delivery operations, without however considering such cost savings in the NAC calculations; it demonstrated that the voluntarily discounted prices of USO items offered to large customers are still higher than the respective average variable costs and thus, they do not have any undue impact on the NAC; and it considered correctly the DBIS NAC, updated with the actual data, in the calculation of the USO NAC. As a result, Czechia decreased the notified total 2018-2022 NAC from CZK 12 300 433 665 to CZK 9 996 852 907, an adjustment of minus 18,73 %, as presented in detail for each year in the Table 9:

Table 9

NAC notified vs NAC adjusted

(205)

In light of the above the Commission considers that the counterfactual scenario described is credible and based on rational assumptions that reflect the effort of Czech Post to optimise its business by saving costs and increasing revenues, while the demand effect on Czech Post’s services has been estimated properly, contrary to what the complainants claim in recitals 62(c) and 68. Furthermore, the Commission considers that the explanations that Czech Post provided as explained in recitals 73 to 80, and the Czech authorities as explained in recitals 81 to 93 and 197 to 198, are sensible and sufficient to dispel the doubts the Commission expressed in the opening decision. Under market conditions, it is understandable that Czech Post would close those postal offices which are loss-making and maintain those that are profitable. The Commission considers a comparison of the postal network in the counterfactual scenario with the ones of complainants not meaningful because the so called ‘post offices’ of the complainants are mainly sales points (e.g. newspaper stands) and pick-up points (i.e. third party commission-based premises) that cannot be regarded equivalent to post offices within the meaning of the Postal Services Act. These sales points do not meet the relevant requirements provided in the national legislation and they cannot offer the full range of USO services. In the same vein, it is also logical that the frequency of delivery would change in order to adapt to the market conditions and the need to decrease losses. Although a lower frequency of delivery and a reduction in the network of post offices would have a negative impact in the demand, this is taken into account by the Czech authorities in the design of the counterfactual scenario.

(206)

It is necessary to ascertain the amount of costs and revenues which correspond to the cancelled activities and network elements. The source of this information is internal accounting of Czech Post, i.e. separate accounting records of costs and revenues, specifically the costs and revenues recognised at individual cost pools (cost centres). The ABC method is used. If the activity in question were not carried out, or if a certain network element were not operated, the costs associated with this would be saved. The costs associated with the operation of individual post offices are recorded at separate cost centres. Each post office has individual records in its accounting of all costs for the running of the building and its equipment and for maintenance and repairs, of all personnel costs for counter staff and of other direct costs associated with the provision of certain services (for example, the use of labels, tokens of value, fees for access to external databases etc.). The revenues for postal and non-postal services provided by postal offices are also recorded in the accounting of individual post offices. Furthermore, the revenues from a post office are recorded in the accounting of its cost pool (in full), irrespective of the fact that these revenues also cover the costs of other parts of the postal chain (i.e., sorting, transport, and delivery). The revenues from postal services are divided into these parts of the postal chain to be able to compare the cost of the postal offices with the relevant part of revenues generated by those offices. The purpose is to judge whether a certain post office is profitable or not, which is important to assess whether this post office would be maintained in the counterfactual (alternative) scenario.

(207)

Tables 10 – 14 compare the cost of post offices in the factual and counterfactual scenarios and identify the avoided costs from the reduction proposed in the counterfactual for the period 2018-2022.

Table 10

Comparison of the cost of all post offices in the factual and counterfactual scenarios (year 2018)

Table 11

Comparison of the cost of all post offices in the factual and counterfactual scenarios (year 2019)

Table 12

Comparison of the cost of all post offices in the factual and counterfactual scenarios (year 2020)

Table 13

Comparison of the cost of all post offices in the factual and counterfactual scenarios (year 2021)

Table 14

Comparison of the cost of all post offices in the factual and counterfactual scenarios (year 2022)

(208)

However, it cannot be expected that all the estimated cost savings from the proposed closure of certain post offices and termination of DBIS services in the counterfactual scenario can be achieved in full. When a post office is closed or the DBIS service is no longer provided, the demand for the services provided by that office does not disappear entirely while the postal items that have been cannibalised by DBIS would continue to be delivered by traditional post (i.e. on paper) in the counterfactual scenario. This change in demand affects both the costs and revenues and therefore has to be taken into account in the counterfactual scenario. To model how demand would change, the Czech authorities have explained that they have used market surveys and the analysis presented in the DBIS decision (see recital 193). According to the conducted surveys, some customers would choose to continue to use the services of Czech Post after the closure of their post office and would meet their demand for services at a different post office. Nevertheless, some demand would inevitably be lost as certain customers would switch to other competitors and some customers would choose to reduce their demand. As a result, Czech Post would lose revenue from SGEI and non-SGEI services. The quantification of the expected decline in revenue due to the modification of demand further to the closure of post offices is shown below in Table 15.

Table 15

Decline in revenues (2018-2022)

(209)

Czechia clarified that all costs associated with the provision of the DBIS service (in the factual scenario) would not be incurred in the counterfactual scenario. The DBIS is operationally and technologically separated from the activities in the traditional postal network and no processes are shared between the DBIS and the postal and other process implemented in the postal offices, transport network or delivery points, so the avoided direct costs of DBIS can be accurately identified.

(210)

Further to the analysis of the impact on revenues, the fact that customers meet their demand for postal and non-postal services at a different post office means that sufficient capacity must be available at such office. In the event that additional capacity is needed, it increases the costs of human resources and of equipment for that post office. The costs of creating sufficient (additional) capacity at post offices which remain open are therefore an item which reduces the costs saved by closing the other post offices (i.e. a decrease of the amounts estimated to be saved in the tables 10-14 above). The calculation of this additional capacity is based on the volume of services that would be expected to shift from the closed postal offices. The volume is translated in work-hours based on labour time norms for activities and further translated into (additional) costs. The costs associated with the need to increase capacity at the remaining post offices and the impact on the avoided costs is reported in Table 16.

Table 16

Cost savings on the post offices network after taking into account the increase in capacity (2018-2022)

(211)

Czech Post, with the help of an external consultant, conducted an analysis of the quantity and frequency of letters delivered throughout the country. The analysis was based on the frequency of visiting individual premises of the customers in individual letter districts as well as the structure of consignments delivered.

(212)

Czech Post has no plan to change parcel delivery, since the parcels delivery market is sufficiently competitive. Therefore, the delivery frequency of the parcels is not subject to change in the counterfactual scenario.

(213)

For 2018-2019, the factual scenario includes D+1 delivery and the counterfactual scenario includes D+n delivery for ordinary and registered letters. A lower frequency of delivery in the counterfactual scenario leads to savings on vehicles and on labour (i.e., number of postal carriers). The cost saving is deduced from an analysis of costs recorded in accounting in cost pools and in specialised operating systems (i.e., Delivery Productivity Measurement System). Costs are divided into two types: fixed costs associated with postal delivery and variable costs related to handling letters (i.e., putting letters into letterboxes, handing over registered letters, making records of delivery - signatures from recipients). The costs of doing a round can be considered the costs which are saved if the postal delivery worker does not go out on the round (the costs of vehicles, fuel and staff are saved). The costs of the actual delivery (handover) of consignments to the addressees are saved in part, depending on the precise reduction in demand for services.

(214)

In 2020-2022, the factual scenario includes D+1 and D+n letters delivery and the counterfactual scenario includes D+n delivery. The net cost of delivery for 2020-2022 is smaller because it covers only additional costs and additional revenues for D+1 delivery of letters. It is not expected that a reduction in the frequency of delivery would reduce the demand for services. A reduction in demand is only expected as a consequence of reducing the post office network.

(215)

The assumptions referred to in recital 215 were confirmed not only by a market survey but also by recent market observations as explained in recital 203. In measuring the avoided cost, each type of cost saving is quantified separately. Cost savings are detailed in Tables 17-21.

Table 17

Cost savings due to reduction in delivery frequency, considering the impact due to abolishing DBIS (2018)

Table 18

Cost savings due to a reduction in delivery frequency, considering the impact of the abolition of DBIS (2019)

Table 19

Cost savings due to reduction in delivery frequency, considering the impact of the abolition of DBIS (2020)

Table 20

Cost savings due to reduction in delivery frequency, considering the impact of the abolition of DBIS (2021)

Table 21

Cost savings due to reduction in delivery frequency, considering the impact of the abolition of DBIS (2022)

(216)

In the factual scenario, there are administrative activities which are directly linked to the provision of USO, as defined by the Czech authorities. Czech Post envisages discontinuing some of these activities in the counterfactual scenario.

(217)

There are other administrative activities which Czech Post would voluntarily carry out in the counterfactual scenario, although to a lesser extent than in the factual scenario. For example, Czech Post would still keep a cost accounting system even if it were not entrusted with the USO, as defined by the Czech authorities.

(218)

The relevant administrative activities which Czech Post envisages discontinuing in the counterfactual scenario are the following:

(219)

The related cost savings from the reduction of these administrative activities are shown in Tables 22 to 26.

Table 22

Cost savings from administrative activities (2018)

Table 23

Cost savings from administrative activities (2019)

Table 24

Cost savings from administrative activities (2020)

Table 25

Cost savings from administrative activities (2021)

Table 26

Cost savings from administrative activities (2022)

(220)

Intangible and market benefits are those benefits enjoyed by a provider, due to its status as the USO provider, which entail an improvement in its profitability.

(221)

Typical intangibles in the postal sector referred to in the literature include:

(222)

The intangible and market benefits related to the status as USO provider that were identified by Czech Post are presented below:

(223)

The enhancement of brand value is understood to be a benefit as the universal service provider achieves higher revenues because the brand is well known and people believe it guarantees a certain quality of service. This benefit is expressed financially as the amount of revenue corresponding to the percentage of customers of the licence holder who would not use its postal services if it did not provide the USO, as defined by the Czech authorities. For calculating this benefit, a percentage of 0,4 % (73) was used taking into account the conclusions drawn up in the ‘Study on the principles used to calculate the net costs of the postal USO’ (74).

(224)

The benefit arising from the USO provider’s exclusive right to sell postage stamps and other tokens of value is due to the fact that some sold stamps and tokens are never used (among others because they are kept for philately purposes). The value of this benefit is expressed financially as the sum of: (i) the estimate of the value of sold and unused postage stamps and tokens of value; and (ii) an estimate of revenues from the sale of postage stamps, tokens of value and other similar products for philately purposes.

(225)

The enhanced advertising effect is understood to be the benefit for the USO provider of being able to use selected parts of its property (like cars or buildings) for marketing purposes. This benefit can be calculated as the USO provider’s savings in marketing costs (i.e. the cost it would have to pay on the market for marketing its brand and products in that same place) taking into account any actual revenue obtained by renting out advertising space on its premises to other undertakings. For example, to calculate the value of advertising space on premises, the price lists of advertising companies or municipalities were used. These prices were subsequently adapted to the size of the advertising space on Czech Post premises. On this basis, the Czech authorities estimated a value from advertising on buildings and advertising on vehicles.

(226)

The postal services part of the USO, as defined by the Czech authorities, benefit from a Value Added Tax (‘VAT’) exemption. The VAT exemption on those services affects the provider in the counterfactual scenario in two ways: (i) in the area of its revenues (benefit dependent on price elasticity for different categories of customers); and (ii) in the area of its costs (the USO provider currently cannot claim input VAT for those invoices that concern universal services).

(227)

Both consequences of the VAT were taken into consideration in calculating this intangible benefit and the resulting value is equal to the difference of these elements.

(228)

The impact on the area of revenues is calculated based on how the introduction of the VAT of 21% would be perceived by postal service customers. The structure of customers from the perspective of whether they are VAT payers (or not) is essential for determining the amount of the VAT benefit. Customers who cannot claim VAT in a tax return (business undertakings - non-VAT payers) would perceive an increase in prices as a result of the introduction of VAT as an absolute increase in price, which could discourage them from using the postal services of Czech Post. For customers having a special regime (State bodies), a certain decrease in revenues could be expected; only for registered letters is the elasticity low because certain types of documents must be sent as registered consignments. The value of the VAT benefit was determined (75) at [2-8] % of the revenues for registered letters from the public administration. An increase in price as a result of application of the VAT could be applied to a large extent among end (retail) customers. The VAT benefit was quantified as [4-9] % of revenues for services in relation to these customers. VAT-paying customers are able to claim VAT in their tax returns and for this reason an increase in price by VAT has no negative impact on them, and their behaviour is not influenced by an increase in the price by VAT. Therefore, VAT is not a benefit in relation to these customers.

(229)

The Czech authorities explained that they have also considered the potential intangible benefits listed in recital 215 from (e) to (g) but believe that they would not be relevant in the case of Czech Post. According to the Czech authorities, the economies of scale are accounted for in the counterfactual scenario, so calculating an intangible benefit of this kind would lead to double counting. Regarding the ubiquity and network advantage of Czech Post, the Czech authorities are of the opinion that these elements seem to be rather a disadvantage than an advantage for the designated postal licence holder since it is obliged to operate postal offices also in places with low (insufficient) demand. This disadvantage is only slightly compensated by the possibility to commercialize postal offices with a large portfolio of services. Moreover, the competitors of Czech Post also offer delivery services in the whole country without the requirement of keeping such a dense network of postal offices which has to meet minimum requirements in terms of the services available. Finally, as regards the application of uniform prices, the Czech authorities explain that Czech Post would offer uniform prices also in the counterfactual scenario, therefore there is no benefit arising from it. Furthermore, other postal operators also offer uniform prices.

(230)

Table 27 below show the annual estimated amount of intangible benefits per category of intangible benefit as well as the aggregated value.

Table 27

Intangible benefits over 2018-2022

(231)

Tables 28 to 32 below provide an overview of the various elements of the total net cost calculation of both DBIS and USO, as defined by the Czech authorities, as explained above.

Table 28

Summary of the total NAC calculation of DBIS and USO for 2018

Table 29

Summary of the total NAC calculation of DBIS and USO for 2019

Table 30

Summary of the total NAC calculation of DBIS and USO for 2020

Table 31

Summary of the total NAC calculation of DBIS and USO for 2021

Table 32

Summary of the total NAC calculation of DBIS and USO for 2022

(232)

Table 33 presents an overview of the NAC of the USO for Czech Post, which equates to the difference between the USO & DBIS NAC minus the DBIS NAC, as recalculated on the basis of the methodology approved with the DBIS decision but considering the actual data in the factual scenario for the period 2018-2021.

Table 33

Czech Post's USO NAC over 2018-2022

(233)

The Commission notes that the methodology for calculating Czech Post's net cost for providing the USO, as defined by the Czech authorities, is not based on the cost allocation methodology, which calculates the net cost necessary to discharge the public service obligations as the difference between the costs and the revenues for a designated provider of fulfilling the public service obligation, but on the NAC methodology. Under the NAC methodology, the net cost expected to be necessary to discharge the public service obligation, in this case the USO, is calculated as the difference between the net cost of the provider (Czech Post) operating with the public service obligation and the net cost that the provider would have had should it not operate with that public service obligation. Therefore, irrespective of the existence of a pricing policy of the universal postal services determined by the Postal Services Act, which already is considered as ensuring a suitable level of profit, Czech Post can still incur a net cost when providing a public service obligation like the USO. Indeed, the NAC methodology takes into account the additional cost incurred by the provider when fulfilling the USO as compared with a hypothetical situation in which the provider does not have to provide the public service.

(234)

Therefore, the Commission concludes that the NAC methodology proposed by the Czech authorities is appropriate to determine the net cost incurred by Czech Post for the delivery of the USO. The NAC methodology meets the requirements of the 2012 SGEI Framework. In particular, the counterfactual scenario is credible as well as the estimation of its financial impact on Czech Post’s activities. Furthermore, intangible benefit corrections have been adequately considered.

(235)

Paragraph 21 of the 2012 SGEI Framework provides for including a reasonable profit in the net cost of providing an SGEI. The Czech authorities have added a reasonable profit to NAC calculation determined as Czech Post’s difference in cost of capital employed when switching from the factual to the counterfactual (76). Such a cost of capital was based on the Weighted Average Cost of Capital (WACC) methodology. The values of WACC for both the factual scenario (i.e. 8,22 %) and counterfactual scenario (i.e. 8,92 %), for the entrustment period 2018–2022, were calculated in the second half of 2018 by the CTO in cooperation with consultants.

(236)

According to a Commission staff working document from 2015 (77) the cost of capital concept is used as a reasonable economic measurement of profitability. The WACC is commonly used as a cost of capital concept. It indicates the rate of return which must be generated in order to ensure that investors are willing to maintain their investment under competitive conditions. The WACC associated with the provision of the universal service is appropriate to ensure that all relevant costs of the universal service provider are taken into account. The Commission notes that the methodology used, as detailed in the CTO’s annual NAC verification reports, as well as the value of WACC both in the factual and counterfactual scenarios are appropriate to estimate the reasonable profit of Czech Post in providing the USO, as defined by the Czech authorities. In conclusion, the Commission considers that the reasonable profit taken into account in the NAC calculations is acceptable.

(237)

Czech Post only receives compensation for the part of the net cost of the USO that is considered as an unfair burden for the provider. Section 34d of the Postal Services Act specifies that net costs that exceed CZK 1 500 million for each year are not considered to be an unfair burden (78).

(238)

According to the Czech authorities, the last step in the administrative procedure consists of comparing the net cost of the USO with the unfair burden limit (cap) set out in the Postal Services Act. The maximum amount of compensation that can be granted to Czech Post for the delivery of the USO is limited to the amount set out in recital 238. For State aid purposes what is relevant is that Czech Post is not being overcompensated (i.e. does not receive compensation exceeding the result of the NAC calculation). The determination of the unfair burden and its level is a regulatory issue and does not affect the compatibility assessment under the SGEI Framework.

(239)

Paragraph 39 of the 2012 SGEI Framework states: ‘In devising the method of compensation, Member States must introduce incentives for the efficient provision of SGEI of a high standard, unless they can duly justify that it is not feasible or appropriate to do so.’.

(240)

The Czech authorities have explained that efficiency incentives are present in the compensation mechanism:

(241)

The maximum amount of compensation is laid down in the Postal Services Act (i.e. CZK 1 500 million for each year). That amount is fixed and will not be adjusted for inflation. In the event that the net cost of the USO exceeds CZK 1 500 million per year, Czech Post has to cover such excess by its own means. This provides an incentive for Czech Post to operate efficiently.

(242)

The Czech authorities have confirmed that a mechanism for preventing overcompensation is in place: in accordance with Section 34d of the Postal Services Act, the postal licence holder may submit a request to the CTO for the reimbursement of the net costs representing an unfair financial burden. The request must be submitted by 31 August of the current year for the previous year (billing period). The CTO carries out the administrative procedure of verification of the net cost calculated by Czech Post using the NAC methodology. After the verification the CTO determines whether the net cost represents an unfair financial burden according to the limits set out in Section 34d of the Postal Services Act. More specifically, the reimbursement cannot exceed CZK 1 500 million for each year. In addition, the Commission notes that the maximum amount of public service compensation that can be paid to Czech Post for the period 2018-2022 are significantly lower than the calculated net cost for that period. Table 43 below shows the estimated NAC of the USO and compares it to the maximum amount of public service compensation that can be paid to Czech Post for the period 2018-2022. On this basis and given that the CTO will perform ex-post checks to detect overcompensation, the Commission concludes that the risk that Czech Post is overcompensated for the provision of the USO over the period 2018-2022 is averted.

(243)

As explained in paragraph 51 of the 2012 SGEI Framework, ‘The requirements set out in Sections 2.1 to 2.8 are usually sufficient to ensure that aid does not distort competition in a way that is contrary to the interests of the Union.’

(244)

The Commission considers that, in the case at hand, there are no reasons to require conditions or to request commitments from Czechia.

(245)

Paragraph 60 of the 2012 SGEI Framework states that: ‘For each SGEI compensation falling within the scope of this Communication, the Member State concerned must publish the following information on the internet or by other appropriate means:

(246)

In their notification, the Czech authorities have committed themselves to complying with the requirements listed in paragraph 60 of the SGEI Framework for the compensation over the period 2018-2022. In particular, the Czech authorities have explained that:

(247)

Based on the above, the Commission concludes that the public service compensation granted to Czech Post for the provision of the USO, as defined in the Postal Services Act, over the period 2018-2022 constitutes State aid under Article 107(1) TFEU which is compatible with the internal market on the basis of Article 106(2) TFEU.

(248)

The Commission finds that Czechia has unlawfully implemented the compensation to Czech Post for the provision of the universal postal service obligation (‘USO’), as defined by the Czech authorities, over the 2018-2022 period, in breach of Article 108(3) of the Treaty on the Functioning of the European Union.

(249)

However, the Commission informs Czechia that, having examined the information supplied by its authorities on the measures referred to above, the State compensation granted to Czech Post for the delivery of the USO as defined in the Postal Services Act over the period 2018-2022 constitutes State aid compatible with the internal market under the 2012 SGEI Framework, which lays down the conditions that should be met by aid to be compatible under Article 106(2) TFEU,